PRESS RELEASE: The IER publish ‘Shareholders’ rights v workers’ rights report

New analysis from IER experts says promise of the Employment Rights Bill limited without further transformation of corporate law and shareholder rights.

• Shareholder dividends have skyrocketed over the past decade, growing 3 times faster than comparatively stagnating wages.
• The crisis in living costs has been accompanied by higher bills – for the public funding corporate profits and shareholder rewards

In ‘Shareholders’ rights v workers’ rights’, IER experts discuss how the legal landscape is unjustly skewed where the interests of shareholders are structurally prioritised over the rights of worker, via the system of corporate law and governance regulation.

The Government’s approach to employment rights reform has developed around the tenet of individual employment rights that can be enforced against the employer. This leaves workers relying on rights of unfair dismissal, discrimination, leave entitlement etc. against their employer.

A major problem that keeps cropping up with this model is that the vast majority of workers in the UK are, in reality, employed by corporations that sit within sprawling corporate structures, shaped by shareholders, private equity fund managers, and complex networks of subsidiary corporations.

This results in decisions about working conditions, pay, and job security being made not by the worker’s direct employer, but by shareholders and fund managers with no legal relationship with the worker themself.

Consequently, without this legal relationship, workers are often left with no countervailing legal power with which to meaningfully negotiate with corporate decision makers.

This new piece of analysis by researchers Ben Crawford (Grantham Research Institute on Climate Change at LSE) and Jamie Haughton (University of Glasgow), unpacks corporate forms such as Corporate Legal Personality, Shareholder ‘Ownership’ and Limited Liability. They argue that, taken together, these features ‘render the corporation not simply a neutral vehicle for commerce, but a powerful legal tool for value extraction, which shapes labour conditions and security in ways that labour law does not redress.’

Job losses, asset stripping and wage suppression financing the corporate takeovers market, the authors explain in their recent blog post for the IER outlining the key ideas behind this publication. They add that in the private equity model of acquiring companies with borrowed money, it is for workers themselves to “shoulder the risks of this debt loading, facing deteriorating conditions, and endless restricting as firms struggle under debt repayments”

They said:

“We believe the need for reform here is clear. As TUC analysis has shown, since 2008, shareholder payouts have soared £440 billion above inflation, while wages have lagged £510 billion below. This, we argue, is evidence that workers are bearing the costs of corporate restructuring, debt loading, and value extraction, while a handful of institutional investors reap the rewards”

“If we want meaningful rights at work are our aim here — rights to ­security, dignity, and a fair share of value — we believe that we must go beyond piecemeal reforms. And as our pamphlet shows, this will mean confronting shareholder power directly, expanding collective bargaining, and rebalancing the foundations of corporate law.”

Recommendations:

1. Trade-union campaigns and responses to the Employment Rights Bill should be expanded to target the contradictory effects of shareholder rights in corporate law.
2. Reforms to takeover regulation, and to the way that TUPE functions. Extending TUPE to share acquisitions would limit the scope for the ‘share premium’ to be borne by workers, effectively re-establishing a legal relationship between the share as property and the conditions of workers.
   Votes for workers in the takeover process could be established in line with proposals for worker-votes set out in the IER’s Rolling out the Manifesto for Labour Law.
3. Reforms to the effect of limited-liability protections for private-equity firms are needed to align the incentives of controlling parties and the portfolio companies they control.
   Mechanisms are also needed to limit value-extraction from portfolio companies, including through restrictions on debt-funded dividends.
   Increasing the ranking of employee pay and pension claims in insolvency, much of which ranks as unsecured debt, is another mechanism through which the overall liability structure of the firm can be shifted in favour of securing workers’ interests.
4. ICE rights and capital restructuring: Information and consultation rights should be expanded to include changes to companies’ capital structures and the taking on of debt.
5. Sectoral collective bargaining: The ERB ought to be amended to allow employers and unions the freedom to establish their own arrangements, including the appointment of a chair, the matters available for negotiation, and dispute-resolution procedures.

Notes to editors

1. For more details on the IER’s ‘Shareholders’ rights v workers’ rights’ publication, see: https://www.ier.org.uk/product/shareholders-rights-v-workers-rights/
2. For further information or to arrange interviews, please contact Donya Jeyabalasingham on donya@ier.org.uk
3. The IER is a think tank on employment rights and labour law. It has existed for 35+ years to inform the debate around trade union rights and labour law by providing information, critical analysis, and policy ideas through our network of academics, researchers, and lawyers.
4. The IER’s 35+ years of work culminated in 2016 with a ‘Manifesto for Labour Law’. This, and its following publication ‘Rolling out the manifesto for labour law’ are widely acknowledged as the blueprint for what eventually became the precursor policy documents for the government’s Employment Rights Bill. As the originators of these policies, the IER is well placed to analyse whether the government are sticking to what they have promised to do.
5. Recent publications have been on:

• AI and workers’ rights
• Pay review bodies – their past and their future.
• Redistribution of working time: achieving a better work-life balance
• Migration and work in post-Brexit UK
• Working for climate justice
• Work and health: 50 years of regulatory failure.