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
‘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