UK: End The Stakeholder Tug Of War

Last Updated: 19 April 2018
Article by Gabbi Stopp

It is time to ditch archaic divisions in favour of more balanced consideration of all stakeholders

Much of the recent press coverage of Carillion's collapse has presented the underlying issues as a straightforward fight between the various parties involved, such as shareholders vs employees, senior management vs pensioners and employees, and shareholders vs senior management.

These various conflicts are said to boil down to an age-old struggle between providers of capital – and their agents, the senior management – and providers of labour, with neither side to be trusted.

This is reductive and unhelpful, pitting groups of people – who ought to have common interests – against each other, with unconstructive consequences for all.

Regardless of whether you own, manage, or work for a company, you want that company to succeed. Indeed, it is in all 'committed' stakeholders' interests (and I choose my adjective there carefully and deliberately) for companies to flourish over the long term.

That is not to say that mediocre or downright incompetent management should be let off the hook or rewarded in any way for failure – absolutely not.

The penalties for directors who fail in their duties are clearly set out in section 178 of the Companies Act 2006 and malus and clawback clauses have for many years now been standard – and in the financial services industry, mandatory – features of executive share plan rules.

The ultimate penalty in the event of a corporate failure for shareholders is loss of their capital. The personal penalties borne by employees and pensioners in these circumstances are much higher – loss of livelihood and erosion or potentially loss of a decent income in old age.

It is to the rights of the pensioners and employees in this situation that we should turn our attention and energies, and also to the definition of directors' duties. Both urgently need to be considered.

We should also be mindful that a proportion of these pensioners and employees will also be shareholders in the company to which they gave their labour. Many hold these two groups – owners and workers – as eternally distinct and separate. They are not.

Employee risk

Although pensioners, quite rightly, have something of a 'lifeboat' in the form of the Pension Protection Fund to which to turn, the same cannot be said for employees, nor for employee shareholders.

When a company fails, employees are the ones who lose it all – the dignity of work, the security of a monthly wage – and in many cases unpaid wages are never recovered. If they also participate in their employer's share schemes, there are further consequences, dependent on the type of scheme.

"It is to the rights of the pensioners and employees that we should turn our attention and energies"

Under Sharesave, their savings are protected by the Financial Services Compensation Scheme and are refunded to them in full, but the associated share option will lapse and become worthless.

However, if they participate in the Share Incentive Plan, then their shares will become worthless, the same as for any other shareholder. If they have held onto their employers' shares once they have exited a share scheme, then the same fate befalls those shares too.

The risk of losing their capital, although still highly unlikely, has a disproportionately negative impact on them as compared to other shareholders, who will likely be invested across a range of shares and other classes of investment.

Employee share ownership still matters, for many reasons. Why should individuals be expected to grudgingly participate in, much less defend, capitalism if they have no realistic means of acquiring any capital themselves?

For many people, employee share plans are the only practical route to owning shares. For 35% of Sharesave participants – according to research by YBS Share Plans, Durham University and Leeds Business School in 2016 – such schemes are their only regular means of saving and 65% of them would not save at all without Sharesave.

According to the Money Advice Service, more than 16 million of the UK's population have less than £100 in savings. It only takes one costly and expensive surprise such as a failed boiler or a broken car to put them in financial difficulty.

Imagine how much tougher it is for an employee in that situation whose company goes bust as unexpectedly as Carillion did.

Rent and mortgage payments are defaulted on, utility bills go unpaid, expensive forms of borrowing become the only way of covering day-to-day living costs and the list of consequences snowballs. Having a regular means of saving is one way to build vital financial resilience.

Above politics

Those that continue to paint a clichéd picture of owners vs workers are stuck not just in the last century, but the one before it. Their motives should be examined even more closely than their arguments.

Employee share ownership should, for good reasons, remain entirely above the fray of party politics – successive governments of every political hue have supported employee share ownership. CSOP and SAYE were introduced by the Thatcher government of the 1980s; SIP and EMI came into existence in 2000 under the then Labour government.

Employee share ownership enjoys cross-party support based on its own merits and the well-evidenced benefits it delivers to employees, their employers, and the communities in which they live and work.

Some of capitalism's worst extremes have been brought to the fore by the Carillion collapse and recent scandals such as the BHS debacle. But that does not mean that we should throw the baby out with the bathwater by encouraging entrenched views and separation of the stakeholders involved.

