With poor governance hitting the headlines, it's worth revisiting the John Lewis Partnership for a case study of a different way of doing things.
There have been many analyses suggesting that something has gone badly wrong with the conventional way of business. Periodic crises, ethical failures, dishonesty and manipulation, extreme disparities in rewards, hollowing-out followed by corporate collapse… These problems seem to have become endemic. The system itself has become self-defeating and unstable even in its own terms of pursuit of shareholder value. Malpractice sets the scene for a race to the bottom.
It is against this backcloth that the John Lewis case merits another close look. The John Lewis Partnership (JLP) has two main operating businesses: Waitrose supermarkets and the John Lewis Department Stores. It has features which offer alternatives to the current conventional model. It has shown itself to be sustainable over the long term. It offers better than average employment to more than 90,000 people. In place of the short-termism demanded by shareholder capitalism it can afford to take a longer-term view as it is employee-owned and uses its own resources and borrowing for investment purposes. It has a written constitution which sets boundaries and rules.
There are additional features also. It has a strong ethical base as originally set-out by its founder in the 1930s and whose legacy of principles is regularly revisited and refreshed. It retains, and invests in, a strong democratic infrastructure with partner (employee) representation at all levels of the business – from shop floor to boardroom. It has a highly unusual, and openly declared, ‘ultimate purpose’: the ‘happiness of all its members through worthwhile and satisfying employment’ within the framework of a ‘successful business’. And in so many ways the John Lewis Partnership can indeed be shown to be successful.
So, is this the alternative model others should follow? If so, how can they emulate it? Everyday enactment of the underlying principles is not straightforward. There were times when the model did not deliver in the way it has over the past couple of decades. The model does not automatically deliver the goods. The fascinating heart of the story is how managers and partners jointly steer a path which balances a number of key dilemmas.
The elements of JLP as described above are all ongoing features of the way the Partnership operates. What was of special interest to us as we engaged with this organisation over a long period, first as advisors and then as independent researchers, was how these principles were translated and acted upon when confronting challenges of a day to day operational nature, and challenges of a strategic-choice nature.
Operational challenges included detailed matters such as how to respond to customer complaints, how to handle relationships with suppliers, how to handle employee issues of a disciplinary nature and how to handle redundancy. Strategic challenges included how to convince a membership organisation that there was a case for growth. How to convince the same membership base that a focus on investing for the future might need to counterbalance natural desires for immediate returns? There were other strategic dilemmas: how could outsourcing be justified in a partnership organisation? Would the outsourced functions be staffed by partners? If not, might the partnership turn into just another employer?
Arguably one of the most crucial questions when researching (and managing) this alternative model was: on what basis would it (and should it) seek to measure itself? Should it take the metrics used by its foremost competitors – Marks & Spencer, Debenhams, Next, House of Fraser, Tesco, Amazon? Or should it devise its own measures commensurate to its own distinctive purposes?
This question turned out to be crucial. Realising the force of the adage ‘what gets measured gets done’, there was conflict on this crucial question. One stance was to argue that if the JLP model is indeed ‘better’ then it ought to easily meet and surpass competitor results (revenue, ROI etc). Another view was that this sameness of measure risked a distortion of purpose. Being true to distinctive principles might mean being brave enough to adopt different measures of success – this might conceivably include accepting a lower rate of profit.
In practice, the JLP revealed its best self by seeking to balance all of these. There were healthy debates about accepting the stretch targets set by their leading competitors while also offset by acceptance of the merits and value of an alternative, distinctive, approach. Both value-sets were in play, neither was allowed to be vanquished completely.
The lessons extend beyond this organisation and indeed beyond employee-owned businesses in general. Anyone striving to make sense of the multiple objectives of commercial survival and ethical behaviour can learn more from the actual practices as described in the book than from the abstract general principles. The devil is in the detail of realisation and delivery. But, these everyday practices also need to be underpinned by structural arrangements which lean in favour of patient capital.
John Storey is professor of Human Resource Management at The Open University Business School. Graeme Salaman is Emeritus professor at The Open University Business School. Their book A Better Way of Doing Business? Lessons from the John Lewis Partnership, is published by Oxford University Press (2016).
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