John Lewis Partnership: An Example of Conscious Capitalism - Case Study Example

John Lewis Partnership: an example of conscious capitalism Introduction Conscious capitalism is a transformational way of doing business in which a company is aware of the impacts of its actions on the community and environment. The company, therefore, takes part in the implementation of practices that benefit both the environment and its inhabitants. Conscious capitalism is responsible for building trust with consumers in a manner that leads to maximisation of profits. This study explores John Lewis partnership principles providing a critical evaluation of why the Partnership is an exemplification of conscious capitalism. John Lewis Partnership: Background John Lewis Partnership (JLP) is a popular retailer in the United Kingdom. JLP has two major business units: Waitrose Supermarkets and John Lewis departmental stores. The firm was founded in 1929 by John Spedan Lewis, who in the same period took a step that is not usual in the business sphere. John Lewis gave away a large portion of his business to his employees in the form of placing shares in a trust (Lewis 1954, p. 222). JPL is one of the few employee-owned firms in the world. In terms of sales, JLP recorded €11.4 billion in 2013. JLP has 39 department stores, 288 supermarkets, outlets in petrol stations, as well as some international expansion. The Partnership has 91,000 permanent employees (JLP 2013). John Lewis Partnership (JLP) is one of the firms that are renowned for their good virtues. Good virtues have earned JLP rewards with favourable and sustainable outcomes. Prominent politicians are proposing John Lewis model as the possible answer to failures that have been attributed to irresponsible capitalism (Storey, Basterretxea and Salaman 2014, p. 2). Previously, John Lewis Partnership has not been lauded or celebrated. However, currently, JLP looks extraordinarily attractive. Table 1 presents a summary of John Lewis Partnership: John Lewis Partnership Founder John Spedan Lewis (Liberal/Humanist) History Employee Ownership by benefaction: 1929 – 1st settlement in trust 1950 – full trust established Stated Purpose Happiness of the workers through their employment in a viable business Model Partnership/Co-ownership Representative Democracy (direct and indirect) + Conventional Management Structure Governance Structure Constitution Board of Directors – 12 members (5 elected by Partnership Council) Partnership Council – An elected representative from each Branch Branch Forums – Elected representative from each section of the store Registry – Represent the ‘critical side.’ Pay Ratio 1:25 Profit Share Relative to salary level Membership Automatic after 12 months Size 91,000 Members Table 1: A Summary of John Lewis Partnership John Lewis Partnership principles JLP beliefs that there is a connection between pay and performance, and that the means of recruiting and maintaining good employees is to offer them good pay rates. JLP also believes that the current system is unjust, and it prevents workers from leading happy and fulfilling lives. JLP establishes a connection between efficiency and good pay rates. Under the current system, managers in consumer co-operatives are reluctant to reward better performers at a rate higher than their pay. There are four dominant principles on which JLP bases its partnership system, and these are purpose, power, and, profit, and members (Lewis 1948, p. 1954). i. Clear sense of purpose JLP goes against cooperative principles. The executives and managers of JLP have a clear sense of purpose. The managers of JLP belief that, with good management, the principles can provide the avenue to achieving commercial success. JLP’s principle of purpose contributes significantly to its success. The founder had a coherent statement of purpose that he defined as the ultimate purpose of his firm. The statement read, “the happiness of all its members through their worthwhile and satisfying employment in a successful business” (Lewis 1948). ii. Principle of profit According to Lewis, partnership should be a mechanism in which the benefits of ownership are shared by all employees. In his statements, Lewis argued that a firm wastes its revenues in overpaying the owners (Lewis 1948, p. 160). He insisted on sharing the advantages of ownership such as material, moral, and intellectual. JLP’s aim is to generate sufficient profits that can manage to sustain its business, as well as its members. iii. Members’ principle Lewis asserted that both owners and managers should envision themselves as part of a profession. He departed from the principles of partnership. He viewed a partnership as not being just about equal distribution of wealth, but an equal one than the one that existed under free market capitalism (Lewis 1948, p. 13). JLP principle is that though managers and owners deserve a larger share of partnership benefits than employees do, they should earn it. Their earnings/remuneration is not paid in consideration to their positions or power. The relationship within the Partnership is based on mutual respect. Every member of the Partnership is recognised for their contribution and rewarded accordingly. iv. Principle of Power In JLP, power is shared between three governing bodies, the Chairman, the Partnership Board, and the Partnership Council. JLP is governed by a constitution. This constitution is an example of democracy that is practised in the organisation. Spedan Lewis (1948, p. 10) referred to it as ‘an experiment in democracy’. Principles of conscious capitalism The major principles of conscious capitalism include a higher purpose, conscious leadership, stakeholder orientation, and conscious culture. These are four pillars that support conscious capitalism. Without one of them conscious capitalism could have no meaning. i. Higher Purpose In order for an organisation to improve its competitiveness in the