Steffan Aquarone

Steff is a film producer and technology entrepreneur who speaks internationally on innovation, entrepreneurship and digital marketing

Give your company to your workers and enjoy long-term profits?

“It is wrong to have millionaires before you have ceased to have slums” were the immortal words of John Lewis’ founder, John Spedan Lewis. Regardless of moral persuasion, the fact that this month the John Lewis Partnership announced an increase in group sales of 8.4% (on 52 week basis) with operating profit across the group up 22% is impressive. They paid partners a bonus worth almost 8 weeks’ pay and made a one-off contribution to the pension fund of £150 million. All that in a recession that’s wiped out scores of businesses, not least in the retail sector.

In the spirit of John Spendan Lewis’ philosophy, the John Lewis Partnership is made up of all the 70,000 people it employs. Its annual report modestly states that “Our purpose is the happiness of all our members, through their worthwhile and satisfying employment in a successful business, with success measured by our ability to sustain and to enhance our position both as an outstanding retailer and a thriving example of employee ownership”. This takes Nick Clegg’s statement last night that work “is the way you reward people, but also where you find self-esteem” to a new level.

By rewarding employees with a tangible share in the benefits of their work, John Lewis has benefited from extraordinarily high commitment from its workers, a likely contributing factor to their success. “They’re interested in what they do and they’re knowledgeable about what they sell” says their own website. This is patently clear when you visit a Waitrose or John Lewis store. One of the things I’ve always found most impressive is the way staff are happy to refer to colleagues’ whose expertise about a particular product might be greater. This is a marked contract to commission-based incentives that reward sales people only when they close the deal.

The damage done by taking a short term view of rewards goes deeper than this without even mentioning bankers. Our private sector supports executives who are paid phenomenally high amounts. Today the average CEO earns 81 times more than their average employee. In 2000 this ratio was “just” 47. The worrying thing is that it appears no amount of corporate cock up can even threaten these salaries – just take a look at Ruth Sunderland’s list of the hightest-paid executives and work out for yourself whether they added value to the extent of their remuneration. A classic example she cites is BP’s shareholder meeting last week, where there were protests at chief executive Tony Hayward’s 41% pay rise over a period in which profits fell. Will one of the biggest man-made disasters in 20 years have an impact on next year’s salary do you think?

This isn’t a side-effect of capitalism. It’s a side-effect of a new type of capitalism that places a layer of impenetrable unaccountability between executives and shareholders. Richard Lambert, secretary general of the CBI, said that executives risked becoming “aliens… in a different galaxy from the rest of the community” and said this “Jack Welch capitalism” had tarnished the reputation of business such that it can never be “a positive force for good” while short-term shareholder value is the main boardroom aim.

Left-wingers often talk prophetically about the end of capitalism. But perhaps examples like John Lewis are indicative of an alternative type of capitalism – no less profitable – with longer-term interests and a broader recognition of its stakeholders. “We believe our model, where commercial success is a driving force but where the needs of Customers, Partners, and long-term financial ambitions are balanced, represents a sustainable, compassionate and fairer form of capitalism” says John Lewis’ Annual Report.

Welch was famed and derided for stating that CEO compensation should continue to be dictated by the free market, without interference from government or other outside agencies. Maybe it’s consumers’ turn to influence things. And with more businesses seeing for themselves how employee ownership can pay in the long run, they might not even need to be conscientious objectors to do so.

Further reading:

Bill Waddell on The End of Jack Welch Capitalism

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