Portrait of a Great Success: The John Lewis Partnership
Faith, Commitment and Caring Capitalism: The Foundations of John Lewis Partnership
The John Lewis model and what others could learn from it
All 84,700 of John Lewis's staff are partners and they ultimately own the retailer's 35 department stores and 272 Waitrose supermarkets, generating annual sales of more than £8bn
"A successful economy is one where private interests ultimately serve the broader public interest. What companies like John Lewis demonstrate is that this does not have to come at the expense of commercial success."
However, before I proceed further, here is a bonus payment which I approve of, where everyone is a winner:
John Lewis staff celebrate bonus of nine weeks' pay. Retailer says staff will all receive bonus worth 17% of salary
On 7 March 2013, the John Lewis retail chain handed its 84,700 staff an annual bonus worth 17% of their salary – the equivalent of nine weeks' pay – as the employee-owned company continues to outperform its rivals.
Staff at John Lewis's Oxford Street store whooped and clapped as the better-than-expected bonus – which is handed to all employees, from cashiers to chairman Charlie Mayfield – was revealed on Thursday against a gloomy backdrop for some other retailers. The bonus for an employee on average salary would be £4,000. Here you have it: bonuses for all and not only for a few selected ones.
And now returning to the main subject of our discussion: John Lewis’ Partnership as an example of responsible, profitable, efficient capitalism.
Recently all the talk in the UK has been on “Responsible Capitalism- Is it Possible?” I am sure the same debate is taking place in many other countries, given the disastrous consequences of the neo-liberal inspired capitalism.
In Britain, it is said that the leader of the opposition, Ed Miliband may have claimed this territory first, in his Labour Party conference speech distinguishing “producer” from “predatory” businesses. But the Conservatives and Liberal Democrats are now developing their own strategies for claiming this cause.
At an event hosted by the City of London Corporation and the Centre Forum thinktank on Monday 16 January 2012, British Deputy Prime Minister, Nick Clegg remarks that allowing employees to have a stake in their firms will usher in a new era of 'responsible capitalism'. "We need more individuals to have a real stake in their firms. More of a John Lewis economy, if you like.
"And what many people don't realise about employee ownership is that it is a hugely under-used tool in unlocking growth. I don't value employee ownership because I believe it is somehow 'nicer', a more pleasant alternative to the rest of the corporate world. Those are lazy stereotypes. Firms that have engaged employees, who own a chunk of their company, are just as dynamic, just as savvy, as their competitors. In fact, they often perform better. Lower absenteeism. Less staff turnover. Lower production costs. In general, higher productivity and higher wages. They weathered the economic downturn better than other companies.", noted Clegg.
The ownership of businesses is a crucial element of this debate. Who owns the business: the private equity fund managers; the shareholders, the workers, and so on?
It is said that, employee ownership can make a significant contribution in this respect. But it has largely figured in public-policy debate as a possible model for public-service delivery, not for private enterprise. However, when it comes to private enterprise, then, John Lewis Partnership is mostly mentioned as a truly successful example, a topic to which I will return to shortly.
For now, let us see what the benefits of the employee ownership might be for all concerned.
According to a recent report by William Davies and published by the Employee Ownership Association, the ownership model is particularly well suited to medium-sized enterprises, which often struggle with business succession when their founders retire. Many of these businesses face a choice between family ownership (which typically fails within two to three generations), private equity ownership or being gobbled up by a competitor.
Furthermore, Davies has noted that, , there are two types of business value that will be crucial to the renewal of the British economy in the future. And both are integral to how employee-owned firms operate.
The first is greater emphasis on patience. The complaint that shareholder-owned firms are excessively short-termist has been around for many years. But the urgency of addressing this has grown as a result of the financial crisis. There is a sense that many businesses have become primarily geared around maximising the earnings of a small group of elites who run, advise and finance them. A relentless focus on short-term share-price fluctuations means financial strategy often predominates over long-term value creation.
How can firms resist this temptation to focus on immediate monetary returns, at the expense of longer-term productive purpose? Davies notes that, employee-ownership solves this problem, because the owners are engaged in the day-to-day workings of the business, at all levels from top to bottom. Employee-owners are rewarded with dividends, but they can see the benefit of investing for the long term and delayed gratification.
Committed for the long term, employee-owners will see the benefit of investment in research and development, to an extent that external shareholders and private equity funds typically don’t. Staff turnover is also lower. The entire orientation of the business culture is towards long-term horizons.
The second value which needs to be at the heart of responsible capitalism is well-being. Stress is now the single biggest cause of absence from work, having recently overtaken repetitive strain injury. The Government’s own research shows health-related absence from work now costs the UK economy a staggering £100bn a year, of which a third is related to unhappiness and stress.
As noted by a recent study, whilst comparing various indicators of well-being in employee-owned firms with existing data from businesses elsewhere; it found that well- being was higher in the employee-owned sector, by various measures, such as intention to change jobs and sick leave taken.
