John Lewis: Partners on board

Democracy runs deep in John Lewis - the firm has been employee-owned since 1929, and five of its 10 main directors are elected to the role. EMMA DE VITA talks to two of them, and discovers that business and politics can mix.

by Emma De Vita
Last Updated: 09 Oct 2013

It's a dreary July afternoon on London's Oxford Street but David Jones, chief buyer for grocery at Waitrose, and Martin Whitell, department manager of Knight & Lee, the John Lewis store in Southsea, couldn't be more cheerful. Meeting me in the smart new bistro of the flagship John Lewis department store, with the rain hammering on the glass roof above, Jones and Whitell are here to talk about their unique position in the John Lewis Partnership (JLP).

They both fall into that rare category of boardroom beast: full-blown directors elected by the staff. Jones, ruddy-cheeked, has a touch of the farmer about him; while ex-church minister Whitell bears a passing resemblance to The Simpsons' evangelist Ned Flanders. Not inappropriate in a business that has something of the cult about it, informed by the mythic status of Spedan Lewis, son of the eponymous John and the man responsible for the firm's conversion to collective ownership back in 1929. JLP's employees - or 'partners' - often have a near-religious relish for their work that makes rivals green with envy.

On the face of it, the partnership structure of JLP (which also owns supermarket chain Waitrose and direct services provider Greenbee, and has a 25% stake in online grocer Ocado) seems a rum way to run a modern company. With collectivist decision-making and an emphasis on worker power, for some it carries uncomfortable echoes of the trades union-ravaged industrial landscape of the 1970s.

Yet John Lewis staff have never gone on strike, and business is booming: with 26 department stores across the UK and 183 Waitrose outlets to boot, the group produced a record annual pre-tax profit in March of £319m, with a generous bonus pot of £155m shared among its 65,000 partners. On a steady upwards trajectory (partner numbers had swelled to 68,000 by the time of writing, and are planned to hit 100,000 in the next decade), the Partnership attributes much of its success to its twin guiding principles of employee co-ownership and partner democracy.

Its constitution states that the firm's ultimate purpose 'is the happiness of all its members through their worthwhile and satisfying employment in a successful business'. Hard to imagine any FTSE-100 CEO, still less a private-equity incentivised management team, being prepared to write the h-word into their corporate mission statement.

If you think all this makes JLP into some kind of Utopian neverland, think again, says new chairman Charlie Mayfield. 'There seems to be a greater conviction around now than perhaps there has been for a very long time, that the reason we're being successful has everything to do with the character of our business and the way that is strengthening all the time,' he told the Partnership in his keynote speech in June.

Jones and Whitell are two of five worker-elected partners who sit on the JLP main board. They complement an equal number of conventionally appointed board directors - chairman, financial director, personnel director and the MDs of Waitrose and John Lewis. A more democratic way of managing a business is not to be found on the British high street; it's the polar opposite to the way that private equiteers or retail tycoons run the shop. No wonder Jones and Whitell are smiling.

'I love coming to work,' say Jones. 'It's about spending time with people who have the same values as me. I wouldn't say it was a club, but it's about being part of something bigger. Being a manager in this business, managing co-owners, is about the challenge of trying to get them to be as happy as I am.' He really means it - making partners happy by giving them fulfilling work is a central tenet of JLP. Pay rises and promotions depend on it.

Jones has been with the firm for 25 years and has filled various branch and head-office roles. He has just landed his dream job as head of buying for grocery, wines, beers, spirits and tobacco at Waitrose. As well as his full-time position, he has served as an elected board member for the past eight years and has been re-elected for another two-year term by the partnership council, of which he's also a member. The 87-strong council - itself largely elected - is a powerful body which in extremis has the power to dismiss the firm's chairman.

