Employee ownership: Some thoughts from a former John Lewis partner

Nick Clegg’s speech on Monday was a welcome contribution to the debate about the changes we want to make to our economy following the financial crisis. That the economic boom of the decade leading up to the 2008 bust was unsustainable is a proposition that hardly needs putting, yet the broader debate about how to avoid such a situation in the future (if indeed we think it worth avoiding) is a topic that is largely undiscussed. My own view is that we need a serious discussion about how we measure economic health, because if the last few years showed anything it is that strong GDP growth is not synonymous with a healthy economy.

Clegg’s speech, though, was focussed more narrowly on the idea of employee ownership of companies. In such discussions it’s rare for the John Lewis Partnership (which includes John Lewis itself as well as Waitrose) not to be mentioned, and for good reason: JLP is one of the most successful British retailers, owned completely by its employees and has surprised many by its relative success over the recent tough times.

As a former JLP ‘partner’ (JLP employees are not technically partners but the term is still used in the business nonetheless) I thought I’d offer a few thoughts having seen the business from the inside.

One of the main arguments often put forward for employee ownership is that it increases productivity, the logic being, of course, that people with a stake in the business have a clear interest in that business being as profitable as possible. I admittedly don’t have a particularly large employment history to compare my time at JLP to (being a 22 year-old student), but I certainly remember feeling more motivated to work hard in that job, not only because of the financial benefits but also because of the wider sense that one is part of an institution in which you have a stake. You are not simply working for a set wage to the advantage of distant and faceless shareholders – you and every one of your colleagues benefits in a clearly tangible way from being more productive.

So much for productivity, but what about that buzzword of the moment, ‘responsibility’? There are some who think that there is no place in capitalism for corporate responsibility – that the only motive driving those in charge of companies should be delivering the best return to their shareholders. I, and I suspect most liberals, disagree. Morality, if that is what we are talking about, does have a place in the running of businesses. Is JLP a more moral, more responsible business because it is employee-owned? I would say that it is, for this reason. When JLP partners are weighing up the costs and benefits of its actions, the calculations are different. An ethical decision that costs the business £1million, leading to lower profits, won’t result in a tumbling share price and grumpy shareholders come the AGM. At the very most it will mean a slight reduction in the size of the bonus paid to all staff – and most staff would in my experience be willing to tolerate that to further an important ethical cause.

However, that brings me to my final point which is on the model of employee ownership we are talking about. The reason JLP is so often mentioned is because it is so unusual – many businesses give employees the options of receiving or buying shares in the business, but at JLP there is no choice: every employee is a part-owner. And it’s this rather radical idea that, in my view, makes John Lewis stand out. I have no doubt that many of the same benefits can be gained by encouraging employees to take shares in the business, but it seems to me that to really make the idea work there needs to be more.

Nevertheless, it is fantastic to hear the deputy prime minister talking about this issue, and I’m sure many of us are looking forward to hearing more of the details of what the government can practically do to transform at least some of our economy to the John Lewis model.

* Nick Thornsby is Thursday Editor of Liberal Democrat Voice and blogs here.

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6 Comments

  • What an interesting article

  • John Carlisle 20th Jan '12 - 6:22am

    Andy, there is nothing in legislation that constrains a company to put the shareholders first. That is an myth. Company law demands that all stakeholders are considered. The big corporate directors merely use it as a way of justifying their (usually) self-centered decisions. Shareholders do not have all that much clout anyway. About four years ago Shell just shrugged off their protests about top director bonuses.

    Tia, Nick came to JLP late for the simple reason that the LibDems do not have a business model; something I have been banging on about for ages. If you do not have the lens through which to view the business environment you just do not pick up things. So, let us nag Nick and Vince to give us one (preferably mine!).

  • I’m not sure that it’s a given that employee ownership automagically implies either good performance or broader corporate responsibility. I’d suggest that’s also a lot to do with culture, although a high proportion of employee ownership is going to generate a culture sensitive to that.

    The factors to think about are straight out of a strategic analysis textbook; nature of the marketplace, nature of the competition, quality of the product and customer experience. Employee ownership plays quite strongly to the latter point, if eveyone owns he company then any customer or client interaction comes with that perspective. However the nature of the competition has a part to play.

    If one looks at PA Consulting for example, not untypical mid tier consulting, where everyone who’s been employed for more than about nine months will have a share component to their package. The behaviours are pretty typical of their place in the market and the employee ownership isn’t a huge factor in performance. In leaner times they’re just as brutal as their peers.

    There is part to play for employee ownership, but i’s not some sort of panacea.

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