Still more praise for the “John Lewis model”

You’re probably aware that the John Lewis department stores and Waitrose supermarket chain are doing very well at the moment, with sales figures rising strongly whilst retailers elsewhere are struggling. Several commentators have been keen to go beyond the marketing factors behind their success, instead paying closer attention to the firm’s unusual model of ownership and control.

The Guardian picks up the story, remarking that the John Lewis Partnership is one of the few UK companies where bumper bonuses do not provoke a public outcry. All staff — from chairman down to Saturday shelf-stackers – receive the same percentage payout which rises or falls in line with its financial fortunes. Last year its staff, or “partners” as John Lewis calls them, received 17% which is the equivalent of around nine weeks’ pay.

The retailer’s employee-owned partnership model operates differently from ‘normal’ limited companies, as instead of profits flowing to the shareholders they flow to the staff in the form of the annual bonus. This very different style of ownership was established by the businessman John Lewis, who as owner of the firm signed away his rights in 1929 to allow future generations of employees to take forward his “experiment in industrial democracy”. His ideas are set out in the company’s constitution which at its heart has the idea of establishing a “better form of business”.

All 76,500 of John Lewis’s permanent staff are partners and they ultimately own the retailer’s 35 department stores and 272 Waitrose supermarkets, which generate annual sales of more than £8bn. As the company itself puts it: “Partners share in the benefits and profits of a business that puts them first.” John Lewis’s constitution also lists a formal mission to maximise the “happiness” of its staff. The management structure involves a staff council – for ideas and complaints to filter up to the board – and a weekly magazine where staff can air their views about policies and management, anonymously if they choose.

The head of finance and business at the New Economics Foundation says it is important that employees should “have a greater say in how their businesses are run, not just a bigger share of the profits … the idea that workers have nothing useful to contribute to management belongs to the 19th century, not the 21st”. With the economy in such poor shape and traditional methods of owning business under a dark cloud, attention is being drawn to the idea that employee-owned businesses can contribute to an economy that does a better job of creating social and environmental value over the long run.

This is all open to discussion of course! But even the deputy Prime Minister is taking a close interest in the debate, and arguing that we should try to move towards a ‘John Lewis economy’, in which employees will have a bigger stake in their firms, ushering in a new era of ‘responsible capitalism’.

BBC news video (May 2012): Just what is the John Lewis model?