Got all that? Good, because there's more to come. A total of 11 candidates stood for the five board positions this year. Each produced a written manifesto and presented it at a live hustings, before the partners' votes were cast. It's hard to believe that administering this fully-fledged corporate democracy - complete with its own parliament, elections and a multitude of committees, councils and working groups - leaves much time to run the business. Yet somehow they get results.

Elected board members are expected to attend up to 10 board meetings a year - for no extra money. Why do it? 'It's absolutely fascinating,' Jones replies. 'You sit there - and this is going to sound slightly outrageous - with the moral authority of 68,000 people on your shoulder. That comes with a huge responsibility and you realise that you are there not only to make sure that the Partnership is here now but here for the future - and for the next person to say: "I've had a great 25 years." You don't want to sit on your hands for two years: you don't get paid for it, there are no fancy lunches. It's actually about making a difference.'

After a recent change of guard at the top of the firm - the chairman plus the Waitrose and John Lewis MDs are all new to their posts - Jones is now the longest-serving JLP board member. But Whitell, though 24 years with the company, is a board virgin. Is he nervous about attending his first meeting? 'I'm feeling absolutely fascinated and excited, and I'm looking forward to seeing the agenda and getting into it.'

But Whitell is an old hand at other aspects of JLP's democracy and, as the longest-serving partner on the council, holds the grandiose title of Father of the House. How did his colleagues react to his accession to the board? 'There was initially a bit of banter and that's quite fun,' he laughs. A sign reading 'Lord Whitell' appeared on his office door, mischievously applied by one of the 150 partners down at Knight & Lee.

But Whitell, predictably, says he is more of a servant than a master, and that his election offers him the chance to contribute more to the business and to keep it in touch with its heritage. 'I'm a kind of link with the past. I hope I'm not too much of a dinosaur, but I'm very eager to be present at this transition and give something back.'

The focus on legacy is a peculiarity of John Lewis, which - in the absence of quarterly pressure from the City - can afford the luxury of consulting its employees. They own the firm, after all. Elected board directors are vital in this regard. Both Jones and Whitell view their board roles as a conduit between the ordinary selling partners and the appointed directors - sort of shopfloor non-exec directors.

'It's my job to challenge and probe the management when they bring things to the board,' says Jones. 'And you've got to do that effectively - you can't just throw a brick through a jeweller's window. There is a lot of building relationships with key decision-makers on the board and testing things before you even get there... It's not a combative thing, because you trust management to run the business, but you've got a unique ability to keep them in touch with what some of the people are saying.'

Whitell agrees. 'Resonance is the word I'd use. You've got to be vibrating with the business, and you get that by listening to the people you work with. I meet the general public every day, and to be able to feed back the gut feeling of customers is a very useful thing and one of the unique features of having elected directors on the board.'

But for all its softer qualities, there is a hard commercial centre to the business, says Andy Street, John Lewis' headmasterly new MD. 'It's a democracy, this organisation, but it is not,' he says, tapping the table to emphasise each word, 'a perfect democracy in the classical sense. It does not mean that every decision is taken by some sort of general meeting, in the traditional co-operative sense. That would lead to paralysis.

'Commercial decisions are taken by the partnership board, and it's the executive who bring them to the partnership board.' Meaning the conventionally appointed directors, rather than the elected ones. 'So I hope that is clear. It is not anarchy.' Citizen Smith would be disappointed.

Street says the role of the elected board directors is to 'sense-check' the proposals presented to the board by their executive counterparts, and to give their views on whether these are consistent with the long-term interests of the company and of the partners. He gives a recent example. Last year, JLP decided to close Windsor department store Caleys. Says Street: 'That decision had to come from the partnership board. David [Jones] and his colleagues had to ask what was in the long-term interest of the 68,000 partners who are employed in the business, set against the difficulties of the partners in Windsor.'

So elected directors are there not to set corporate strategy but to act as a check to hasty or ill-considered proposals. This can lead to conflict between appointed and elected directors. Street admits that if the elected directors do not support a proposal, it's unlikely to be forced through.