This, according to Davies, chimes with everything else that is known about employee engagement and what makes work enjoyable. What makes for a good job is being recognised, being consulted and operating in a culture of fairness and openness. Giving people real voice and ownership is a crucial bargaining tool, if employers want to get the best out of people.
In all, whilst John Lewis staff earn the same as shopworkers at rival chains – but the year-end bonus is a significant top-up. Its directors, on the other hand, are paid substantially less than their boardroom counterparts at businesses such as Tesco, Marks & Spencer and Sainsbury's. Staff also receive employee perks – worth £70m this year – ranging from holiday homes to sailing clubs, theatre outings, theme park admissions, and even a choir, all subsidised. It also one of the dwindling number of companies to operate a final salary pension scheme which is funded entirely by the company.
The ownership model means it is in the interests of John Lewis and Waitrose staff to work hard as they are the direct beneficiaries.
Companies such as Next are far more profitable than John Lewis but according to a recent report the employee-owned businesses had a higher rate of sales growth and job creation during the recession than companies in conventional ownership. Over the course of the boom-and-bust period between 2005 and 2009, they generally created new jobs more quickly and were at least as profitable as their counterparts.
The findings — based on a survey of more than 60 senior executives of both types of company, and financial data from more than 250 firms — back up other studies that show that employee owned businesses typically outperform those companies in which employees do not have an ownership stake or the right to participate in decision-making. "The advantage comes from taking a stakeholder rather than a shareholder view of management," as noted by the report. "Employees who have a stake in the company they work for are more committed to delivering quality and more flexible in the face of the needs of business."
Responsible capitalism will not be achieved through employee-ownership alone. But there are ample opportunities for growth in this area, which the Government, business lobby and business schools ought to recognise and act on. If we want to move beyond the era of short-term earnings maximisation the Government needs to champion alternatives, if necessary through legislative and tax changes.
It is time that political and business leaders spoke up for a vision of business as something other than just a money-making vehicle. This vision, in my view should become the cornerstone of the teaching in any business school, interested in sustainability, responsibility and well-being.
Faith, Commitment and Caring Capitalism: The Foundations of John Lewis Partnership
As I have noted elsewhere*, in the past the charitable works of successful businesses like Sainsbury, Cadbury, Marks and Spencer and John Lewis (to name a few British examples), showed how conducting business with commitment to ones faith, convictions and spirit could power lasting social change. Businessmen who had lived in the shadow of the previous century’s upheavals realised that only peace and social cohesion within a shared culture could provide the harmonious stability in which both the businesses and the workers and their families could flourish. They understood that they were part of the community and environment in which they lived and worked, benefiting from both and responsible to both. Without the benefit of MBAs, they understood about the common good.
They all shared an impulse to give back to society part of their wealth. Some sought to improve their employees’ working lives; others were patrons of the arts and sciences. Philanthropy among self-made billionaires has been common enough, from Andrew Carnegie to Bill Gates, but curiously it rarely takes the form of benefiting the company’s own workers. It was the second generation John Lewis who gave his entire inheritance to his employees, to ensure the continuity of the vision of fair shares and happiness at work for all.
What a contrast to our neo-liberal progeny, one might say.
Economic life was formerly regarded as a branch of the moral life of the whole community; today it is a moral-free zone. In shaking ourselves free from many forms of tyranny, we have achieved just one kind of emancipation, and in the process we have delivered ourselves into the hands of a philosophy which has destroyed the basis for any common social purpose. Economic activity needs moral regulation. The main problems in the world today are not economic or technological; what is really wrong with modern society is that it is morally sick.
R.H. Tawney has described ‘acquisitive’ societies: the whole preoccupation of our modern way of life is the acquisition of wealth. Rights are divorced from duties; the unrestricted pursuit of self-interest is the ruling ethos. A society of this kind, which has taken off the moral brakes, consists of individuals who see no ends other than their own, no laws other than their own desires and no limits beyond those they set themselves. It sets the individual at the centre of the universe and dissolves moral principles into choices of expediency. We can appreciate the significance of this attitude when we look at the morally impoverished behaviour of many chief executives in big companies around the world.
In our materialistic environment there is much emphasis on wealth creation, but no room for the creator, and no proper relationship between creator and creation. We should not forget that our most important economic resources owe nothing to human labour and ordering, nothing to economic factors in general. The land, the air, the sea, the sun, and vital natural resources such as oil, gas and coal, are all God’s gifts: they should be for the benefit of all God’s creation.
John Spedan Lewis, envishoned and empowered by his faith, Christianity and Quackerism, saw and felt all these shortcomings and setout to transform capitalism, from bad to good; uncaring to caring; unsustainable to ever lasting.
Below, I have provided you with a bird’s-eye summary and an overview of the John Lewis Partnership.
