At their conference in Liverpool this month, the Labour Party have brought forward a number of radical proposals for reforms to corporate governance, including mandatory employee board representation and mandatory worker share schemes for all companies, public or private, with over 250 workers.

Under the first proposal, at least at least a third of places on all boards, with a minimum of two seats, would be reserved for worker representatives, bringing about a radical increase in the role for employee voice in corporate governance. The second proposal would bring about an equally radical transformation in corporate ownership; all companies with over 250 UK employees would be required to transfer 1% of ownership each year, up to a total of 10% over 10 years, into an “Inclusive Ownership Fund” that would be controlled by workers. These shares would be controlled collectively by the current workforce, giving the workforce at least 10% of shareholder voting rights. In total this would transfer assets worth hundreds of billions of pounds to the ownership of the UK workforce.

These proposals are being floated in response to a series of major crises which have beset corporate governance and the wider UK labour market over recent years. A number of corporate scandals, from Sports Direct to BHS have eroded public trust in UK businesses, which fell another two points in 2017 according to the latest Edelman Trust Barometer, to just 43%. Meanwhile, the problems faced by workers and businesses alike in our economy are very real. As Jeremy Corbyn said when announcing these policies on the eve of Labour’s conference, “In workplaces across the country, working hours have got longer, productivity has nosedived, pay has fallen and insecurity has risen.”

While almost everyone would agree with this diagnosis of the UK’s problems, there have been loud challenges from some quarters to Labour’s proposed solutions. The CBI suggested measures such as these would “only encourage investors to pack their bags”. As the Labour Party pointed out in their defence, however, the UK already has the lowest average level of business investment of any G7 nation as a share of GDP – a problem itself partly caused by dysfunctional corporate governance. Research published last year by the Bank of England found that four in five publicly owned firms reported that pressure to create short-term returns has dented investment levels over the previous five years. By giving employees, who generally have a longer term stake in the firm, a greater voice in boardroom decisions, might we not actually rebalance corporate decision making in favour of more long term investment? There is a further wealth of evidence, published by the IPA and others over a number of years, linking both employee voice and employee ownership with greater productivity, increased innovation and improved problem solving, as well as better workplace relations.

That is not to say that there aren’t valid criticisms of these proposals, or details that need to be worked out. There is certainly a risk that, as the proposed scheme does not cover foreign-owned firms, it would simply encourage some major British employers to transfer their stock exchange listings overseas to avoid having to comply. Furthermore, as laid out, Labour’s plans for the “Inclusive Ownership Funds” would cap any dividends paid to workers at a £500 annual payment per worker, with the remainder going to the government. With no accompanying rights to sell their shares, this renders the proposal a form of tax with some associated voting rights for workers, rather than true employee ownership.

Nevertheless these are bold proposals to challenge a culture of poor corporate governance that has been allowed to take hold in too many firms over recent years. The Conservative Party has also proposed major corporate governance reform, with Theresa May promising in 2016 that under her leadership “we’re going to have not just consumers represented on company boards but workers as well.” However, in the two years since then, concrete policy developments have been slow to emerge after a hostile business response and the watered-down proposals that were eventually published in the 2017 Corporate Governance Reform Green Paper and made their way into the Conservative manifesto for the 2017 general election. Over the past 18 months, while the FRC have reflected some of these ideas in their revised Corporate Governance Code, there have been few signs of progress from the government in implementing any of these promises on a legislative basis. Rather than relying on criticism of Labour’s new plans, the Conservative Party would be better off making good on their earlier commitments and bringing forward meaningful corporate governance reforms of their own before it is too late.

Patrick Brione is Head of Policy & Research at the IPA