Labour is pledging to change one share one vote

Joe Wright, 8 April 2015

Labour under Ed Miliband has been accused of misunderstanding business, of attacking wealth creation and attempting to create public hostility toward big business – particularly the early ‘predators and producers’ rhetoric Ed Miliband used to begin his leadership. Labour’s recently published business manifesto presents a less hostile picture but it is clear there will be some uncomfortable reading for business leaders.

For one, the party does not acknowledge any connection between taxes on personal wealth and the performance of businesses. That wealth taxes ─ the mansion tax, changes to the top rate of tax, the abolition of non-dom tax status – are seen entirely in isolation from wealth/job creation. Instead, they have focused on business rates and corporation tax – pledging to ‘maintain the most competitive rate of corporation tax in the G7’ – as a strategy for economic growth.

They have sought to mitigate this stance by pledging continuity with the EU. The entire second section of the manifesto is devoted to a pledge not to hold an EU referendum unless under extreme changes in circumstance.

Equally significant, but far less covered, however, is the plan to alter a bedrock principle of City corporate governance: ‘one share, one vote’, the rule maintains that every shareholder should have an equal say in a company’s future regardless of their circumstances.

Following the financial crisis, policy makers took a much greater interest in the relationship between shareholders and companies after it became apparent good companies were being lost to short term decision making, in particular, cases where mergers and acquisitions had been forced for financial gain rather than the for the sake of the company.

For example, France introduced the Florange Act this year to automatically install double voting rights for shareholders holding shares in French companies for more than two years – unless shareholders vote to opt out. Labour have opted for a heavily diluted version of this by restricting voting on mergers and acquisitions to those already holding shares when a bid is made. Nevertheless, it is a very significant reform for the city which has long fought any proposals to alter the fundamental rule, arguing it would allow bad corporate management to go unchecked and entrenched investors to marginalise minority shareholders.

The Coalition followed the advice of the Kay Review in 2012 and took the position that there were too many ‘practical difficulties’ in legislating on loyalty shares, and they ‘would be unlikely to achieve the intended effect.’ The Conservatives may not have a choice in the next parliament (should they retain no 10) as the EU is said to be very interested in rolling out reforms authorising the use of loyalty shares across all member states using the EU Shareholder Directive (currently making its way through the European Parliament).

This pledge is perhaps one of the most significant for business leaders in Labour’s manifesto (aside from the pledge not to hold an EU referendum) as it is an attempt to change the very rules of the market.