Employee ownership and the John Lewis Economy

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by Employee Share Ownership on February 16, 2012

From the Peter Cox Event recently held by the EOA and sponsored by Greenwood Freehills, Coops Australia and the International Year of the Cooperative,
24th January 2012

The John Lewis Story is incredibly well known globally and has been gaining particular focus in the UK very recently. Nick Clegg, the Deputy Prime Minister of the UK recently told an audience in the City that the government planned to cut red tape, and reform the tax system to accommodate employee ownership. It is hoped the measures will create what he called a “John Lewis economy”. (See here for the full story).

Nick Clegg is not alone in believing that the John Lewis Model is the right vehicle to kick start the UK economy. James Caan, CEO of global private equity investors Hamilton Bradshaw and a former star investor of TV’s Dragons’ Den, threw his support behind Nick Clegg’s plans for more companies to reward staff with equity today. Caan said, “It is a model we encourage our portfolio companies to follow and we have found equity shares are be a very effective method of improving staff engagement and loyalty.”

So it was interesting that on 24th January 2012 in Melbourne that EOA held its first networking event for it members about the John Lewis model. Peter Cox, the former IT Director at Waitrose and John Lewis talked enthusiastically and frankly about John Lewis’s history and how the employee owned business had been created and faired during that long history. It was particularly interesting to see how John Lewis had been performing during most recent years where the rest of the UK economy is suffering recession.

John Lewis originally began in 1914 at the department store Peter Jones and it was formalised legally in 1929. It now (February2012) employs over 75,000 people at 35 John Lewis department stores and 268 Waitrose supermarkets, with an annual turnover of £8.2b, approximately $13b Australian. There is no public equity. The business is held in trust for its employees – all called Partners – and its residual annual profits are distributed to all Partners as an annual bonus in proportion to their salaries.

Over the last fifty years the average bonus has been 16%. In industries in general in the UK in the last 3 years bonuses have averaged 0-3%.

What is the John Lewis employee ownership Model?
The company is owned by a trust on behalf of all its employees — known as partners – who have a say in the running of the business and receive a share of annual profits, which is calculated at a business unit level and which is usually a significant addition to their salary.

The retailer’s employee-owned partnership model operates differently from private-equity backed businesses and stock market-listed companies as instead of profits flowing to the shareholders, at John Lewis they flow to the staff, in the form of the annual bonus.

There is a participative process with elected councils for each of member companies of John Lewis and Waitrose and the Partnership council elects five members to the Board. The Board is made up of the Chairman, five appointed directors, five elected, and three non-Execs. Unusually, there is a maximum salary enshrined in its constitution.

John Lewis staff earn the same as shopworkers at rival chains – but the year-end bonus is a significant top-up. Its directors, on the other hand, are paid substantially less than their boardroom counterparts.

A report by academics at the Cass business school found that employee-owned businesses had a higher rate of sales growth and job creation during the recession than companies in conventional ownership. Over the course of the boom-and-bust period between 2005 and 2009, they generally created new jobs more quickly and were at least as profitable as their counterparts.

For other useful articles about John Lewis:
John Lewis Model Lessons
John Lewis Chief Warns on Owner Model.

To get a copy of Peter Cox’s insightful book on this issues click here.

If you want to find out more about how employee ownership or an ESOP can help your organisation, email us on info@employeeownership.com.au, become a member or attend one of our networking events.

To join our mailing list please provide your details here.

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