This post has been contributed by Mr Chris Riley, Module Convenor for Company law.
On December 12th 2019, a general election is taking place in the UK. It should determine the composition of Parliament, and therefore the political party which will form the Government, for the next five years. This blog looks at what the three main political parties contesting that election – the right leaning Conservative Party, the left leaning Labour Party, and the centrist Liberal Democrat Party – are saying about company law.
It is fair to say that company law issues rarely dominate elections. However, promoting economic growth and fairness are major objectives for governments, and company law (and the related topic of ‘corporate governance’) can significantly influence how well those objectives are achieved.
The Conservative Party, nevertheless, says almost nothing about these matters in its election manifesto. This is perhaps unsurprising. For, as the party which has been in government since 2010, it has already had a long period in which it could have refashioned UK company law, had it wished to do so. To be sure, it did make some changes during those years. But these were fairly limited, suggesting the Conservatives have been largely content with UK company law’s general shape and direction. This suggestion seems to be reinforced by the fact that some of the key tenets of UK company law and corporate governance – especially its commitment to ‘shareholder primacy’ – fit well with the Party’s underlying ideology. In consequence, it seems reasonable to predict that if the Conservatives secure a majority in the election, and form the UK’s next Government, we are likely to see very few fundamental changes to company law or corporate governance in the next five years.
By contrast, the Labour Party and the Liberal Democrat Party both propose more radical changes. Mostly, their proposals would push the UK towards a more ‘stakeholder friendly’ regime for larger companies – a regime in which the interests of stakeholders (and especially employees) would have more influence over the policies of large companies. This increased influence would be achieved in a number of ways. We’ll focus on three of them for this blog.
First, both parties have proposals to encourage employees of larger companies to acquire shares in those companies. The Labour Party envisages up to 10% of the shares of such companies being owned by their employees. The Liberal Democrats suggest that workers of listed companies employing more than 250 employees would have the right to purchase shares in their company, which would then be held on trust for them.
Second, both parties propose giving workers of a large company the right to elect one or more of its directors. The Liberal Democrats’ say that at least one director in each larger company would have to be chosen by its employees, whilst the Labour Party proposes that a third of the directors would be chosen by employees. Related to this, both parties also propose that employees should play a greater role in ‘remuneration committtees’, which determine the pay of executive directors in larger companies.
Third, both parties also want to reposition the ‘purpose’ of the company away from the prioritisation of shareholder wealth, which current UK company law adopts (as evidenced by, for example, section 172 Companies Act 2006). The Liberal Democrats say they will ‘[r]eform fiduciary duty and company purpose rules to ensure that all large companies have a formal statement of corporate purpose, including considerations such as employee welfare, environmental standards, community benefit and ethical practice, alongside benefit to shareholders..’. The Labour Party states that ‘we will amend the Companies Act, requiring companies to prioritise long-term growth whilst strengthening the protections for stakeholders’. The Labour Party then takes this one step further by also suggesting that the ‘listing rules’ (that is the rules that a company must meet to have its shares listed on the London Stock Exchange) will be changed to require listed companies to have to ‘contribute to tackling climate change’.
These various proposals are, admittedly, rather vague and imprecise. They lack the certainty of, say, a piece of draft legislation. Nevertheless, taken together, they would make a number of inroads into UK company law’s traditional preference for ‘shareholder primacy’, and push it in a more stakeholder-friendly direction.