Talk with John Lewis Chairman Charlie Mayfield
Mayfield's general courtesy to visitors and staff is not a modish fad jetted in by management consultants from New York. He is the figurehead of a most unusual company owned by just under 70,000 employees, called 'partners'.
Although the origins of the company date back to 1864, the Partnership was founded in its present form in 1929 by John Spedam Lewis, a believer in 'industrial democracy' who strove to combine commercial acumen and corporate conscience" in a company where staff "share knowledge, power and profit".
In 2008 this equated to a £290m return to partners in the form of a bonus, pensions and other benefits. Hallo Charlie, have you got a job?
Successful employee ownership
London-based JLP is the UK's largest and longest-lasting example of employee ownership, and probably its most successful. In 2009, the Partnership's 28 'John Lewis' department stores, 227 'Waitrose' supermarkets, and online businesses posted sales of around £7.4bn.
Not many companies have a written constitution, and certainly very few identify their ultimate purpose as "the happiness of all members" based on "worthwhile and satisfying employment".
Of course, the real challenge for the company is to prove that a business, which is not driven by the demands of outside shareholders and which sets itself high standards of ethical behaviour, can flourish in the extremely competitive conditions facing a modern retail business. At times this must seem like squaring the circle.
Even the most cursory glance at JLP's constitution indicates where conflicting tensions can lie: "rights & responsibilities of Partners...with as much equality between its members as difference in responsibility permit... as much sharing of power among members as is consistent with efficiency... the Partnership's management should devolve as much power to its representative bodies as is commercially prudent." etc. etc.
In a world that often perverts noble causes, and with human beings who struggle and strive to make a living, such goals are surely more easily formulated than executed.
Bankers, please take note
It is clearly Mayfield's task to juggle with the conflicting forces revealed in the constitution and, presumably, each chairman has to define for himself and the partnership where the exact demarcation is to lie within the context of the society and market the company finds itself acting within.
The chairman must do this without accepting "any paid employment or any other position of official responsibility" and for a salary which "will not be more than 75 times the average basic pay of non-management Partners". Bankers please take note.
As the senior executive in the partnership, Mayfield is constitutionally obliged to retain "its distinctive character and its democratic vitality", but he is also "ultimately responsible for its commercial performance".
In this role it surely helps that the boardroom does not have to answer to external shareholders and can make long-term decisions on how it sources its products, builds and operates its shops, treats its people, and supports local communities.
Above all, however, our newspaper wanted to know what makes JLP different and to explore whether its successful model could be adopted by other retailers, or whether the partnership's corporate structure represents something uniquely British. Mayfield's almost philosophical answers certainly challenge our recent Zeitgeist of tooth-and-claw capitalism.
"We are an employee cooperative"
Mr Mayfield, isn't it a bit of a cultural shock for an ex-Army officer to run such a democratic organization as John Lewis?
Firstly, it's nearly 20 years since I left the army. Of course, any military structure must have a clear chain of command, but, whether you are in the military or working for John Lewis, at the end of the day, it all comes down to learning how to manage people and to get the best out of them.
Do you know of any retailer in Europe or the US who has structures at all comparable to JLP?
The US tends to have more employee share ownership structures, whereas Europe leans more towards co-operatives. In the States, the two largest employee-owned companies are the supermarket operators Publix Super Markets, with 142,000 employees, and Hy-Vee Food Stores which has a profit-sharing trust of 55,000 employees.
In Spain, there is Mondragon, which has 90,000 people, but only one third are actually co-operative members. It has quite a different structure to us, but shares some of the principles on which we run.
In what way does your organization differ from a cooperative?
We are not a consumer, retailer or producer cooperative; we are a worker or employee cooperative. Therefore, we tend to talk about employee as opposed to co-operative ownership. We are distinct from a cooperative, but there is a considerable degree of similarity between us and co-operatives in terms of values and aims.
What competitive advantages does your corporate structure give you over the multiples?
The main advantage lies in the level of employee engagement and how that feeds through into the customer experience. So, we have more engaged and longer-serving employees. Our rate of staff turnover is about half the trade average.
