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21 September 2019

Mutuality

Tag(s): Leadership & Management, People, Business
For some years now politicians from all sides have used the John Lewis Partnership as a "poster child" for the best of capitalism. The retail group is owned in perpetuity by its employees who are all partners in the business and all receive an annual share of profits. Such politicians ask why more businesses can’t be like them. The answer for most of that time is that there was only one John Spedan Lewis.

Born in 1885 John Spedan Lewis was the eldest of two sons whose father had opened the John Lewis department store in Oxford Street, London. By the age of 21 he had acquired a quarter shareholding in the department store and later became a director of Peter Jones, his father’s other shop. He became aware that he and his father and brother between them received as much in earnings as the entire workforce in both shops.  He suffered a riding accident and, forced to coalesce, he was able to spend time developing his ideas for the future of the business, ideas that would eventually radically change its foundation.

He wanted to put the happiness of the employees first and introduced new systems and practices as soon as he returned to work. He offered shorter working days, the setting up of a staff committee, a ground-breaking third week’s paid holiday and a house magazine, the Gazette, which is still published today.

His father was increasingly alarmed by these bold practices and so Spedan withdrew any active involvement with the Oxford Street store in exchange for total control of Peter Jones. His bravery and his innovations paid off as within five years he converted an annual deficit of £8,000 to a surplus of £20,000.

In 1920 the first profit-sharing scheme was introduced along with a representative staff council. After his mother’s death he was able to reconcile with his father and cooperation between the two stores resumed. His father’s death in 1928 gave Spedan sole ownership. He created the first Constitution and the following year the John Lewis Partnership Limited and signed the First Trust settlement. This gave him practical control of the business, but allowed the profits to be distributed among the employees. Twenty-one years later, he signed the irrecoverable Second Trust Settlement, and the Partnership became the property of the people employed within it.[i]

But this year came the wonderful news that there is a modern-day John Spedan Lewis. His name is Julian Richer who has handed control of Richer Sounds – the hi-fi store chain he founded as a teenager- to its employees.  Now aged 60, Julian is happily married to the charming Rose but they do not have children and so he has made this decision.  But he sees it in the broader context of a mission to clean up capitalism.

When I was Managing Director of Sony UK back in the 1990s I got to know Julian well as not only one of my most interesting customers but also as a friend and adviser.[ii] He left school to work in a hi-fi shop, and opened his first Richer Sounds shop at London Bridge. It was tiny but went on to hold the Guinness record for the highest rate of sales per square foot in the world. Julian was as innovative as John Spedan Lewis in his treatment of his staff. He knew the key to retail success in the highly competitive consumer electronics market was customer service and the key to that was a happy work force. He not only provided secure, well-paid jobs but also staff perks like holiday homes and use of the company Bentley. While several major chains of high street electronic retailers like Comet and Rumbelows have gone to the wall, Richer Sounds has gone from strength to strength achieving record results last year.

In 1995 Julian published his book The Richer Way which in just 200 pages describes his methods[iii]. He particularly favours suggestion schemes and after the book was published he set up a side-line in consulting as major retailers asked him to design their suggestion schemes. His parents met when they both worked in the Kilburn branch of Marks & Spencer. That now ailing firm is one of his clients hiring him to advise on “culture change”.

In the 1990s I chaired the Consumer Electrical Sector of the Marketing Society. We met three times a year for a dinner with a speaker. My speakers included well-known names like Alan ,now Lord Sugar and James ,now Sir James Dyson; Chris ,now Sir Chris Gent, then CEO of Vodafone; John Clare,then CEO of Dixons; and Brent Wilkinson and Eddie Styring, successive CEOs of Comet;  and Barry Morgans, then CEO of IBM UK. But Julian Richer, who had refused all other invitations to speak after his book came out because he was developing his consultancy business, accepted mine and was by general acclamation the best of a great group. He did a Q&A throughout the meal and I don’t know how his digestive system coped but he was a tour de force. And now he has gone the whole nine yards and handed his company over to his staff.

Mutuality takes various forms. The co-operative movement is not an employee owned mutual, but rather is owned in part by its customers.  There are actually 7000 registered co-operatives in the UK, which are owned by 17 million individual members and which contribute £34bn annually to the British economy. The movement started In Rochdale in Lancashire with the Rochdale Pioneers’ shop in 1844. But as well as the descendants of this retail business there are agricultural co-operatives, co-operative housing providers, health and social care co-operatives, co-operative schools, co-operatively managed energy projects, football supporters’ trusts[iv], credit unions as well as employee –owned businesses.

Mutuality used to be a major feature of the financial sector with the enormously successful growth of the building society movement. Such great institutions as the Halifax, Bradford & Bingley and Northern Rock Building Societies were leaders in a nationwide movement. Strong and stable they raised money from savers and lent it to borrowers in the form of a mortgage on a piece of real estate. Their money raising and lending were both long-term and were managed conservatively by boards with strict rules and careful stewardship.