One battle that was fought and won by the elected directors was over a proposal to close an - unnamed - branch some years ago. Jones and his four colleagues felt that not enough spadework had been done to find out whether that branch could be made commercially viable again. 'We all stood together,' says Jones. 'That branch is still open. It was the first time I felt that there was real power - a number of directors standing together, including some appointed directors - and we decided not to do it. That was a time when you think: "Gosh, this actually works." As an electorate we were saying: "If you get all your ducks in a row and it's never going to make money then we'll close it, but get it all right first."'

The decision to invest in a third party - online shopping service Ocado - also came after big internal debate, but the proposal went through once the commercial benefits were made clear. Elected partners can press a 'nuclear button' if they are really unhappy, which results in the proposal in question being sent to the partnership council for a vote. But this is the kind of hardline collectivism that the board is keen to avoid, and no-one can remember the last time this drastic sanction was used.

The system works because the ultimate aim remains to improve the bottom line; the firm simply chooses an unusual route. 'We're in a competitive world and we believe that our partnership-ownership model makes a difference in customer experience,' says Street. 'But this means nowt if, when you go into Oxford Street [store], the partner you meet doesn't behave like an owner of the business. That's the big competitive advantage - it links through partner, through customer, through profit.'

Whitell agrees that levels of what HR consultants are now calling employee engagement are sky-high at JLP. 'Everyone is holding hands in our business. Every single partner is there working for it.'

Their system may not be to everyone's taste, but they certainly know how to make it deliver. Spedan Lewis would be proud.

SPEDAN LEWIS - CANTANKEROUS GENIUS OF RETAILING

Unlike Soviet Russia, the John Lewis Partnership has thrived under collective ownership. For this eccentrically run retail group, whose employees are designated as partners and all own a stake in the company, is growing apace in both size and profitability.

All this despite what at first sight appears to be a complex and top-heavy system of governance. A brief perusal of the JLP website reveals a network of two 'governing authorities', with two group management bodies (plus two more divisional ones) beneath that and numerous divisional and branch councils and committees feeding in at the bottom. Hardly sounds like the lean, mean, fast-moving body corporate we have come to expect nowadays.

Its roots lie in the radical decision taken in 1929 by Spedan Lewis (1885-1963), son of the eponymous John, to give the company in trust to its staff - a status that can only be changed by Act of Parliament. Described as 'vain and cantankerous' in the glossy memoir published by the firm to mark the centenary of his birth, Spedan is nevertheless revered as the lynchpin in the creation of the collectivist JLP. He continued to work a six-day week till 1955, without dividend, fee or salary. No wonder he remains a near-legendary figure.

The best-known part of the firm's constitution, its manifesto, reads: 'The Partnership's ultimate purpose is the happiness of all of its members,' suggesting that JLP's commercial instincts are not as finely honed as they might be. But the line that follows, 'through their worthwhile and satisfying employment in a successful business', captures well Spedan's canny blend of business acumen and corporate conscience. He wanted contented staff alright, because he thought they'd work harder and make more money.

Along with the idiosyncratic structure, the famous slogan 'Never knowingly undersold' has been with the chain since the 1920s. JLP is also one of the few firms still to run a non-contributory, final-salary pension scheme, and other benefits retain a paternalistic flavour: subsidised dining facilities, sports and social clubs, even four UK holiday venues.

In a world where unhelpful shopfloor staff are the norm, the prodigious level of employee engagement generated by co-ownership is one of the firm's great strengths. Another is the unusually high barrier-to-entry that partnership creates. Retailers are famous for stealing each other's winning ideas, but it would be nigh-on impossible for a rival to copy JLP's byzantine structure successfully.

Perhaps the best indication that the system created by Spedan Lewis works is the attitude of the partners towards it. In a vote on whether to float JLP as a Plc in 1999, they rejected the chance of a £100,000 windfall each in favour of continuing collective ownership.

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