Directors’ duties set out in company law should be redrafted to remove requirements to prioritise shareholders over other stakeholders, according to the Trades Union Congress (TUC).
In a report published in partnership with think tanks the High Pay Centre and Common Wealth, the TUC says the balance of company interests has swung too far towards shareholders and “away from working people who create the wealth”.
The authors also call for workers on boards to be made mandatory and for beefed up company disclosures because it is currently “too hard to obtain clear information on who provides the capital that asset managers invest in shares.”
The calls come as part of a report which concludes UK workers receive little from FTSE 100 share dividends and buy-backs. The authors say their own polling reveals 76% of workers support a “legal obligation for businesses to give as much weight to the interests of their staff as share owners.”
Frances O’Grady, general secretary of the TUC, argues workers have seen the link between UK pensions and shares diminish in recent years as the volume of shares held by pension funds fell from one in three in 1990 to one in 25 by 2018. She says: “We can restore fairness by reforming company law so that directors have duties beyond short-term profits for shareholders.”
The idea of becoming a nation of shareholders goes back to Margaret Thatcher. But the research suggests most UK shares are now held by foreign owners.
This change in ownership, according to the report’s authors, has implications for who benefits from profits but also the governance of companies. Luke Hildyard, one of the report’s authors and director of think tank the High Pay Centre, says: “We need economic reforms to make big business work for the benefit of everybody, not just a small number of wealthy executives and investors.”
A debate about directors’ duties and workers on boards has been live for some time in the UK. Following Theresa May’s brief time as prime minister, the UK Corporate Governance Code was reformed in 2018 with measures proposing that companies choose one of three options: workers on boards; a non-executive tasked with workforce engagement; or a formal workforce advisory panel.
Few companies have so far appointed workers to boardroom positions, though pub chain JD Wetherspoon recently became one of the few exceptions after giving a group of four branch managers the chance to join its board.
Shareholders and company law
Last year saw the launch of concerted campaign to reform directors’ duties. The Better Business Act project calls for changes to section 172 of the Companies Act which sets out the responsibilities of directors.
Currently, section 172 gives directors a first duty to promote the “success” of companies; draft legislation from the campaign proposes a change to promoting the “purpose of the company”. The campaign already has the support of the Institute of Directors, as well as companies such as John Lewis and Innocent Drinks.
The campaign is, however, largely focused on pushing companies towards more sustainable behaviour, though “purpose” could be interpreted broadly to include the interests of employees.
Certainly, the “purpose” debate has worked to shift companies from a wholly shareholder outlook. That at least was also the intent of the The British Academy, which has funded a four-year research project examining the idea of corporate purpose.
In its last paper the academy revealed concerns about corporate decision-making. It said there is “insufficient accountability for, and implementation of, purposeful business. Few companies take up the option that exists within law to adopt purposes beyond promoting shareholder interests, and there is insufficient appreciation and enforcement of directors’ duties under the law.”
The TUC’s research will certainly add to the discussion of workers on boards and directors’ duties. But movement on both will need a sustained effort to persuade policymakers, and they currently have much on their agendas.