Giving employees a route to share ownership – alongside responsible and independent financial education – is actually more important now than ever before.

"Some of capitalism's worst extremes have been brought to the fore by the Carillion collapse"

By blurring the distinction between owners and workers, by encouraging overlap between these groups, greater common ground can be found.

Companies with truly engaged workforces of employee shareholders, who benefit financially from the success that they help to create the same as external shareholders, should be applauded and supported. It is they who enjoy greater productivity and economic output than their non-enlightened peers.

They make a greater contribution to the Exchequer in terms of corporate and payroll tax, which more than repays the hypothetical 'cost' of tax foregone, as calculated on the equivalent cash value of tax-advantaged share schemes such as SAYE, SIP, EMI and CSOP.

They help to create workforces with greater 'skin in the game' and greater potential to benefit from the company's success.

Out-dated duties

However, within the current framework where the Companies Act enshrines shareholder primacy and imposes upon directors in section 172 a rather 'woolly' set of duties, employees have found themselves at the sharp end of the attendant consequences.

In section 172, the promotion of the success of the company is defined primarily as for the benefit of its members – that is to say its shareholders. Employees get a mention, under subsection (b).

However, in the event of the directors failing to discharge their duties, it is the shareholders who are empowered by section 178 to pursue civil claims against the directors, as under the terms of the act it is the shareholders of the company to whom the directors owe their primary duty of care, not employees.

Shareholder primacy is an echo of the Industrial Revolution, when the barriers between those who owned companies and those who worked for companies were unscaleable.

AWOL owners

Although there are shareholders who take their responsibilities as seriously or more seriously than their right to receive declared dividends, and engage with boards regularly on matters of governance, there are many shareholders who are entirely 'missing in action' in the corporate governance debate.

These are the short sellers, the hedge funds, even passive investors, especially those who routinely outsource their critical thought on matters such as executive pay to almost unaccountable proxy advisers. These shareholders take a bit of a free ride and leave the worrying and engagement to others.

Shareholder primacy prioritises the rights of all shareholders – including those I categorise here as 'missing in action' – above the rights of other stakeholders, including employees and pensioners, as well as corporate debtholders and suppliers.

This cannot be just and fair. Companies need labour as much as they need capital and skilled, competent, fairly-paid managers.

Eroded rights

In recent years, the rights and bargaining position of those who provide labour have been eroded by the 'gig' economy and other forms of insecure and low-paid work.

Shareholder primacy has the unhelpful effect of supporting this erosion, and employee share ownership on its own – while hugely beneficial – is not going to rebalance the equation.

"Encouragingly, there are companies that are setting great examples of how to engage more effectively with their workforces"

Indeed, share schemes legislation is based on the participants having 'employee' status, which puts such schemes out of the reach of those classified as workers, contractors or self-employed, even though they may well be working alongside employees who are eligible to participate in the company's equity.

The prioritisation of one stakeholder over another at all costs is unhealthy, driving a shorter-term view of companies' prospects and stymying investment, and the plugging of pension deficits, in favour of unsustainable payouts to shareholders and the servicing of what may become more expensive debt.

End the divide

The Financial Reporting Council's review of the corporate governance code is therefore well timed, if not overdue. Alongside this, it is pleasing to see informed and thoughtful debate being fostered by
the likes of ICSA on how the legal definition of directors' duties and the code might better align,
and take a more balanced account of the realities of modern capitalism.

Encouragingly, there are companies that are setting great examples of how to engage more effectively with their workforces. To the others that might chuck giving employees a voice at board level into the 'too difficult' bucket, the message should be: try harder.

Rolls-Royce Holdings held an 'employee AGM' after its shareholder AGM last year, running a ballot for employees across its global workforce to come and attend a meeting where their viewpoints were listened to by members of the board.

FirstGroup plc has for many years had an employee director on its board, and the company's former chairman John McFarlane, now chairman of Barclays, is on record as saying that the arrangement was highly effective.

So let us do away with the tired and divisive distinctions of yesterday. Let us foster measures that balance all stakeholders' interests more fairly, protect the most vulnerable, and do more to ensure companies succeed on a sustainable and long-term basis, for the benefit of all. Ultimately, disorderly corporate failure costs us all, one way or another.

It is therefore our duty to act constructively and collectively to tackle this.

Gabbi Stopp is head of ProShare, and is speaking at ICSA's annual conference.

Originally published in ProShare's March 2018 Newsletter.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions