David Ogilvy, partner and head of employment and dispute resolution at Turcan Connell, a leading adviser to individuals, businesses, families and charities, explains why individuals prosper through private ownership.

David Ogilvy Crop

Private individuals prosper through private ownership.

This has been proven to be true in relation to housing stock where many thousands were given the opportunity to enjoy the benefits of private ownership. Society as a whole benefited from the pride which this new generation of home owners invested in their new homes. Subsequent generations of those pioneering tenants who became owners continue to benefit from that ownership interest. The principle that individuals prosper through private ownership is true of share ownership. Having a stake in something ought to be the greatest motive for wanting to look after it. Private share ownership works. We saw this with the denationalisation programs of the 1980s which gave many people their first ever opportunity to own shares and we saw this more recently with the return to private ownership of a long nationalised monopoly service. The interest in that privatisation from employees proves how popular employee share ownership can be.
The UK Government is currently promoting share ownership in a different way. Changes recently brought in by the Growth and Infrastructure Act 2013 are designed to stimulate interest in share ownership by employees. It does this by creating an incentive for both employee and employer to agree on a scheme of ownership.
The incentive for the employer is that in return for shares the new breed of employees (known as employee shareholders) will give up a range of employment rights. In particular, the employee shareholder gives up the right not to be unfairly dismissed (apart from automatic unfair dismissal), the right to receive a statutory redundancy payment, the statutory right to request flexible working and certain statutory rights in respect of time off for training.
The incentive for the employee shareholder is that in return for giving up those rights the employee shareholder receives at least £2,000 worth of shares in the company tax free.
So employee shareholders have the opportunity to acquire an ownership interest in the company for which they work.
On a philosophical level the legislation is to be welcomed. It has merit both in its own terms and in its consistency with past successful initiatives.
There are however a number of key problems with the legislation.
For example, the employee needs to take complex legal advice and is required to understand the complex nature of share ownership. The employee will need to be advised and appreciate that acquisition of shares alone does not in itself bring with it a right to receive a dividend or a right to vote. Employees will need to be advised on the disadvantages of being a minority shareholder and the problems associated with termination.
Although the legislation provides that the company should make a payment of the reasonable fees incurred by the employee in taking legal advice, the advice which needs to be given is substantial. Employees with a limited understanding of Company Law will need a significant amount of help and might find the whole prospect too daunting.
Similarly, it is argued that the incentive for employers does not go far enough. Probably the most complicated and sophisticated of employment rights are those relating to discrimination. Those rights are unaffected and cannot in any event be taken away by the UK Parliament.
So although the principle behind the legislation is a worthwhile one the real concern is that the legislation does not go far enough in incentivising either employees or employers. Accordingly the take up on this scheme will be poor and the government will not achieve the attitude shift which the legislation is designed to promote.
This article appeared in the Herald Scotland