LONDON (ILO Online) - Oxford Street, London's premier shopping area, acts as a magnet for locals and tourists alike, particularly in the key retail period just before the Christmas holidays. This is the street where British and international retailers have their prestige flagship stores and one of the largest of these is the department store belonging to the company John Lewis.
John Lewis is, however, a rather different sort of business from its neighbouring retailers in Oxford Street. With 27 department stores in British cities and almost 170 supermarkets, it is the largest business in the UK to operate as a fully employee-owned company. All 63,000 permanent staff are known as 'partners', and together they ultimately control the business. There are no external shareholders, all the company's shares being held in a specially created employee benefit trust.
John Lewis has traded in Britain for almost 150 years, and has been a fully worker co-ownership business since 1950 when the son of the founder transferred ownership of the firm to the employee trust at far below the market value. John Lewis's constitution now states that the company's ultimate purpose is "the happiness of all its members, through their worthwhile and satisfying employment in a successful business". Partners "share the responsibilities of ownership as well as its rewards - profit, knowledge and power."
The John Lewis Partnership, as the company is known, also has innovative mechanisms in place to encourage employee participation in the business. Parallel to the normal management structures is a separate system of democratic partnership bodies, one for each main operating unit. All partners are represented through the group-wide Partnership Council which appoints five non-executive employee directors to the main Board and which has the power to sack the Chairman. At the day-to-day level, staff can also demand responses by management to anonymous criticisms and comments, via the in-house magazine.
A culture of ownership
The John Lewis Partnership is well known in Britain for its innovative structure, but because it was originally created through the philanthropy of its former owner, it has often been disregarded as relevant as a model for other businesses. However, a new report from Job Ownership Ltd (JOL), the association of employee-owned businesses in Britain, suggests that employee ownership and participation improves productivity and company performance. What is needed to achieve this, the report Shared Company says, is a 'culture of ownership'.
"A recent ILO study also confirms that the survival rate of worker cooperatives and employee-owned firms in market economies appears to equal or surpass that of conventional firms, and that they also match or exceed the productivity of those conventional firms", says Jürgen Schwettmann, head of the ILO's Cooperative Branch. "Cooperatives and employee-owned enterprises deserve greater support because of the many 'collateral benefits' that they produce for their members and the community at large".
According to the ILO study, workers' cooperatives and employee-owned enterprises generally pay wages that are competitive or better than locally prevailing wages when profit-sharing, bonus and dividends are included. They are less likely to lay off members during economic downturns, preferring to share the work, even accepting a lower price for their product in order to remain in the market and maintain production and employment.
JOL is particularly keen to encourage the idea of employee buy-outs for smaller privately-owned businesses whose owners are looking to withdraw, typically at the time when they come to retire. JOL's Executive Director, Patrick Burns, says that a huge number of business failures are because of botched succession when a former owner withdraws. He criticises business advisors and accountants for not necessarily understanding that worker buy-outs are a potential alternative to management buy-outs or commercial sales.
For the claimed benefits of employee ownership to be applicable, however, a company must be genuinely in the hands of its workforce. This key point is the crucial one, according to David Erdal, head of Baxi Partnership, a UK capital fund for employee co-ownerships. "Control is very important. If it's less than 50 per cent, then it's not control", he says. He adds that, in his opinion, majority or fully employee-owned businesses tend to have healthier corporate governance. "Compared with a shareholder-owned company where shareholders are sometimes ignorant of what's going on, employees know it backwards, who's good and who isn't. Directors have to play straight", he says.
Employee-owned businesses such as John Lewis where the share capital is held for the benefit of the workforce are not synonymous with worker cooperatives, which tend to have more rigorous democratic structures and which commit themselves to following the seven agreed principles established by the International Co-operative Alliance.
However, even when adding in cooperative businesses, the number of companies which are broadly employee-controlled remains relatively small. One difficulty is that these businesses cannot always access the full range of equity capital available to other businesses, and are therefore limited to using loan capital or retained profits for financing growth.
The question of whether employees should be encouraged to become part-owners of their businesses, has been on the agenda recently at the European level, particularly in relation to the European Union's (EU) declared Lisbon strategy for economic competitiveness. A European Commission communication three years ago called for financial participation by employees in their own companies to be encouraged as a political priority within EU member states.
The EU call is a broad one, covering a wide range of situations, ranging from JOL-style employee co-ownerships to mainstream cooperatives with share-ownership schemes. Perhaps because of this, the issue of employee financial participation can be a controversial one. Observers point out that it can be highly imprudent to encourage employees to be reliant on a single business not only for their employment and pension but also as a place for their investment money.
Trade unions have also often been cautious of schemes to encourage workers to invest financially in their firms. According to the ILO study, some unions have been slow to embrace employee ownership, often viewing it as a threat to the organization and its leadership. Certainly, Britain's JOL sees no difficulty here. As its Shared Company report puts it, "There's nothing about employee ownership that rules out a strong, positive role for unions." The report adds that the idea that employee-owned companies are incompatible with unions is as much a myth as the idea that these businesses aren't profit seeking or are content with weak management.
Note 1 - Productivity in cooperatives and worker-owned enterprises: ownership and participation make a difference, John Logue, Jacquelyn Yates, ILO, Geneva, 2005.