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Partnership pays off for great British eccentric

Sun, 15th Oct 2006

IMAGINE A company whose ultimate purpose is 'the happiness of all its members'; has a written democratic constitution of which the above is the first principle; is a partnership whose members undertake to treat each other, customers and suppliers with respect, honesty and courtesy; and has just decided to pay its top manager no more than 75 times the average basic rate of non-management members - in effect reducing the theoretical maximum.

Isn't such an entity too good for this cynical old world? Come on: business isn't a democracy - if everyone had a say, how would anything get done? Similarly, a company can't be nice to everyone and how will it attract good people with such an unworldly pay policy? Received wisdom says an organisation built on those lines would be squelched in short order by harder-nosed conventional rivals.

Well, prepare for a shock, or maybe a new definition of hard-nosed: John Lewis not only exists, it is kicking sand in rivals' faces. The stores group has shed its staid image and reinvented both the supposedly passe department store and the supermarket for a more health- and fairness-oriented age. As well as growing physically - it plans 10 more department stores in the next decade and will soon have 200 Waitrose supermarkets - the partnership also runs fast-growing online operations for both divisions, and earlier this month launched a direct services outfit called Greenbee. No wonder the chairman began his presentation to the recent quarterly 'council' meeting (the partnership's parliament) by congratulating partners on a 'sparkling' first-half performance.

With 65,000 partners and revenues of pounds 6bn, John Lewis has come a long way from founder John Spedan Lewis's 'experiment in industrial democracy' set up in 1950. Human resources director Andy Street bristles at the idea of John Lewis as an amiable eccentric trading off its reputation as a national treasure. John Lewis has to be a better business than its rivals, he says, because of the conditions partnership imposes - final-salary pensions, for example, which alone among large retailers it has no plans to abandon (although the council has voted to raise the retirement age to 65).

Conversely, although the connection is hard to prove, the business model rests on the conviction that 'partnership' is what supercharges the retail performance. Fulfilled workers go the extra mile for customers, which makes for greater satisfaction and loyalty, and higher profits - part of which are then shared equally among the partners (in effect, 15 per cent bonus last year). 'It's a closed loop,' says Street. 'Co-owners behave differently... it all fits consistently together, which is why others find it hard to emulate.'

Pay is an essential part of the mix. Take top salaries, the formula for which has just been revised by the council after strenuous debate. It's actually quite hard to make comparisons with other companies, since almost everywhere else top pay includes a huge variable element - which John Lewis eschews. But the 75-times maximum ratio for chairman Sir Stuart Hampson (a theoretical pounds 887,000, although he only made a basic pounds 650,000 in 2005) compares with 127 times for the UK as a whole, and 466 times for Tesco's Sir Terry Leahy. No other major British company, maintains Street, has an explicit link between top and shop-floor pay, let alone one set by employees. As for making it harder for the group to attract talent (as some council members fret), Street claims the reverse happens: it puts off people who are motivated only by money and attracts those who want to work in the partnership model - so the spiral is self-reinforcing.

The group is now engaged in a conscious attempt to make the partnership principles even more central to day-to-day management. Customer satisfaction and profits are easy to measure, notes council member Anne Buckley, whose day job is 'registrar' - a kind of internal consultant on partnership best practice. For the past three years, an employee survey has attempted 'to gauge performance on the partnership principles better'. As Hampson emphasised at the council meeting: 'So often it is management that sets the agenda. The partner survey turns that around.'

It was always part of the founder's aim to establish 'a better form of business', and with confidence high the partnership is, in its modest way, going on the offensive. One reason for growth, says Street, is to give more people the chance not just to buy from the partnership but to participate in and contribute to its more fulfilling business model.

That's a brave aim. But success creates its own pressures. As Hampson also reminded the council, a business is most vulnerable when it believes it's doing well. Part of the group's surge is the result of the public mood catching up with the principles it has always espoused. Having survived modest obscurity, in the limelight, partners will be reminded of another partnership principle that they signed up to: that 'they share the responsibilities of ownership as well as its rewards'.

The Observer, 15 October 2006


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