current business world, it should develop a purpose that goes beyond making money. The purpose of an organisation should be to inspire, engage, and energise its stakeholders. Human beings are motivated by something that has meaning. A higher purpose guides the decisions that are made in the firm. ii. Stakeholder Orientation An organisation is perceived as a production machine where the owners apply capital, labour, and technology on one end and profits are received on the other end. In an organisation, the stakeholders are interdependent. It resembles an ecosystem where the participants depend on each other. Healthy stakeholders build a healthy organisation. Therefore, conscious capitalism advocates creating value for all stakeholders. For example, motivated employees treat and serve their customers well and this makes the customers keep on coming back. This relationship between the employees and customers will bring benefits to the organisation. Conscious capitalism encourages such a relationship because it benefits all the stakeholders. iii. Conscious Leadership Under capitalism, power is unbalanced with greater or overall power being in the hands of the leaders. Conscious capitalism seeks to balance this power across the entire organisation. A conscious leader has a time of reflection and through this reflection; he recognises his strengths and weaknesses. He also evaluates how his actions affect others. Conscious leaders create value for all stakeholders because they recognise that the success of the organisation is dependent on the immediate society. According to Mackey (2009, p. 81), leadership that aligns the interests of employees, customers, partners, and the environment find themselves outperforming well-known organisations that are recognised for their financial success. Conscious leadership entails cultivation of awareness, tracking of performance, and guiding an evolution of principles and practices that respond to a dynamic landscape. iv. Conscious Culture A culture of an organisation should examine the ripple effect of its actions on every stakeholder. Such a culture transforms not only the organisation’s mission but also the bottom line of every business activity. An organisation should eliminate the culture of naked-claw competition in order to create motivated and happier employees. Happier and motivated employees will produce better results that will give the organisation a competitive advantage. John Lewis Partnership: an example of conscious capitalism John Lewis considers itself to be the largest example of worker-ownership Company in the United Kingdom. 91,000 staffs are partners in the firm (JLP. 2013). That means that they share profits and participate in shaping the company’s future. ‘Staff as Partners’ is considered to be its competitive advantage. It has seen its profitability level and reputation rise. Similar to Proposition by social capitalism, JLP’s business is anchored to the principles of social economy. Social capitalism advocates for workers to become the organisation’s partners. JLP’s company structure supports and maintains the principles of cooperative ownership. Clear sense of purpose versus Conscious culture John Lewis had a coherent statement of purpose that he defined as the ultimate purpose of his firm. The statement read, “the happiness of all its members through their worthwhile and satisfying employment in a successful business” (Lewis 1948). Contrary to Lewis, capitalist firms prioritise profit or growth as their prime purpose. JLP has a clear sense of purpose. The purpose of JLP is to make its members happy by addressing their well-being. Its purpose continues to bring enormous benefits even in times of a financial crisis. For example, in the 2009/2010 financial period, Marks and Spencers, Britain’s leading retailer made profits of 5 percent. In the same period, John Lewis Partnership made huge profits that enabled it to distribute £151 million to 70,000 employees. Employees received 15 percent of their basic salary which is equivalent to 10 weeks’ pay. This clearly shows that JLP managed to make profits even during the recession. JLP has a strong employee-centric culture. The firm has genuine reasons for having a written constitution. The first reason is historical in which it attributes its existence to the extraordinary ideals of its founder. The firm keeps on revising this constitution in order to keep it up to date. The second reason is their belief that the challenges of competitive conditions facing the modern retailing businesses can only be addressed by the demands of inside shareholders. As observed above, JLP has not been popular in the past years, but its popularity is rising rapidly at the current time. As it has been established by Perotin (2004, p. 76), labour-managed organisations survival rates rise within two years of operation after which they fall in the preceding years but rise after that. Principle of Power versus Conscious Leadership Lewis had a sense of power of reciprocation. He believed that if he treated his employees fairly, his employees and customers would treat him in kind. According to Jackson and Carter (2007, p. 97), power entails getting an individual to do something irrespective of his/her desire or resistance to doing it. Therefore, power is considered to be crucial in understanding the motivation for engaging in participation, as well as the practice of democratic engagement in organisations. Conscious Capitalism has a principle of conscious leadership, and it has been found to affect the workforce positively because it ensures that the employees are treated well. By being a conscious leader, Lewis distributed power throughout his organisation. He placed his business under in trust. The same principle continues to be applied in the business. JLP is a partnership in which every employee is a part owner. Leaders in JLP create value for all stakeholders because they