Since the economic crisis hit there have been numerous calls for ‘alternative’, employee-owned business models, but what has actually been achieved? Research by The Open University Faculty of Business and Law is examining the rising mutual sector and finds cause for qualified celebration. Professor John Storey reports.
Promoters of alternative modes often illustrate their case by saying they want enterprises that are ‘like John Lewis’. Deputy Prime Minister Nick Clegg has even called for a ‘John Lewis economy’. John Lewis is popularly seen as being large and successful, and its sustainability and success appears to be associated with its ‘employee-owned’ character. So what are the key features of the John Lewis model that are being so extolled?
The John Lewis model
John Spedan Lewis, the company’s founder, saw what he termed as his ‘experiment in industrial democracy’ as being based on three pillars: the sharing of knowledge, of power, and of profits. Knowledge-sharing is practised by being transparent about all aspects of the business; power-sharing is attempted through representational bodies; profit-sharing is implemented through an annual bonus.
Our research suggests that each of these three elements is pursued in a serious manner within the John Lewis Partnership – though not to a degree that would meet the expectations of all critics. But the question here is to what extent have such elements been extended out to the new mutuals and the other enterprises which could be regarded as constituting ‘the John Lewis economy’?
Who is doing what?
At the level of policy, a varied array of John Lewis-like enterprises are being promoted. Prominent among these are the so-called public service mutuals which are being encouraged by the Cabinet Office. They include community health services which were formerly part of the NHS, and housing which was in local authority hands. In addition, there are many small community service bodies which have their origins in the voluntary and charity sectors. These have been given a fillip by the promotion of mutuals and social enterprises. There are also cooperatives which have a social purpose, and which may have membership among consumers and service users.
Such efforts are in line with the Coalition Agreement which stated: ‘We will support the creation and expansion of mutuals, cooperatives, charities and social enterprises and enable these groups to have much greater involvement in the running of public services. We will give public sector workers a new right to form employee-owned co-operatives and bid to take over the services they deliver. This will empower millions of public sector workers to become their own boss and help them to deliver better services’ (The Coalition: Our Programme for Government, 2010 p.29).
There are also private-sector employee-owned enterprises where share ownership is in varying degrees in the hands of workers. The Nuttall Report in 2012 described the ways in which this sector could be developed. The government has recently indicated that it will provide £50m in support of employee-ownership initiatives annually from 2014-15.
So, as a result of all this activity in the realm of policy, what is happening in practice?
One measure is to count the number of organisations transferring from the public sector into the social enterprise/mutual sector, or from external share ownership to employee-ownership. According to current Cabinet Office figures there are now over 70 active public-service mutuals, with a further 50 being tracked as emergent. The main sectors are community health, social care and integrated care, school support services and probation services. The [mutuals] One Year On report by Prof Julian Le Grand (2013) claims that the public service mutuals are ‘going from strength to strength’.
Recently, there emerged the first-ever mutual joint venture to spin out of local government. Staff from three London boroughs (Hammersmith & Fulham, Kensington & Chelsea, and Westminster) have formed 3BM, an education support service. Employees own 75.1% of the business, while an education employment company holds a 24.9% share. According to the Mutuals Information Service, this move will save local councils £1 million over the next four years. There are other examples where councils have commissioned services from local mutuals and cooperatives.
Numbers aside, what is it like to work and manage with one of the ‘John Lewis economy’ enterprises? We set out to answer this question in our current ESRC-funded research project.
How 'John Lewis' are they?
We have found extensive variation among these cooperatives, social enterprises, mutuals and employee-owned enterprises. Managers and workers in these organisations tended to emphasise very different features when trying to explain the distinctive elements of their organisations.
For many, the key element is the sense of ‘independence and autonomy’, in place of perceived control by the NHS or central government. In the private sector employee-owned cases, the equivalent notion is a degree of protection from hostile takeover and asset strippers.
The notion of ‘ownership’ – as, for example, in the term ‘employee-owned enterprises’ or simply ‘employee-ownership’ – is central in the drive for mutualisation. Yet, for many of the managers and workers in the social enterprises and mutuals we studied – and indeed in the private sector – this aspect is marginal. One reason given for this was ‘it is not really ownership in the normal sense, the shares owned are in a trust’. In a number of cases there is part ownership but even here the arrangement is to place ownership in a trust so the shares cannot be traded. A number of participants instead talked about ‘emotional ownership’. This could be seen as an appeal to a collective ownership which allows for the kind of sense of autonomy referred to above.
As regards the three pillars of sharing knowledge, power and profit, few of the new social enterprises and mutuals have made a similar degree of investment in representational bodies as that made by the John Lewis Partnership. This not just that the representational arrangements are on a lesser scale, reflecting organisational size, but that there is a managing of expectations which suggests that employee voice, influence and the exercise of power is to be understood as contained.
In most public mutuals and social enterprises sharing of profit is simply not on the agenda. These are not-for-profit bodies and the main appeal is to a sense of common endeavour where workers can exercise their skills and knowledge relatively free from top-down or external directives.
It would be easy to conclude that, when measured against much of the rhetoric and many of the often exceptionally high expectations, the assemblage of organisations that constitute the ‘John Lewis’ segment of the economy fall short of the model that gives them their name. But it would be a mistake to dismiss them on that count.
A proportion, at least, of these social enterprises, mutuals and employee-owned businesses are led by enthusiastic and talented individuals intent on securing improved outcomes for service users, customers and the community. Insofar as they find inspiration from the diverse aspects of the John Lewis model – however loosely and elastically that may be conceived – that should be a force for good.
John Storey, Professor of Management,
Faculty of Business and Law
John Storey is leading the ongoing research project A Better Way of Doing Business? Lessons from the John Lewis Partnership which is funded by the Economic and Social Research Council. The project draws upon a range of data-collection methods including interviews with managers and staff of ‘employee-owned’ enterprises of all kinds.
Photo: John Lewis, Reading by Uli Harder