It is the combination of all these factors which makes the customer experience better, generally-speaking, than at our competitors. This is also corroborated by independent reviews.
Another significant area is our ability to plan, invest and execute long-term. We are not beholden to the stock market, and we are not a slave to quarterly earnings reports and earnings per share. We are therefore not under short-term earnings pressure — hence our success, for instance, with our John Lewis Direct business.
But can you recapitalise as effectively as, for instance, Tesco Plc via the capital markets?
We can always borrow; we have never, to my knowledge, had an issue with not being able to raise funds. The lack of access to capital markets has not constrained the growth of the business.
Waitrose has grown by around 170 per cent in the last five or six years; John Lewis has grown probably by about 60 per cent in that time period, and we have ambitious plans to grow the business in the future.
Frankly, our ability to invest is governed as much by our ability to invest well and having the right people in the right place at the right time to manage as it is by any restrictions on finance.
Some retailers have strained their balance sheets in the current financial crisis. What is the situation at JLP?
Traditionally, we are quite conservative in relation to our financial structure. We have always chosen to keep our borrowing within certain limits. As a result, we have not over-borrowed and have a strong balance sheet. The gearing on our balance sheet is around 30 per cent, which is relatively low. In fact, our conservatism has been vindicated during the international financial crisis.
How about the disadvantages of working for a company structured like JLP?
I find it very difficult to answer this question because I really don’t think there are very many disadvantages; and, if there are some, they are all transitory, i.e., things which one can deal with. You could say that, on occasions, we take longer to drive some changes in our business, whereas other businesses decide to make changes and just implement them.
Therefore, our rivals may sometimes appear to execute faster than us, but we choose to operate the way we do because we place a high value on carrying our employees with us and maintaining their trust. This means that you have to engage them more.
Actually, over time, I believe that this is not a disadvantage at all; it’s the foundation of our advantage. So, although on the face of it, we might appear to be slower, we have our partners on board when we actually change things. We plan openly and carefully and therefore when we execute, we do so better.
Some businesses will plan in secret in the hope that they can execute faster, but I am not sure that they do. I think they spend a long time afterwards trying to recover the trust and the commitment of their people.
Pure democracy is hard to manage. How do you balance the need for clear management decisions with your internal democracy requirements?
The genius of our founder, John Spedam Lewis, was that he recognised these tensions and attempted to reconcile them. So, although the partnership is a democratic system, quite a conventional management structure runs alongside it.
How does this work?
Essentially, management are employed by the partners in a similar way that shareholders employ the management of a publicly-quoted company. The difference with us is that the shareholders are inside the company and employ their own management.
We have a management chain which in many respects looks very similar to what you would find in other companies. But we also have a democratic chain which runs parallel to the management chain.
Two parallel worlds? How do they come together?
Through accountability. So, it is not the responsibility of the democracy to run the business, or to decide whether we put prices up today, or whether we are going to increase wages, or whether we are going to open a shop here or there.
It is the responsibility of the management to take and implement decisions, but it is held accountable by the democracy. And because of this, we adhere to the important principle that management is employed by and works for our partners.
It almost sounds like a post facto democracy?
There is an element of this, but the reality is more dynamic and pro-active than that. Management has to report regularly to the Partnership Council, an elected body of around 70 people. I report on company performance to the Partnership Council twice a year. Then, they will vote on my report as a type of post hoc accountability.
But, more importantly, this is a reflection of the culture embedded in the organization. Partners also have the right to ask questions of anybody at any time. So, you have the two chains of democracy and management, and they come together in the Chairman. I am held to account at partnership council level.
But, at every step down the chain there is a match between the managerial/operational side of the business and the democracy. So, at every branch there is an elected group acting as a partner voice forum which will be attended by the branch manager. This is where accountability happens on the spot.
Can the democracy fire management it doesn’t like?
No, I am the only person whom the democracy can sack, if the council decides that I am not doing a good enough job. None of the other councils can fire people because otherwise the management couldn’t operate.
