Updated: Workers on boards: the forward march of labour halted yet again

Theresa May has watered down her commitment to worker representation

November 21, 2016
Theresa May ©Jonathan Brady/PA Wire/PA Images
Theresa May ©Jonathan Brady/PA Wire/PA Images

When Theresa May launched her bid to become party leader and Prime Minister she pledged to ensure workers sit on company boards. In doing so she certainly had an eye for political symbolism. A Conservative leader making clear her desire to put some power in the hands of ordinary workers seemed to touch a chord with a public railing against a so-called out of touch elite.

Whether the Prime Minister had a clear understanding of the unhappy historical precedents in this area is altogether another matter. Today we’ve had confirmation that the idea of putting workers on boards has been ditched and replaced with the tepid notion that a non-executive director should engage with the workforce and report on their views (though the government will proceed with the proposal to force companies to publish the ratio between the pay of their chief executive and average employee). The U-turn on employee representation may be vaulting but it should hardly come as a surprise. The whole episode draws to mind an occasional pattern in British politics: open up the possibility of far-reaching reform to corporate structures, bending them towards the concerns of employees, only to subsequently retreat. A combination of external business lobbying, internal political division and a lack of careful thought about the wider ramifications of piecemeal corporate change sees it off. The winner is the status quo.

In some respects, this inertia is surprising. Since the time when the second industrial revolution began to transform our workplaces the public company has been a central feature of our capitalist economy. All manner of institutions have since been reformed, ripped up or sporadically rebooted as a result of economic shifts and political struggles in the intervening period. Yet the fundamental question as to what a company is, who owns it, and in whose interests it should be run seems settled. The answer—that it should be governed as a private association of property holders—has remained broadly unscathed by universal suffrage, the Great Depression, two World Wars, the creation of the welfare state and the rise and fall of mass industrial trade-unionism. There’s been plenty of technocratic tinkering. But democratic politics hasn’t left a real mark.

In other nations the constitution of the company been subject to repeated episodes of political bargaining and compromise. This is most famously the case in Germany where works councils were first imposed in the Weimar Republic before the post-WWII Federal Republic embraced a full model of co-determination between capital and labour. Germany may be an outlier but it is not unique: 19 out of 28 EU nations make some form of provision for worker representation.

None of which is to suggest that politics has been wholly irrelevant to the British experience. The modern company has always been a legal construct: formed and sustained by Acts of Parliament. The original mid-Victorian move towards embracing the concept of limited liability of shareholders was backed by a remarkably diverse and vibrant coalition of reformers including William Gladstone, JS Mill, Richard Cobden, the Chartists, Christian Socialists and the Royal Society of the Arts. Its more radical elements held a fervent expectation that limited liability would open the door to new forms of economic organisation that would fuse the interests of capital and labour and ease class-conflicts. Pitted against them were the voices of resistance: the Times, most bankers, and significant sections of the House of Lords to name a few (the Economist flip-flopped on the issue). Open the door to limited liability, the argument went, and an orgy of speculation and corporate recklessness would be the result. Ultimately the reformers were victorious. The special privilege of limited liability was granted but little in the form of accountability was asked for in return. It’s a lopsided deal that has been largely preserved ever since.

Throughout the 20th century efforts to rewrite the rules of the company in one way or another have arisen in all parties from time to time. That said, one of the reasons that May’s foray into this area stands out so starkly is that it goes against the tide of longstanding Conservative sentiment that it is best to leave corporate accountability alone. Important exceptions can be found such as in Industry and State where the young Harold Macmillan and Robert Boothby argued that labour should be broadly included in “a share in the decisions of general policy” of industrial enterprises. They, like other Conservatives after them, also advocated the spreading of ownership as part of the move to a new more inclusive form of capitalism. The constitution of the company has, however, generally been out of bounds.

Twentieth century Liberalism had more moments when it has sought to champion corporate reform alongside employee ownership and profit-sharing. This was visible in the late 1920s in the Yellow Book (David Lloyd George’s rethinking of liberal economic strategy) and then later renewed in the late 1950s under Jo Grimmond, who regularly made the case for what he called “co-ownership” between management and labour (putting this theme at the heart of his desire to see a “progressive movement” aligning his handful of Liberals with moderate strands of the Labour Party). But Grimmond was never in a position to exercise power and, over time, the liberal interest in this agenda faded.

