In 2011, I reviewed a book entitled Spedan’s Partnership – The Story of John Lewis and Waitrose, by Peter Cox. I met Peter, the retired IT Director of Waitrose, in 2005 when he and I were helping out with the Global Retail Technology Forum in Barcelona. In 2010, Peter published the story of the partnership. My piece in 2011 quoted an article by Thomas D. Dee, Professor of Organizational Behavior at Stanford University’s Graduate School of Business, published in the July-August 2009 edition of the Harvard Business Review entitled Shareholders First? Not So Fast…. Professor Deeobserved that,

“Even in an era focused on shareholder wealth, the outperforming companies have been those that have gone against the grain and embraced stakeholders. ” Of course I was making a connection between Professor Dee’s position and a real company that was overcoming challenges from the Great Recession of 2008, the John Lewis Partnership (JLP).

All of this came back to me as I was preparing to participate in the Retail Business Technology Expo (RBTE) this week in London. Like many who visit the UK, I look forward to an afternoon on High Street to check out all the great retailers, and John Lewis tops the list. In a happy coincidence (for this article), the UK Guardian reported last Thursday March 6^th that “John Lewis has stolen the UK high street crown from Marks & Spencer after sales in Britain overtook the high street bellwether for the first time… The success was two-fold as both parts of the staff-owned retailer, Waitrose and John Lewis, cemented their status as middle-England’s favourite shopping destination with record sales…” The new heights scaled by the partnership are good news for its 91,000 staff – known as ‘partners’ – who will share a bonus pool of more than £200m in this month’s pay packet. Every member of staff from the chairman to Saturday shelf-stackers gets the same level of bonus – which has this year been set at 15%, or about eight weeks’ pay. “

The rise in JLP’s fortunes is attributed to both its winning retail operations, and its embrace of technology-based shopping options. These include not only direct delivery for internet and mobile orders, but in-store pickup ( “click and collect “), and international shipping. But the retailer apparently isn’t content to enjoy the successes of recent popular promotions or the upturn in the UK economy that has helped boost sales in its core home and garden categories (particularly carpets and curtains, which harkens back to John Lewis’ earliest days as a Drapery shop before WWI). It recently announced that it is pursuing the cutting edge of new technologies with JLAB, a technology incubation center, scheduled to open in June.

A More Participative Form of Capitalism?

Notwithstanding its pursuit of new technologies to engage consumers in their digitally-enabled paths to purchase, JLP’s secret weapon continues to be its employee-owner business model. In the March 6 Guardian article, Iain Hasdell, chief executive of the Employee Ownership Association, is quoted as saying that, “John Lewis is a good antidote to how much of our economy is externally controlled and driven by the obsessive short-termism that creates a significant financial breakdown every generation. “

The JLP model stands out in stark relief to the “typical ” corporate governance today. In a highly influential and (in)famous article written by Milton Friedman in 1970, the economist declared that the CEO “has direct re­sponsibility to his employers (shareholders)… That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. ” That theory of business has been accepted as “truth ” for over 40 years, and it has given rise to countless mergers and acquisitions- and “activist shareholders “. Take for example the re-emergence of famed corporate raider Carl Icahn, who has made recent news in his attempts to “go after ” well managed companies Apple and EBay. A recent article by in the New York Law Journal by David Katz and Laura McIntosh underlined the effect of shareholder activism: “Shareholder activism has gone from fringe to mainstream… Not too long ago, large, profitable corporations were considered immune from economically motivated activist attacks, and activism was not central to the agendas of establishment players in the corporate arena… In 2013, it became clear that even household name companies with best in class corporate governance and rising share prices are liable to find themselves under siege from shareholder activists, often represented by well regarded investment banks, law firms, public relations firms and other advisors. “

But in a June 2013 Forbes article, author Steve Denning describes the disastrous consequences of U.S. industry’s wholesale acceptance of Friedman’s position: “The rate of return on assets and on invested capital of US firms declined from 1965 to 2009 by three-quarters…. ” The article pointed out that, “In due course, Jack Welch (retired CEO of GE and the chief proponent of Friedman’s theory of business) himself came to be one of the strongest critics of shareholder value. On March 12, 2009, he … said, ‘On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal… Short-term profits should be allied with an increase in the long-term value of a company.’ “

In the face of all of this, one might wonder why more companies who strive for long-term viability don’t at least take a look at the John Lewis model. The notion is simply this: if employees are engaged and happy, then they’ll work to make customers happy. And if customers are happy, the owners will be happy. This is the same idea that Bill Hewlett and David Packard espoused in the (now sadly dismantled) “HP Way “. There’s strong evidence that “engaged employees ” equates to “customer satisfaction “. For example, employee-owned Publix, a Florida-based supermarket chain, topped the American Customer Satisfaction Index (ACSI) ratings for 2013 – as it has since ACSI’s first customer satisfaction survey in 1994. Contrast that to the recent news about Safeway (the California-based supermarket chain), which announced that it was selling itself to private equity firm Cerberus. It’s an almost classic example of putting shareholders ahead of everyone else. The San Francisco Chronicle on March 7^th commented that, “…Safeway is already one of the nation’s better performing supermarket chains. The company enjoys stable sales and healthy gross margins…Perhaps the only thing Safeway lacked was confidence it could keep appeasing shareholders on its own. “

Like Publix, the employees ARE the owners in the John Lewis Partnership. So why don’t more companies consider the model? One problem might be that it is regarded as a “socialist ” ownership scheme (that alone would kill the notion for many U.S. based companies). It’s interesting to note that John Spedan Lewis (son of the founder who implemented the partnership in 1928) saw his model as a more participative form of capitalism that corrected what he called a “perversion of Capitalism ” – that all the rewards flowed to the top. In 1957, he explained, “Differences of reward must be large enough to induce people to do their best but the present differences are far too great. If we do not find some way of correcting that perversion of capitalism, our society will break down. “

Meanwhile, Back in the Store…

In the end, it always comes down to the real retail experience, not the theory. And so I went to the John Lewis store on Oxford Street in London to feel the rhythm of the store and perhaps talk to a few employees. The weather in London was favorable, and so (no surprise) High Street was packed and so was the store. I browsed around for awhile, tried out the mobile app to send something back home (it worked nicely), and talked to some employees working the floor.

Chris, in the Carpets, Rugs, and Flooring department, was most forthcoming when I asked him, “how do you feel about being a John Lewis partner? ” His answer: “it’s really the best retailer to work for, isn’t it? I’ve been here for 20 years, and I’ll stay. We are well paid, get a bonus, and good vacation benefits. Our bonus this year was 2% less than last, but it’s still great, especially compared to other retailers- it’s really rough out there! But we’re lucky. It’s all about service – that’s the difference. I’m here because I like retail. “

There you have it, an engaged employee who thinks that working in the store is a fulfilling occupation. Try it with your own co-workers or employees. It will tell you if the business model is working for them, and that will tell you if it’s working for customers, which in turn will determine if stockholders are being served.