Sir Stuart Hampson | CSI Blog

When Jigme Singye was King of Bhutan he took the unconventional approach of declaring ‘Gross National Happiness’ as the measure of success for his government.  Bhutan is, of course, a country with a tiny population in a remote Himalayan region; it benefits from being able to sell hydro-electric power from its melting snow to its energy-hungry neighbour India, and you might say that they can afford to stand aside from the urgency of raising productive output or the international competitiveness of their workforce.  But during my fourteen years as Chairman of UK retailing group, the John Lewis Partnership (JLP), I felt a close affinity with Jingme Singye and his different view of life.  We didn’t have the magic equivalent of melting snow to drive customers through our doors, but our competitive edge was the power of employee ownership and the happiness it created.

John Lewis is the UK’s largest department store group and is widely regarded as ‘a great British institution’.  Its customer loyalty is legendary, and its readiness to publish weekly sales figures means that it’s regularly cited as a bellwether of the consumer economy.  The other part of the company is the Waitrose supermarket chain, a niche operator with some 4% of the UK market, but punching well above its weight with a reputation for high quality and product innovation.  With combined sales last year of £8.7bn (some AUD13bn) and profits of £354m (AUD527m), JLP would comfortably occupy a place in the FTSE100 – except that it’s not quoted.  JLP is a private company, and since 1929 it’s been owned by a Trust for the benefit of the people working in the business, all of whom are called ‘Partners’.  So, no outside shareholders, and almost half of last year’s profits – £165m – was divided up among the 81,000 Partners, with everyone, from long-serving Chairman to newly recruited part-time sales assistant, receiving the same 14% of their annual pay.  The rest was ploughed back into expansion of the business.

Like Jigme Singye, JLP starts from a different place from its retailing competitors, but this doesn’t mean it can ignore efficiency or customer attraction.  Despite that sobriquet ‘a great British institution’, there’s no room for resting on one’s laurels in the vigorously competitive UK retail sector.  Nonetheless, its unusual business structure enables JLP to strike a distinctive chord in its statement of corporate purpose:

The Partnership’s ultimate purpose is the happiness of all its members, through their worthwhile and satisfying employment in a successful business.

On first reading, this focus on happy staff might look like a defiant fist-shaking to the orthodox obsession with satisfying shareholders, but it’s just a logical extension of the well-recognised ‘employee-customer-profit chain’ concept championed by the Sears retailing group in the USA.  Sears saw that well-trained and motivated staff would serve customers better and lead to higher profits for shareholders, and therefore investment in the first part of that chain was beneficial to the dividend flow and capital growth which investors could expect.  Crucially, it went beyond the modern mantra adopted by many businesses of having to be ‘customer oriented’ as it recognised that the delivery of excellent customer service depended on the quality of the employees and the interest they took in caring for customers.  The former Chairman of Marks & Spencer Sir Rick Greenbury was proud of the reputation his company had for employee benefits: “We look after our staff well, but look at how well they look after our customers.”  In the same way, employees who feel a commitment to the success of their business will be better motivated to develop innovative products and processes, get the best out of supplier relationships and nurture a sound reputation in the community – all key ingredients to sustainable success and even to that goal of creating shareholder value.

The John Lewis Partnership converts the Sears model of an ‘employee-customer-profit chain’ into a self-sustaining circle.  Happiness isn’t just about having fun, working in a pleasant environment or being well paid for the job – though all three are energetically pursued.  The model asserts that happy Partners doing worthwhile jobs get satisfaction from those jobs, ensure that customers experience a high level of satisfaction too, and thus create a successful business.  There are three key points here.  First, the jobs have to be ‘worthwhile’ – no room for inefficiency or soft options, and experience shows that peer pressure in an employee-owned business creates an expectation of high performance rather than complacency.  Secondly, let’s be clear – there’s no satisfaction or happiness from working in an unsuccessful business.  And thirdly, the benefits of success are returned to the Partners, whose happiness and job satisfaction are increased accordingly. 

So, employee ownership creates a virtuous circle designed to achieve continuous progress, in contrast to the Sears model where the chain is seen in terms of the benefit to shareholders, who are divorced from the creators of success and where the objective is a flow of profit out of the business. 

Although I believe passionately in the merits of this kind of mutual ownership of businesses and feel encouraged to see it being more widely adopted, I’m also realistic enough to recognise that most companies have an established corporate structure which they’re unlikely to change radically.  Revolutionary cries of “more ownership for the workers” are not my scene.  I do believe, however, that companies which, in one way or another, embrace the concept of the self-sustaining circle described above will outperform their less enlightened competitors, give better service to their customers and deliver higher returns to their investors – which seems to me what most managements would see as their agenda.

Many companies might consider that they’ve grasped this point already by introducing profit-sharing schemes.  I’ll gloss over the observation that frequently the nature of such schemes either skews the benefit to the top echelons of management or encourages behaviour which is hostile to business sustainability (both topics currently enjoying plenty of public airing, and so I’ll say no more).  But if profit-sharing is to provide the incentive to improved efficiency and productivity, not only does it have to recognise that commercial success is the result of every person working in the business, but it also has to influence behaviour towards creating long-term success.

