Ahead of publication of the Labour party manifesto expected on Thursday the shadow chancellor set out Labour's plans to radically overhaul UK company law and practice in order to bring substantial change in the corporate sector.
Labour would rebalance the pursuit of shareholder value and the social and environmental consequences of a company's operations. He said that a shareholder and executive driven short-term focus is a major reason for the poor performance of the UK economy.
In his speech he continued to set out Labour's belief that any business should be a partnership for long-term success and that in government Labour would rewrite the Companies Act so that directors have a duty to promote the long-term interests of employees, customers, the environment and the wider public.
John McDonnell outlined proposals to change company board structures saying that Labour had already announced that a third of a company’s board membership would be workers and would supplement this by giving larger companies the choice of adopting a unitary board or a two-tier board structure. The unitary board includes elected stakeholder representation. The two-tier board includes a supervisory board made up of stakeholders such as customers, employees and long-term investors.
Labour have announced the introduction of Inclusive Ownership Funds in which larger companies will be required to transfer 1% of their shares into an employee fund until the fund owns 10% of the company and John McDonnell said that Labour would also consult on incentives to encourage long term shareholding. For private companies Labour would ensure that these introduce a profit sharing scheme that would achieve equivalent benefits. How the Inclusive Ownership Funds will be created he did not specify.
The shadow chancellor also said that Labour’s overriding priority in government would be to tackle the existential threat of climate change. To that end under a Labour government companies "not taking adequate steps" to improve climate related financial reporting and in bringing forward decarbonisation plans would be delisted from the London Stock Exchange.
A Labour government would amend the Corporate Governance Code and legislate to set out a minimum standard for listing related to evidencing the action being taken to tackle climate change.
On company pay Labour has committed to introduce an Excessive Pay Levy. It would introduce a 20:1 pay ratio between lowest and highest paid employees in the public sector and move towards this ratio in companies bidding for public sector contracts.
Further, all large companies would be required, as part of annual reporting, to disclose the ratio of total CEO remuneration to median employee pay and the steps being taken to reduce it. Labour would legislate to require a Director's statement in the annual report that no employee has received pay less than the 'Real Living Wage'.
All executive remuneration packages in large companies would be subject to an annual binding vote by stakeholders, including shareholders, employees and consumers. Companies would also be required to set out their policy for tackling the gender and ethnicity pay gap and outline progress against reduction targets.
Labour would ensure that companies would be prevented from neglecting pension deficit recovery payments in order to deliver executive bonuses, dividends, and pay.
Labour would ensure that the audit business of accounting firms should be structurally separate, and auditors prevented from selling any non-auditing services.
Labour would legislate to establish a "more robust and independent regulatory system" by setting up a Business Commission, containing a Companies Commission, Finance Commission, and Enforcement Commission. This would integrate the accounting, auditing, insolvency, and financial sector regulators. An independent Ombudsman will adjudicate on disputes between regulators and stakeholders.
