In a world where much economic wealth revolves around the 1 percent and where many managers are wondering how to encourage employees to show more “ownership,” the U.K.-based retailer John Lewis has a novel solution — make employees owners.
The John Lewis Partnership (JLP) comprises 45 John Lewis retail shops (similar to Nordstrom in the U.S.), over 300 Waitrose supermarkets, an online and catalogue business, a production unit and a farm. Last year, JLP’s 88,000-plus “partners” contributed to earn the company annual gross sales of over £9 billion ($13.9 billion at current exchange rates). Not only is John Lewis one of the leading retailers in the U.K., it is uniquely structured to be 100 percent owned by its employees. This model could be part of the approach needed to balance the benefits of capitalism with the need for different ways to address wealth in modern society.
With no external shareholders to please, John Lewis employees have the opportunity to share in the power, benefits and profits of a company they own and which puts them first, along with the customers. In fact, over the past 20 years, John Lewis partners have received (in addition to their already market-competitive wages) a yearly bonus averaging 15 percent of their annual pay. This is the equivalent of seven-plus weeks of additional wages per partner.
Those familiar with employee ownership in Europe may be wondering how JLP differs from Mondragon, the large Spain-based cooperative that was long cited by advocates as the leading employee ownership model in Europe, but which recently has fallen upon hard times with the bankruptcy of its white goods (washing machines, refrigerators, etc.) business. While Mondragon had many interesting aspects to its employee participation model, including member voting and small group chats called charlas, the main reason JLP is better positioned for success than its Spanish neighbor is due to its legal structure. Mondragon is a cooperative; John Lewis is a trust.
In general, the reason that trusts work better than cooperatives is that trusts allow for employees to receive 100 percent of fair market value when companies are sold. Or, in the case of JLP, they receive 100 percent of the profits each year. In cooperatives, employees usually cash out at book value (an accounting term), which is usually two to three times lower than fair market value.
What makes the model work? Employee participation. JLP shares knowledge, power and profits among partners. Knowledge is shared by openly publishing data about how the business is doing. This empowers partners at all levels with information they need to be active participants.
Power is shared at both the macro and micro levels by means of democratically elected partnership divisional counsels and individual branch forums. The chairman and other board members regularly present to the central partnership counsel, and the counsel has the power to remove the chairman by vote. Within each branch, there are also individual branch forums, responsible for local decisions such as which charity to support.
Additionally, all employees can voice their questions directly to the chairman via JLP’s company newspaper, "the Gazette." An average of 14 questions per week are received, some anonymously. All receive a management response.
The most tangible of the partners’ benefits comes via the annual redistribution of profit bonus — money that in most other companies would go to shareholders. Board members allocate annual earnings between three main categories: reinvesting in growing JLP’s business, contributing to JLP’s generous pension plan and paying the annual employee bonus.
Employee ownership seems to be working quite well for JLP. Despite stiff competition in the supermarket category, which hurt profits last year and this, JLP continues to increase in market share in both John Lewis and Waitrose stores according to its latest six-month profit report. With the end goal of JLP being the happiness of its employees, it seems that it is on to something.
John Hoffmire is director of the Impact Bond Fund at Saïd Business School at Oxford University and directs the Center on Business and Poverty at the Wisconsin School of Business at UW-Madison. He runs Progress Through Business, a nonprofit group promoting economic development. Katy Sperry, Hoffmire’s colleague at Progress Through Business, did the research for this article.