But it is my responsibility to make sure that managers are acting in the right way because, ultimately, if I don’t do this I will be held accountable for the outcome by the democracy. One of the ways to achieve this is having this match all the way up the organization.
What types of things are discussed at the partnership voice forums?
What concerns partners and how the business operates from day to day. For instance, is it fair the way we are dealing with the rotas next Sunday; are we happy with how we are managing wastage in this branch; can we do more to improve customer service and the customer experience; has so and so been treated fairly? etc. etc.
Is it true that any partner can write you a letter about anything concerning the business and that you are obliged to answer them?
Yes. Numerous partners within the organization write to me if they are not happy about something; and I will write back to them. I delegate my answer only if the question relates very specifically to an issue in a local area where there is a relevant director or manager who can give a better response.
As a stressed manager, why go to the bother of letter writing?
It’s all about nurturing a culture where partners feel that they are heard and do have a voice. It is all part of the accountability, i.e., that, say, a warehouse man can ask a question of anybody, including the chairman, and will get a public response. This also brings home to managers that they are always accountable.
Obviously, this has a huge impact on the leadership style of the partnership which is distinctively more inclusive and consultative than you would find in many other companies.
If staff members decide on a democratic basis, what is stopping them from, for instance, all voting to go off to lunch at the same time?
I think that this may have happened occasionally around 15 years ago when the partnership had become quite introspective and was focussing more on partners and not enough on customers. And maybe one example of this was that it didn’t open on Sundays and Mondays and we only traded five days a week.
There was a good customer reason for the old way because it provided a continuity of staffing, and we always aim to provide customers with the same positive shopping experience every time they come in.
But, it was also a way of working which staff had got used to and with which they were happy. Generally, people don’t like change, and that’s not unique to the partnership.
How do you effect change?
We make a case for change and obtain agreement from the people to change. In fact, if you give partners the right information and, for instance, let them know that customers are very unhappy with us because we are not open on a Monday, they will come up with solutions. Actually, what we find is that people are incredibly responsible.
If you engage people in the right way, give them the right information, and take the risk of empowering them with some decision-making, in our experience they rise to that occasion and respond in a way which means that you often get a better outcome than if the management had tried to sell their solution to the partners.
In fact, sharing knowledge is the best way to get people engaged in decision-making.
Doesn’t all this emphasis on discussion risk falling into the trap of 'committee-ism'?
I think you need some checks and balances. There is that risk, if you let it happen, because one can over-consult on everything, but what we have to do is to be clear that we are going to make changes. We invite different groups to engage as to what the answer is in different areas.
So you have to have a balance between clear leadership from a conventional management point of view, but a leadership style which encourages the engagement of partners.
Staff participates in profits, but what happens with losses?
Obviously, the yearly bonus will vary considerably. For example, it was 20 per cent in 2007 and 13 per cent last year. I’m glad that it has been many years since the partnership made a loss in overall terms. But, in answer to your question: if we made a loss, we wouldn’t pay a bonus.
Surely, in strict terms of logic, the non-payment of a bonus would correspond to a break-even situation. Would staff members take a cut in their wages if there were major losses?
It’s possible; and it has happened; there was a pay freeze when conditions required it in, I believe, the 1960s. Fortunately, we have not been in that position for a very long time.
Some influential economists advise that companies should stick to making profits and not get involved with Consumer Social Responsibility etc. Doesn’t this view represent a direct challenge to your corporate philosophy?
I think it is a fascinating time for this kind of debate because we have just experienced the excesses which can arise from a pure, unregulated market-driven capitalist system. It can lead to an unsustainable position in terms of growth and drivers of growth which are built on sand. It can lead to an unacceptable level of inequity in relation to the sharing of risk and reward.
Such a patently unfair model undermines the confidence and the support of the general public.
Isn’t business, like life, qua definitio patently unfair?
I believe that in the core of just about every human being, there is the desire to be treated fairly. It’s a very basic thing. They accept that they are not going to be treated equally and that there will always be someone who has more than they do, but, it is very important that they feel that they have been treated fairly.
