My Lords, it would be extremely helpful if the clause contained a clearer definition of “profit share” and “equity participation”. That is where the confusion will arise and cause the greatest difficulty. Profit share is relatively clear, straightforward, simple and very motivating. I wholly agree with the noble Baroness who talked about that
earlier. That is fine, but profit share does not carry with it any of the risks that go with equity. I disagree with the noble Lord; you do not just buy your shares today and sell them. If you are a locked-in minority, especially in a quoted vehicle, you are stuck, you have no way out, and you never will have.
Further, and worse, I have seen this work to the total detriment of the shareholders. I had a company that had a number of ships—we were opening the North Sea oilfields—that were bought and each put into a separate company. It looked like a good, straightforward, long-term profit opportunity, so we had a lot of participation by Scandinavian banks, which would buy a ship and put it into a purpose-built company. The captain might be offered the opportunity of 20% of the equity in that company, meaning 20% of the ship he was going to sail. If that company did not get the contract work, did not make the money and could not service the debts of that bank, the banks in Scandinavia came at those shareholders and took their homes as a condition of their putting in the extra money.
These hazards are not anticipated in what we have here. There are some fearful risks in inviting people to become locked-in minorities, especially in SMEs where you have nowhere to go if there is a problem. Profit sharing does not have any of those problems, so we should be going down the profit-share path, not the equity-participation route, especially where it is given free into unquoted vehicles.