Profit-sharing is ineffective unless matched with constant communication – in two directions – on the link between the efforts of employees, whatever their role, and the profits which are generated.  Companies need to share knowledge – to update their employees as a matter of course throughout the year on the progress the business is making, to trust them with real figures, to engage them in the challenges it faces.  When I’ve suggested this to companies they frequently pale at such open disclosure and plead the need for commercial confidentiality, and obviously some information does have to be retained on a ‘need-to-know basis’ during sensitive negotiations or product development.  But generally it comes down to trust:  if you can’t trust your staff to know your figures and to be aware of your overall corporate strategy, can you really expect them to understand the direction the business is supposed to be taking?  Can you trust them to convey to your customers the corporate image which might be in the mind of top management?

Sharing information is the essential starting point, but this needs to be linked to what some may see as the even more unnerving idea of sharing power – taking notice of what employees are saying and harnessing those ideas for improving the business.

Again, the John Lewis Partnership’s unusual constitution means that it has crystallised this process in its statement of purpose:

 “Because the Partnership is owned in trust for its members, they share the responsibilities of ownership as well as its rewards – profit, knowledge and power.”

As well as sharing profit, conventional shareholder/owners also expect to enjoy full knowledge about their business and to have the ability to wield power at least through their ability to appoint directors.  At JLP this opportunity applies to all employees – Partners – but it isn’t seen as a right but as a responsibility.  Employee/owners don’t take a share of the profits just through turning up at work.  They have a responsibility to share knowledge about what’s going on in the business – contributing their experience and perceptions and facing up to some of the unpleasant truths about the competitive scene.  And then they have a responsibility to use their power to do something about it, both through their individual actions and also through elected councils which are involved in many commercial decisions. 

Companies might be nervous that consultation will slow the business down, and in the 1970s the Labour government in the UK encouraged the setting up of worker co-operatives which precisely demonstrated that weakness.  At JLP there isn’t management by committee.  In contrast to the fashionable enthusiasm for ‘flat companies’, it recognises that business decisions are of varying magnitude and need to be taken at various levels of authority.  Hierarchies are beneficial to speed of management initiative, as long as they are characterised by respect for the essential contribution made at all levels and for the people making that contribution.  I was always conscious that I didn’t serve customers, and yet the John Lewis reputation depended every day on the care taken over that critical interface.  Respect for the ‘front line’ sits alongside  the importance  of the strategic planning  provided by senior directors.  Sharing power implies no diminution of the responsibility of management to manage, but there is an expectation that this will be matched by a willingness to explain and to listen to the views of Partners who haven’t been involved in that part of the business. 

If one judges by published Reports & Accounts a large proportion of companies ought to have no difficulty with this approach.  “Our greatest asset is our workforce” is a truism which is rarely omitted, but too often these are empty words.  The consistent performance of JLP demonstrates that consultation and genuine sharing of information and responsibility between managers and managed is an accelerator not a drag anchor.  It’s often described as ‘managing in a gold-fish bowl’.  Undeniably, for some managers brought up in a more authoritarian school this style of management will prove uncomfortable or maybe even impossible.  The good news is that those managers will tend to work for the competition!

In case I seem to be describing a Utopian vision of management when everyone can be happy all the time, I readily acknowledge that employee-owned businesses go through tough times just like any other company.  Sometimes units which clearly have no long-term future have to be closed down.  This was the conclusion reached about two small department stores in the London suburbs, and the decision to close them down meant that the jobs of 800 Partners were lost.  Not much happiness around when that news was broken.  But the survival of an employee-owned business – just like any other – will involve tough decisions, and the greater good of the business as a whole is well understood.  Probably the main distinction of JLP when handling those job losses was the extent to which there was forward planning, holding vacancies at other neighbouring department stores and Waitrose supermarkets and arranging transfers where these were feasible.

In his book ‘The Loyalty Effect’ [Harvard Business Press 1996] Frederick Reicheld quoted some grim statistics:

US corporations lose half their customers in five years, half their employees in four years and half their investors in less than a year.

He painted a picture of a future ‘where business relationships are opportunistic transactions between virtual strangers’.  I find that an unappealing prospect in terms of the kind of dysfunctional society it predicates as well as its contradiction of the aim of business sustainability.  Yet it’s a prospect which is encouraged by a narrow focus on short-term profit as the indicator of success.  The ability of a company to survive through bad times as well as good – and that much targeted goal of shareholder value – is the outcome of a process driven by the engagement of its employees.  Anyone hoping to create long-term value needs to concentrate on the people who will make a difference rather than on the share register or the quarterly profit figure analysts are expecting. 

The accountancy profession will have problems determining how ‘happiness’ can be quantified as an asset on a company’s balance sheet, but the extent to which it is identified as a management objective will provide a better forward indicator of performance than just historical financial data.  Happy, satisfied and committed employees will want to stay with a business.  They’ll ensure that you have loyal customers, engaged suppliers and a sound reputation in the community

If you’ve worked in a company which already practices these ideas, then it seems impossible to think of managing in any other way.  The idea of ‘mutual interest’ is self-evidently practical and powerful.  If, however, you’ve seen nothing but ‘command and control’, all this consultation must look scary – but not as scary as being overtaken by competitors which are sharing knowledge, power and profit with employees throughout their business and enjoying the acceleration in performance which that brings.

This post previously appeared in the CSI Blog: Happiness – the key to company sustainability