What fits well at John Lewis will not suit all

Com­pa­nies want the free­dom to choose, not an en­forced way of do­ing busi­ness, finds Jack Tor­rance

The Sunday Telegraph - Money & Business - - Labour Party -

‘When you’re part of it, you put your heart into it”. That was the mes­sage that fol­lowed the John Lewis Part­ner­ship’s lat­est block­buster ad­vert, de­pict­ing an elab­o­rate space-themed ren­di­tion of Queen’s Bo­hemian Rhap­sody per­formed by school­child­ren in front of their stunned par­ents.

The two-and-a-half minute film, which pre­miered in a pricey ad­ver­tis­ing slot dur­ing The Great

Bri­tish Bake Off ear­lier this month, was part of a high-pro­file re­brand of the com­pany, whose epony­mous depart­ment store chain and Waitrose su­per­mar­ket busi­ness have both had “& Part­ners” added to their names.

It might seem like a sub­tle change but it is de­signed to ham­mer home what the part­ner­ship sees as one of its key sell­ing points – that it be­longs to its em­ploy­ees, who it says are there­fore mo­ti­vated to go the ex­tra mile to help cus­tomers.

The idea of giv­ing work­ers a stake in the com­pany they work for is noth­ing new. JLP has been em­ployee-owned since 1950, pro­fes­sional ser­vices firms have long op­er­ated on a part­ner­ship model and it’s now de rigueur for fast-grow­ing tech start-ups to cre­ate em­ployee eq­uity schemes. But the model has at­tracted grow­ing at­ten­tion from politi­cians in re­cent years.

Last week­end the Labour Party cited John Lewis as it re­vealed a pol­icy to force all large com­pa­nies listed on the stock mar­ket to hand over up to 10pc of their shares to staff.

“We be­lieve that work­ers, who cre­ate the wealth of a com­pany, should share in its own­er­ship and, yes, in the re­turns that it makes,” said John Mcdon­nell, the shadow chan­cel­lor, as he set out the plans. “Em­ployee own­er­ship in­creases a com­pany’s pro­duc­tiv­ity and en­cour­ages longterm de­ci­sion-mak­ing.”

But while the con­cept may have a grow­ing le­gion of sup­port­ers, a tor­rid set of fi­nan­cial re­sults from John Lewis ear­lier in Septem­ber shows it is far from a panacea and there are also big ques­tions about just how ben­e­fi­cial Labour’s vi­sion would be.

There are sev­eral ways to struc­ture an em­ployee-owned com­pany. Some grant or sell shares di­rectly to work­ers, af­ford­ing them a le­gal say in the com­pany’s de­ci­sions and the chance to cash in on a com­pany’s in­creased value when they leave. Oth­ers are more arms-length, with the shares locked in a trust, no­tion­ally owned by the em­ploy­ees and run for their ben­e­fit by a self-ap­pointed board of trustees.

Re­gard­less of their model, all in­sist that giv­ing work­ers a greater stake in the com­pany’s prospects makes for a bet­ter-func­tion­ing busi­ness.

Hugh Facey, who was made an OBE this year for build­ing Sh­effield-based wire-joiner man­u­fac­turer Grip­ple into an em­ployee-owned com­pany with more than 700 staff and £75m in rev­enues, is a big ad­vo­cate.

“We never have trou­ble re­cruit­ing,” he tells The Sun­day Tele­graph, and about half of work­ers don’t take a sin­gle sick day each year.

Keith How­ells, the chair­man of en­gi­neer­ing con­sul­tancy Mott Mac­don­ald, which with more than 15,000 staff is Bri­tain’s sec­ond-largest em­ployee-owned com­pany be­hind JLP, adds: “It’s very good for em­ployee buy-in and mo­ti­va­tion – peo­ple are proud to be part of the own­er­ship struc­ture”. The model is also said to im­prove de­ci­sion-mak­ing, help­ing bosses fo­cus on the long term.

Alex Jan, chief econ­o­mist at an­other em­ployee-owned con­sul­tancy, Arup, says: “Be­cause we don’t an­swer to ex­ter­nal share­hold­ers and we don’t have quar­terly re­port­ing or tra­di­tional mea­sures of suc­cess such as grow­ing

turnover, profit or vol­umes for the sake of it … we col­lec­tively shape the way the firm grows to suit the needs of our clients and our­selves.”

How­ells says: “As a man­age­ment team we don’t do stupid things be­cause it’s not like we’re play­ing with some­body else’s money. We don’t do mad ac­qui­si­tions or go buy­ing big ex­pen­sive cars be­cause our col­leagues wouldn’t like it very much.”

The pos­i­tive claims had been am­pli­fied by a run of suc­cess at JLP, whose rev­enues have rock­eted by more than 50pc since the fi­nan­cial cri­sis. But its for­tunes have soured amid dif­fi­cult times on Bri­tain’s high streets. Part­ners took home a bonus worth just 5pc of their salary last year, the low­est since 1954, and this month the com­pany re­vealed its prof­its had all but evap­o­rated in the first half of this year.

The malaise risks knock­ing the shine off em­ployee own­er­ship, even as the com­mu­nity’s less high-pro­file mem­bers – Mott Mac­don­ald, Arup and Grip­ple in­cluded – have grown.

How­ells says the model works well for pro­fes­sional ser­vices firms like Mott Mac­don­ald, whose value is mostly tied up in their peo­ple, but is less ap­pro­pri­ate for those that are more cap­i­tal-in­ten­sive. “That is a big con­straint of em­ployee own­er­ship – it’s quite hard to raise cap­i­tal if you have need of it,” he adds.

Jan ad­mits Arup’s struc­ture can slow down de­ci­sion-mak­ing, but in­sists that’s not al­ways a bad thing.

“The dis­ad­van­tage is we’re ar­guably not as fleet of foot, but the big ad­van­tage is when we make de­ci­sions they tend to stick.”

There is a good de­gree of scep­ti­cism around Labour’s plans. Though work­ers will re­ceive a por­tion of their com­pany’s div­i­dends, that will be capped at £500 per per­son and the rest will be taken by the Gov­ern­ment to pay for pub­lic ser­vices.

They won’t be al­lowed to sell the shares ei­ther, mean­ing the ben­e­fits from im­prov­ing the com­pany’s per­for­mance will be lim­ited.

How­ells warns the scheme could have un­in­tended con­se­quences, dis­cour­ag­ing com­pa­nies below the 250-em­ployee thresh­old from tak­ing on more staff and lead­ing oth­ers to pur­sue pri­vate-eq­uity own­er­ship.

“I’m de­lighted that the Labour Party is talk­ing about it but it doesn’t work if you do it in a tsarist way – thou shalt do it,” adds Facey. “It’s got to be some­thing you be­lieve in and that your peo­ple be­lieve in – and if they do then you just fly.”

‘As a man­age­ment team we don’t do stupid things be­cause it’s not like we’re play­ing with some­body else’s money’

Shop­pers at the flag­ship branch of John Lewis in Ox­ford Street, Lon­don, now John Lewis & Part­ners, re­flect­ing its em­ploy­ee­own­er­ship model, which has piqued the in­ter­est of the Labour Party

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