recognise that the success of their organisation is dependent on the immediate society. As it has been observed, conscious leaders align the interests of employees, customers, partners, and the environment (Mackey 2009, p. 81). Leaders in JLP have accomplished the above task, and that may explain why the firm continues to outperform the other firms in the same industry such as Marks and Spencer. In 2010, JLP had 72,000 employees and revenues of £7.4 billion. JLP is a partnership owned by ‘employees as partners’. Nevertheless, it is totally open with its financial information to an extent where it posts its current weekly sales figures on its website. The owner of JLP refusal to be subject to capitalist forces made the firm able to change the wider forces of capitalism. As a result, JLP is structured using a system of checks and balances. There is acceptance of hierarchy and the management has the authority to manage, but they also help accountable by democratically elected Partnership Councils (Spedan Lewis 1948). Equal participation inculcates skills of cooperation and shared responsibility that forms the basis of a democratic community. John Lewis Partnership accomplishes all the above requirements; therefore, it can be regarded as a democratic community. JLP staff feels more valued, more engaged and more empowered through their participation in deciding about how the work is conducted. JLP management has fulfilled all the characteristics of conscious leadership – it is self-organising, self-managing, self-motivating, promotes teamwork and collaboration. It also empowers and decentralises. Most of the above characteristics are encompassed in workforce participation that was encouraged by Lewis when he gave his employees the right of share-holding. A large body of evidence suggests that workforce participation impacts on organisation performance, and this is clearly evident in the case of JLP, which is ranked as one of the leading retailers in the UK. Principle of Profit versus higher purpose JLP continually communicates its higher purpose at every opportunity. According to the advocate of conscious capitalism, John Mackey, it is important for the senior leadership to walk the talk and embody the higher purpose of the organisation. JLP staff benefits from newly motivated workforce through productivity gains, enhanced legitimacy, and less need for external control mechanisms. John Lewis Partnership’s pay ratio is set at 1:25; share of profits is based on a proportion of salary (JLP. 2013). John Lewis’s higher purpose is ingrained in the JLP constitution which identifies that partners are supposed to have a relevant, consistent, and rewarding experience during their career. Members’ principle versus Stakeholder Orientation John Lewis Partnership has taken a different course; it has departed from the principles of capitalist organisations and embraced the principles of conscious capitalist firms. As it was observed earlier in this paper, the working conditions and arrangements in JLP are very different from those of other firms. This is what makes it a good example of a conscious capitalist firm. An earlier study on French cooperatives found that the firms where members have an explicit commitment to change their organisation maintain a high degree of democracy (Bastone 1983, p. 4). JLP corrected the ‘distortion’ brought about by capitalism through distributing wealth more evenly and discouraging the owners from garnering unearned wealth. JLP believes in the importance of good levels of remuneration at all levels in the organisation. Conclusion In order for firms to flourish in the future, they have to be aligned with the new realities of life and embody a more conscious way of being. A firm that wishes to be a conscious firm is required to foster peace and happiness in its workforce, respect and solidarity in the community, and accomplish its mission in the organisation. When he was setting up his company, John Lewis sought to make a difference in the way co-operatives run their business. That was his power of purpose, which drove everything he did. His power of purpose still matters to all JLP stakeholders. His reason for going beyond making money resulted in making money than he thought possible. He introduced conscious capitalism and 85 years on, conscious capitalism is driving JLP to success. As a conscious capitalist firm, JLP has overcome its challenges by creating a democratic culture. It has also democratised its organisational power and ownership (structures), and pursued a strategy that embraces egalitarian values (Fordacell 2005, p. 269). Cathcart (2009) conducted a study on John Lewis Partnership titled ‘directing democracy’ and concluded that JLP is an organisation that encourages employee voice mechanisms. Employee voice is given space in areas such as; the Branch Forum, the opinion survey, and in the in-house journals. The tenets of conscious capitalism include conscious leadership, conscious culture, conscious management, stakeholder integration, and higher purpose and values. JLP has proved that a business organisation can be built on love. Lewis was a conscious leader because conscious leaders practice servant leadership, have integrity and capacity for love and care. JLP has proved to be a good example of conscious business because it fulfils all the cultures of conscious business such as accountability, loyalty, transparency, caring, and egalitarianism. References Bastone, E. 1983. Organisation and orientation: a life cycle model of French cooperatives. Economic and Industrial Democracy, 4. Chigora, P and Ziso, E. 2010, Marxist-Leninist Theory of International Relations: Emerging Thinking in the 21st Century. Journal of Sustainable Development in Africa, 12 (8), 89-98. Cox, A., Zagelmeyer, S. and Marchington, M. 2006. Embedding employee involvement and participation (EIP) at work. 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