Could the Future be Employee-Owned? Lessons from John Lewis' Sustainable and Thriving Business Model

The concept of 100% employee ownership has always intrigued me, particularly in the context of retail businesses where institutional share ownership dominates. John Lewis Partnership, with its unique employee-owned structure, caught my attention. Additionally, my previous encounter with

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Dame Sharon White during her evidence presentation to a Parliamentary Select Committee left a lasting impression on me. I also wonder if 100% or majority employee owned businesses are the way forward to business being sustainably viable.

Management Restructuring and Share Ownership

An International Women's Day event, Dame Sharon White, in conversation with Julia Gillard, revealed that John Lewis was undergoing a significant restructuring process. This included appointing a group CEO reporting to Dame Sharon as the chairman. The CEOs of the historically separate John Lewis stores and Waitrose stores would now report to the Group CEO. It would be the first time John Lewis ever had a chief executive. The goal was to streamline decision-making, foster collaboration, and strengthen the company's leadership. This was a result of active monitoring and reviewing internal governance structures, delegations of authority and their complementary and appropriate management structures will always be a positive.

It transpired that a share register restructuring was also on the table, with the possibility of introducing institutional investors onto the share register.

Decision on External Institutional Investors

After weeks of controversy and a vote of confidence, Dame Sharon has decisively put to rest the possibility of external investors in John Lewis, or until the business requires a cash infusion. While some institutional investors may be willing to take a chance, the employee owners of John Lewis were ready to revolt, prompting a vote of confidence in Dame Sharon. Relenting, she reiterated: “Our model is the very reason I joined the partnership because I believe profoundly in an approach of kinder capitalism in the 21st century. It’s what makes us special.”

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But if she hadn't relented, would it have been easy to find institutional or (HNW) individual investors to align with the ethos of John Lewis Partnership? Even if they did, how much would they be willing to invest? Would it be enough or just a bandage? Check out Nils Pratley at The Guardian who shares his thoughts on this.

So what are the pros and cons of 100% employee ownership?

Advantages of 100% Employee Ownership

1. Employee Engagement and Motivation: Employee ownership at John Lewis fosters a sense of engagement, motivation, and commitment among the workforce, resulting in excellent customer service.

2. Long-Term Perspective: Employee-owners prioritise sustainable growth and the company's reputation over short-term profits, leading to more strategic decision-making.

3. Sense of Empowerment: Democratic participation empowers workers, allowing them to have a voice in the company's affairs and creating a culture of inclusion and shared responsibility.

4. Profit Sharing: In addition to owning a stake in the business, John Lewis partners receive a share of the company's profits, reinforcing collective achievement and the impact of employee contributions.

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Challenges of 100% Employee Ownership

1. Capital Constraints: Limited access to external capital poses challenges for e

xpansion or investment, especially during financial difficulties, as selling shares to external investors is not an option. 100% employee-owned companies are not listed. So, unlike J Sainsbury's and Marks & Spencer, respectively, John Lewis cannot expediently raise cash through equity in the capital markets.

2. Risk and Responsibility: As owners, employees bear the risks and responsibilities associated with the business, potentially creating a heightened sense of vulnerability compared to non-employee-owned companies. Presently, John Lewis Partnership's net debt stands at £1.7bn, which is a lot given that it is employee-owned, and therefore there are no deep pockets to be called upon should net debt enter the danger zone.

3. Decision-making Complexity: Employee ownership can lead to complex and time-consuming decision-making processes as employees balance diverse perspectives and interests, making it challenging to respond swiftly to market changes. This has been evidenced by John Lewis’ slow move to online shopping and instead opening too many shops in the preceding decade – hence the closing of many "Little Waitrose" locations. Hopefully, the top management restructuring will prove effective and steer the business through the cost-of-living crisis intact.

Circling back to Sustainability and Some Stats

Sustainability and employee ownership can be closely linked, as employee-owned businesses often prioritise sustainable growth and social responsibility over short-term profits. According to research, 71% of UK employee-owned businesses have a statement of purpose. This is because employee owners tend to have a long-term perspective and are motivated to ensure the business's success and longevity, as they have a direct stake in it.

For example, John Lewis, a 100% employee-owned company, has a strong commitment to sustainability. The company has set ambitious targets to reduce its carbon footprint and increase its use of renewable energy, and it has implemented various sustainability initiatives, such as reducing waste, increasing recycling, and sourcing sustainable products.

Employee ownership can also promote sustainable practices in other ways. For instance, it can lead to better working conditions, fair wages, and employee development opportunities, which can reduce turnover and increase employee loyalty and satisfaction. Unsurprisingly, 96% of employee-owned businesses say that staff welfare is a key measure of business success. This employee-centric approach can ultimately result in higher productivity and innovation as employees become more invested in the success of the business.

Overall, employee ownership can provide a platform for businesses to operate in a sustainable and responsible manner. Employees can take an active role in shaping the company's culture, values, and practices which align with long-term goals and promote a sense of collective responsibility.

Conclusion

John Lewis's 100% employee-owned structure brings benefits such as employee engagement, a long-term perspective, a sense of empowerment, and profit-sharing. However, challenges related to limited capital access, increased risk, and decision-making complexities must be considered. Striking a balance between employee ownership and external investment is essential for sustainable growth and adaptability in a dynamic business environment. Despite these challenges, John Lewis serves as a remarkable example of success and longevity achievable through employee ownership. There are other 100% employee-owned businesses, e.g., Swinerton, Mott MacDonald Group, and Arup, to name a few. I hope they all steer through the current economic storm. It would be a shame to lose such businesses due to the adverse economic climate.

Food for thought: Have you ever considered establishing a business wholly owned by employees?