Caution at the polls: Trade Unions could enter your FX firm via the back door

Imagine handing 10% – a significant share – of your FX firm to staff by law. Here is Labour’s plan and the potential consequences.

One of the very many unsavory byproducts of a victory at the polls by Britain’s socialist Labour Party is that all companies registered in the United Kingdom, whether privately held or publicly listed, may be obliged to open themselves up to the tail wagging the dog by law.

Whilst it is very unlikely that very many, if any, FX, electronic markets or financial technology executives or professionals would cast a vote in favor of a radically socialist government compared to the centrist conservative current administration which, whilst as powerful as a feather in a force 9 gale, does represent the general direction of pragmatic British industry, a scheme that would be damaging to every business in the nation that is the brainchild of Labour’s left-wing firebrand Shadow Chancellor John McDonnell is worthy of note.

Mr McDonnell, who spent the 1970s either on picket lines across the country contributing to the demise of various large scale businesses which went from private enterprises to nationalized dinosaurs to defunct non-entities culminating in James Callaghan’s Winter of Discontent in 1979 when the three day working week was implemented and uncollected refuse lined the streets, has a very vocal anti-business agenda, and his latest promise is no exception.

If the Labour Party is elected, Mr McDonnell would become Chancellor of the Exchequer, thus responsible for the business and fiscal budget policy of the entire nation. A Bolivarian trade union firebrand holding the purse strings could not be a more frightening prospect.

Yesterday evening, the Labour Party demonstrated this disdain for enterprise once again by revealing a plan to force companies to put 10% of shares into so-called “inclusive ownership funds”. Employees in any capacity could receive up to £500 a year from the funds, according to the policy. However, any additional revenues “will be transferred back to our public services as a social dividend”.

The Labour Party has said the funds would be mandatory for all companies with 250 or more employees, covering at least 40 per cent of the private sector workforce. “Workers effectively employed by an employer” would also be included in a bid to avoid “dummy contracting-out”.

In a highly entrepreneurial and technology led business which relies on the absolute principles of capitalism such as the FX industry and its associated service providers, a mandatory award of 10% of shares to employees would leave the door open for complete control of the firm’s management by its employees, resulting in the possibility of founders, C-level executives and stakeholders being taken to task and overruled by their own staff.

Possible circumstances that would be unfavorable include a banding together of sales staff to take intellectual property for themselves, the possibility of trade unions being able to dominate the medium to lower ranked positions in the FinTech and electronic financial services industry in the way that the very strong banking unions crippled the retail banks in the 1970s and early 1980s, and that was without any shares being handed to staff.

As far as ownership is concerned, 10% may appear a small stake, however as any business owner realizes, any form of shareholding means almost total control, as all shareholders need consulting when it comes to corporate policy, and 10% is a large enough percentage for vetoing rights over pretty much everything.

Strength in numbers comes into it also, just as it did in the dark, austere 1970s. In this new scenario, a management board may consist of perhaps five to ten individuals, largely because our industry is highly modern and many firms are less than 15 years old, relying on lean resources and an entrepreneurial leadership ethos. Thus, if a management board totals five to ten in number, and the workforce of such a company is fifty to one hundred, that fifty to one hundred would collectively hold 10% of the firm, and would be able to instigate its own internal ‘union’ in order to push its agenda through against the management.

It means that 10% of the database of a retail FX firm would be owned by sales and operational staff, that being in many cases the most valuable asset a company holds. Who’s to stop a team of one hundred who collectively own 10% of a company vetoing any control over the leads, and then moving that to other companies before joining said other company only to receive 10% of that company’s stock thereon in?

This mindbogglingly socialist policy was debunked by the Confederation of British Industries (CBI) last night, with the non-government organization’s Carolyn Fairburn having said “Labour’s anti-business positioning is starting to bite.”

“Rising wages are what everyone wants to see. But Labour is wrong to assert that workers will be helped by these proposals in their current form. Their diktat on employee share ownership will only encourage investors to pack their bags and will harm those who can least afford it. If investment falls, so does productivity and pay. Labour raises the right questions, but these are not the right answers” she said.

Yes indeed they will pack their bags. FinanceFeeds often speaks to venture capital companies and shareholders in large FX industry related companies that look toward investing in new business directions or innovative startups that will help to drive our business forward, and can be quite sure that many will cease to invest in firms in which 10% of the stock is awarded to a non-executive workforce en masse, as it would be a huge liability to the company, and would allow workers to control investors.

NOT a formula that any seasoned investor relishes.

London’s Institute of Directors in Pall Mall reacted quickly and stated “Employee ownership could be encouraged through tax breaks or other incentives, however to effectively force companies to transfer 10% of company ownership from existing shareholders to employees is far too draconian. It could have a negative effect on business investment and business formation in the UK, and undermine the functioning of UK capital markets.”

Employee options and ownership has traditionally played a large part in British business. Department store chain John Lewis, for example, has operated as a “Partnership” indeed its official name is The John Lewis Partnership – meaning that each employee is a partner, thus receiving profit sharing and taking extra pride in their position. It works well, as it is per individual and does not allow the banding together of rebellious groups which would be able to take control by proxy.

Imagine the dysfunctional conflict of interest within publicly listed firms with reporting responsibilities, too.

Conservative Treasury minister Liz Truss said: “This proposal is yet another tax rise from a party that already wants to hike taxes to their highest level in peacetime history. It would make it harder for local businesses to take on staff and pay them a good wage.”

However, Labour-supporting businessman John Mills said: “This is the type of fresh economic thinking that this country needs. The UK’s economy has been languishing in the doldrums for decades with low levels of investment and productivity, and living standards have fallen as a result.”

Is that so, Mr Mills? The City of London is just one square mile in size, and employs only 0.00009% of Europe’s workforce, yet produces 16% of all tax recipts. Just six Tier 1 banks in Canary Wharf handle over 64% of all global financial markets order flow, and Britain’s technological, motor, heavy engineering and management consultancy firms lead the world in productivity and innovation. Jaguar Land Rover, HP’s British campuses, Shell Oils in London, Aviva, Vodafone, Capita are just some of the names that are at the top of the list in European productivity.

Hargreaves Lansdown is the largest financial services firm in Europe – and it’s British.

Beazer, Wimpy and Barratt are the largest and most profitable residential construction firms in Europe, and they are British. KnightFrank is the largest commercial real estate firm in Europe, and OMPeverill the largest property management firm – all are British.

Hardly languishing, is it Mr Mills?

In the FX industry, the same applies. IG Group, CMC Markets and Hargreaves Lansdown dominate, and are publicly listed. Saxo Capital Markets, the firm’s prime of prime and institutional services division, operates from London.

Fujitsu-Siemens, Steria, Accenture and EY have for over 20 years been the consultancies of choice for institutional FinTech professional services outsourcing. Currenex and Thomson Reuters both operate vast centers in London. Lloyds Bank is the largest banking institution in the world and, as previously mentioned, the investment banking and electronic trading divisions of the lion’s share of the world’s banks are based in London.

Give 10% by law to an unelected workforce? Not a chance, comrade.

 

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