Tragically these vital institutions were de-mutualised which led to short term capital gains by the savers who were de facto owners. They were converted into banks, listed on the stock market and some disappeared into mergers. The biggest of all, the Halifax finished up in an appalling conglomeration with Bank of Scotland and run on a short term sales-led, bonus fuelled tactic that finished up in collapse, bailed out by the tax payer. Northern Rock was even more reckless, raising its money in the short-term money markets and lending up to 125% mortgages over the long term. It is impossible to understand how auditors and regulators permitted this but they did and it led to the first bank run in modern British history. But the root cause of the disasters was the decision to demutualise such strong institutions. I myself made money from these de-mutualisations. My mother was a shareholder in the excellent Trustee Savings Bank and I used her position to buy and then sell shares. In all I invested in the demutualisation of TSB/Lloyds, Halifax/HBOS, Norwich Union and Bradford & Bingley making a return of 225%. But seeing the terrible things that happened in consequence this gives me no pleasure.

Co-operatives can be found in most parts of the world. Even in the USA, while not perhaps as significant as in Europe, there are many co-operatives, the largest of which are main stream. Here is a list of the top ten by annual revenue.
  1. CHS Inc (agriculture, St Paul, Minnesota) -$30.3bn
  2. Dairy Farmers of America (agriculture, Kansas, Missouri)- $13.5bn
  3. Land O’Lakes Inc (agriculture, St Paul, Minnesota) -$13.2bn
  4. Wakefern Food Co-op/Shoprite (grocery, Keasbey, New Jersey) – $9.2bn
  5. Associated Wholesale Grocers (grocery, Kansas City, Kansas) - $9.2bn
  6. Growmark Inc (agriculture, Bloomington, Illinois) - $7bn
  7. HealthPartners Inc (healthcare, Bloomington, Minnesota) - $6bn
  8. Navy Federal Credit Union (finance, Merrifield, Virginia) - $5.4bn
  9. ACE Hardware Corp (hardware and lumber, Oak Brook, Illinois) - $5.1bn
  10. Unified Grocers Inc (grocery, Commerce, California ) - $3.7bn
This is taken from a report by the National Cooperative Bank (NCB) which provides banking services to the sector.  The top 100 co-op businesses posted approximately £208bn in revenue prompting NCB president and Chairman Charles Snyder to say: “The economic impact of cooperatives is critical to our economy.  The report also highlights the many ways co-ops commit to their members, sustainability, education, impact, kindness and their community.

The principle of mutuality is that it emphasises the fair distribution of the burdens and benefits of a firm’s activities. It can be seen as a promising new organising value with the potential to strengthen relationships and improve sustainability. In the UK traditionally the idea of mutuality has been principally identified with member-owned firms such as the building societies to which I referred earlier. But it is not just about ownership. There are many member-owned organisations that are not particularly successful while there are many shareholder-owned firms that are excellent and serve all their stakeholders well. So the issue is not so much about ownership as the politicians might like to think, but about values and attitudes and culture.

I worked for seven of my formative years for Mars Inc. Mutuality was and remains one of their five key guiding principles. But at the time there were just three shareholders, the three children of Forrest Mars Senior who founded the company. They were among the richest people in the world but the value of mutuality of interest permeated everything Mars did, with its employees, referred to as Associates; with its suppliers and customers; and with its communities and the public at large. But recently the Company has been exploring new expressions of mutuality such as new businesses that would be employee owned[v]. It is to be hoped that the lessons from enlightened businesses like these can be more widely learned and applied.


[i] Technically JLP is owned by a trust whose trustees must act in the best interests of the employees.
[ii] Julian helped me set up a suggestion scheme at Sony and did not charge me for the privilege. I remember meeting in his Pall Mall penthouse flat.  My wife and I also took Julian and Rose to the Royal Opera House which they enjoyed so much they invited us to stay with them on their estate in Yorkshire. Sadly we never found the time to take them up on this generous invitation.
[iii] The Richer Way Julian Richer. Emap Business Communications, London 1995
[iv] I am a member of MUST, the Manchester United Supporters’ Trust whose objective is to find a way for the ownership of the Club to be returned to its supporters.
[v]  Mutuality in Business: Future Governance Options for the Mars Corporation. Working Paper No. 5 – June 2017
https://www.sbs.ox.ac.uk/sites/default/files/2018-06/michie_roll_-_mutuality_and_ownership_2017.pdf
 




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David's Blog

Groundhog Day
7 December 2019

The Brexit Factor
30 November 2019

Democracy in Danger
23 November 2019

STEM
28 September 2019

Mutuality
21 September 2019

Disruption
14 September 2019

Sepsis
7 September 2019

Bernardo O’Higgins
31 August 2019

Commercial Television
17 August 2019

The Cashless Society
10 August 2019

A Close-Run Thing[i]
20 July 2019

The Fifth Risk
5 July 2019

Alan Johnson
1 June 2019

The College of Arms
18 May 2019

How Democracies Die
11 May 2019

Leadership (2)
27 April 2019

In Memoriam Peter Short
20 April 2019

The Great Escape
30 March 2019

Leadership
23 March 2019

The Spring Statement
16 March 2019

The Moral Maze
9 March 2019

First Man
23 February 2019

Institutions
2 February 2019

Tragedy and Challenge
26 January 2019

Uncharted Waters
19 January 2019


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