I think that capitalism has been an incredibly powerful and largely positive force if you look over several decades across the world economy. It has driven great advantages in productivity and wealth creation for many people and it has lifted them into better lives. However, any such model also needs to be sustainable and requires a certain degree of correction and regulation.
Employee ownership provides a high degree of self-regulation and is very sustainable. It takes into account that a business is not just responsible to its shareholders and is not only there to distribute profit. Society demands more from big corporations, and quite rightly so, I think.
If your model is so good, why haven’t more people tried to copy you?
Firstly, there are more examples of employee ownership than people usually think. If you grossed up all the employee-owned enterprises in the world, they would be equivalent in value to the GDP of Canada.
However, the reason why others haven’t copied us is partly because, within a short timeframe, it is probably easier for people and politicians to pursue the market route and let the market play. In the long run, we are living evidence that employee ownership is a better model to provide and generate more sustainable performance and a fairer form of capitalism.
In the past, there have been critics who were pretty patronising about John Lewis. Do you think that the “old-fashioned” values of John Spedam Lewis have been vindicated in the credit crunch crisis?
Over the last century we have seen a series of bubbles and busts at huge cost. We have also witnessed the severe consequences of market failure. Now, everyone is picking themselves up and going off again in the same old way because it is always easier to carry on doing what you were doing before.
There is this great propensity for human beings to want to return to the world they knew before. Also, a lot of companies and people who are generally regarded as successful role models are also people who have profited best from pure capitalism. What we tend to forget is the significant consequences that a lot of other people have to endure as a result of this success.
You have a quotation from F. D. Roosevelt on your desk taken from his address to Congress in 1935. Would you care to share this with our readers?
Six years after the Great Depression, he said something which still has relevance today:
'We find our population suffering the old inequalities, little changed by our past sporadic remedies. In spite of our effort and in spite of our talk, we have not weeded out the over-privileged and we have not effectively lifted up the underprivileged …
We have … a clear mandate from the people, that Americans must forswear the conception of the acquisition of wealth which, through excessive profits, creates undue private power over private affairs, and, to our misfortune, over public affairs as well. In building toward this end we do not destroy ambition, nor do we seek to divide our wealth into equal shares on stated occasions.
We continue to recognise the greater ability of some to earn more than others. But we do assert the ambition of the individual to obtain for him and his a proper security, a reasonable leisure, and a decent living throughout life is an ambition to be preferred to the appetite for great wealth and great power.”
Why have you chosen this quotation?
I find it fascinating that John Spedam Lewis founded the Partnership in 1929 as a contemporary of Roosevelt during the Great Depression. What Roosevelt was really saying only six years later was: 'Look, we may be coming through the immediacy of the crisis, and we may have dealt with the symptoms, but we have not remedied and cured the problem.'
Somehow that seems to have a familiar ring in the current crisis…
We have learned a lot from 1929 in terms of how to respond to an economic crisis and how to prevent it becoming a major depression, but we still have to see whether we have learned enough to find the real cure to the problem. My fear is that we haven’t, but at least there is a new openness and readiness to consider a bigger agenda and a broader range of issues.
According to the constitution of your partnership, the best-paid partner can’t earn more than 75 times the average basic pay of the lowest-paid partner. Do you feel that you are being compensated adequately for the work you do?
The partnership operates on a principle of fairness. That does not mean equality. I feel that I am paid well for the job I do. Obviously, my remuneration is not as high as some of my peers in other companies, but that is because we adhere to this principle of fairness.
We recognise that everybody contributes differently to the organization. Our partnership is not about equality for everybody, but it is about having a principle of fairness.
But isn’t there also the danger that if a company caps top management pay, it will lose top talent?
We balance that danger by paying a market rate, but we don’t go in for excessive pay packages. We aim to pay people a good wage for the job they do, and we carefully benchmark the industry so that our pay rates are competitive in the market.
That said, I don’t think that people here work for the partnership just for money, they work to be paid market rates, but they are people who also value working for an organization which has a set of principles which often accords with their own personal values.