With an ambitious vision of co-ownership, and of how a business could put the happiness of its employees at the heart of everything it did, and profit by it, John Spedan Lewis left a radical mark on commercial history. The John Spedan Lewis way is as alive today as it was 80 years ago. The Partnership has over 76,500 Partners who own 35 John Lewis shops (29 department stores and six John Lewis at home shops), 272 Waitrose supermarkets, an online and catalogue business - johnlewis.com, a production unit and a farm, and share in the benefits and profits of a business that puts them first.
This is how it began:
The early years
Born in September 1885, John Spedan Lewis was the eldest of two sons whose father had opened the John Lewis department store in Oxford Street. By the age of 21, not only had he acquired a quarter share holding in the department store, he was well on his way to becoming Director of Peter Jones, the other shop in his father's control.
The beginnings of a radical idea
It was during this time that Spedan Lewis became aware that he, his brother and his father between them were enjoying earnings equivalent to those of the entire workforce in both shops. But it wasn't until a riding accident forced him to convalesce that he was able to spend time developing his ideas for the future of the business, ideas that would radically change its foundation.
With the happiness of his employees firmly at the centre of his mind, he began to instigate new systems and practices as soon as he returned to work. Intent on bettering the working conditions and spirit of the company, he offered shortened working days, the setting up of a staff committee, a third week's holiday paid holiday was an innovation for the retail trade at this time and eventually, a house magazine, the Gazette, which is still published today.
Trying it out at Peter Jones
By 1914, a conflict with his father, who was alarmed by some of these bold practices, meant Spedan withdrew any active involvement with the Oxford Street shop in exchange for total control of Peter Jones. And although it had been unhealthy financially, Spedan's bravery paid off as within five years it converted an annual deficit of £8,000 to a profit of £20,000.
Founding the John Lewis Partnership
In 1920, the first profit-sharing scheme was introduced along with a representative staff council. A reconciliation with his father after his mothers death meant the cooperation between the two stores resumed, then his father's eventual death in 1928 gave Spedan sole ownership. He created the first Constitution and the following year the John Lewis Partnership Limited and signed the First Trust Settlement. This gave him practical control of the business, but allowed the profits to be distributed among the employees. Twenty-one years later, he signed the irrevocable Second Trust Settlement, and the Partnership became the property of the people employed within it.
The principles
The John Lewis Partnership's seven principles (see below) define how the business is run. They are as relevant today as they were when they were set out by the founder, John Spedan Lewis.
Purpose
The Partnership's ultimate purpose is the happiness of all its members, through their worthwhile and satisfying employment in a successful business. Because the Partnership is owned in trust for its members, they share the responsibilities of ownership as well as its rewards profit, knowledge and power.
Power
Power in the Partnership is shared between three governing authorities: the Partnership Council, the Partnership Board and the Chairman.
Profit
The Partnership aims to make sufficient profit from its trading operations to sustain its commercial vitality, to finance its continued development and to distribute a share of those profits each year to its members, and to enable it to undertake other activities consistent with its ultimate purpose.
Members
The Partnership aims to employ people of ability and integrity who are committed to working together and to supporting its Principles. Relationships are based on mutual respect and courtesy, with as much equality between its members as differences of responsibility permit. The Partnership aims to recognise their individual contributions and reward them fairly.
Customers
The Partnership aims to deal honestly with its customers and secure their loyalty and trust by providing outstanding choice, value and service.
Business relationships
The Partnership aims to conduct all its business relationships with integrity and courtesy and to honour scrupulously every business agreement.
The Community
The Partnership aims to obey the spirit as well as the letter of the law and to contribute to the wellbeing of the communities where it operates.
John Lewis: Portaite of a Great Success
John Lewis began in 1864 with the opening of the first shop in London's Oxford Street. 'Never Knowingly Undersold', a unique promise to their customers that the price of any item they sell will always be as low as the lowest price in the neighbourhood, has been John Lewis slogan for over 75 years. Through the efforts of its Partners serving customers with their suppliers' high quality goods, the partnership has succeeded in building the largest department store retailer in the UK, with 35 John Lewis shops (29 department stores and six John Lewis at home) and a growing online business - johnlewis.com.
The Partners work hard to offer customers everything they need under one roof: the best fashions, furnishings and household goods of all kinds at competitive prices with excellent service and free delivery.
Supported by a network of suppliers around the world, John Lewis department stores were voted 'Britain's favourite retailer” in the Verdict consumer satisfaction index published in March 2011.
John Lewis's multi-channel operation and its 'at home' format contributed to the John Lewis Partnership winning 'Retailer of the Year' at the Oracle Retail Week Awards 2011.
For further reading see:
John Lewis Partnership - Our founder
and The John Lewis Partnership
http://www.johnlewispartnership.co.uk/en.html
William Davies, “John Lewis and a new vision for capitalism”
Zoe Wood, “The John Lewis Model and what others could learn from it”
http://www.guardian.co.uk/business/2012/jan/16/john-lewis-model-lessons?newsfeed=true
“Nick Clegg unveils plans for “John Lewis economy”
http://www.guardian.co.uk/politics/2012/jan/16/nick-clegg-unveils-plans-john-lewis-economy