When it comes to the Labour Party the absence of a serious reform agenda is most conspicuous. Given its abiding purpose was to reform the mixed economy, having little to say about the dominant capitalist institution of the age was a big omission. All the more so given its century long pre-occupation with financial short-termism. Except it was no oversight: this gap reflected the particular nature of Labour’s ideological moorings. Two of the dominant strands of the post-War Parliamentary Labour Party—labourism and reformism—failed to give it priority. The former viewed companies as the site of an adversarial, if generally manageable, relationship between capital and labour. Compromises needed to be struck and it was the job of unions to do so. If workers’ interests in any way became fused with that of the employer then betrayal would result.

Labour’s reformist wing, on the other hand, was more sympathetic to notions of industrial partnership—but it rarely pursued them with any vigour. The intellectual energy created by Anthony Crosland and others lay in rejecting the centrality of questions of public ownership to the pursuit of equality. Rethinking corporate accountability and control was never central to the revisionist British social democratic tradition (in contrast to the experience on the continent). The upshot was that Labour failed to use any of its three post-War eras of ascendancy to secure change on this issue.

In the 1940s, when so many other institutions were being modernised, the Attlee government wasn’t interested: the creation of the welfare state, nationalisation and the pursuit of full employment were all consuming. Nor, two decades later, did it form part of the Wilson’s initial project of economic and scientific modernisation. By the time advocates of greater industrial democracy gained momentum (securing a clear commitment in the 1974 manifesto) the party was increasingly paralysed by ideological splits.

The Bullock Committee was established in 1975 in part as a response to the European Commission’s proposals for a European-wide approach to worker representation on company boards. But it also reflected a deeply held desire by Jim Callaghan to break with the adversarial system of industrial relations that he believed undermined the British economy. His thinking had been strongly influenced by German Chancellor Helmut Schmidt—who co-hosted a summit on the issue in Germany with him—and Jack Jones, the powerful leader of the TGWU.

Callaghan, however, was isolated. Bullock’s proposal for worker representatives to be elected onto the boards of large companies created a three way split. Some like Shirley Williams and Edmund Dell were always sceptical and strongly opposed to the fact that employee representation was to come via trade unions. Meanwhile, a combination of unions—on both right and left of the movement—viewed the entire project of combining labour and capital within corporate boards as a dangerous departure from the old religion of free collective bargaining. And, for their part, the Bennites were set on nothing short of full-blown worker-control of industry. Add to this Whitehall’s vehement opposition—the then Permanent Secretary of the Board of Trade called it “dangerously extremist”—as well as bitter resistance from the Confederation of British Industry, and the result was guaranteed. The most sustained effort in the 20th century at overhauling the structures of British capitalism ended in total failure.

It was not, however, Labour’s last word on corporate reform. Skip forward two decades and the Blair government, in the wake of its brief flirtation with notions of corporate stakeholding, launched a far-reaching review of the fundamental purposes of company law. This was done in a far lower key manner—there was certainly no talk of industrial democracy—but it once again opened up the possibility of broadening the purposes of companies and the duties of directors. The review was, however, hobbled from the start by a lack of underlying agreement between Margaret Beckett (Secretary of State at the DTI) and Tony Blair and Gordon Brown about its desired destination. It assumed a lower importance than other major demands that were being negotiated with business—not least the minimum wage and the right to request flexible working. The review moved slowly, Margaret Beckett moved to a new role and momentum dissipated. A huge amount of work yielded modest returns: the 2006 Companies Act made clear that directors should “have regard to” other stakeholders such as employees in the pursuit of shareholder interests. But this has little real bite: reformers were disappointed that the underlying supremacy of shareholder interests remained intact and furious that hard won reporting requirements on how companies were serving non-shareholder interests were unceremoniously ditched in front of an approving CBI audience in 2005.

The whole issue then faded away. Attempts to think afresh about an improved nexus of corporate law, governance and finance still exist and can be found in the Big Innovation Centre’s work on the Purposeful Company or indeed in the speeches of the Chief Economist at the Bank of England, Andy Haldane. It has been, however, a debate detached from practical politics.

Into this vacuum stepped Theresa May with her eye-catching—if slightly retro sounding—pledge on worker (and consumer) representation. Almost immediately her pledge encountered predictable criticism from business leaders, as well as hostile briefings from colleagues. Others opined that while the sentiment was honourable, change of this nature just isn’t practical given the British tradition of corporate governance. History, once again, is rhyming. The wait for workers continues.