A 'John Lewis economy' - Why co-ops are good for business

Last week, Nick Clegg called for British business owners to start building a ‘John Lewis economy’.

The department store, which has 40 branches across the country, is often referred to as a benchmark for customer experience. But in his speech at Mansion House the embattled Deputy Prime Minister was talking not about good service – but rather about the benefits of employee ownership.

John Lewis is an employee-owned firm – an arrangement that is sometimes referred to as a ‘workers’ cooperative’.

The Deputy Prime Minister said he wanted “more individuals to have a real stake in their firm.” He called on business owners to consider the co-operative arrangement – not for any altruistic or philosophical reason, but because he believes “employee ownership…is a hugely underused tool in unlocking growth.”

What are co-operatives?

Worker co-operatives are owned by their employees. Employees have some degree of control or influence over the activities of co-operatively run businesses, but the amount of control and the way it is exercised varies from firm to firm.

In the John Lewis Partnership, employees (who are also partners) can influence company policy at a number of levels. There are Councils at branch and division level, at which employees can discuss any issues. Employees also elect 80 per cent of the members of the Partnership Council. The council elects fifty per cent of the directors, who are responsible for overseeing commercial activities.

Other co-operatives are run on different lines. For example, in some firms every decision is made by the workforce, either be consensus or by majority. In other cases the workforce elects the management. In every co-operative, though, the majority of the firm’s shares will be owned by employees – and all or most employees will be shareholders.

What are the benefits of co-ops?

There are many reasons why the co-operative model might be the right choice for your business.

Perhaps the most important benefit enjoyed by co-ops is a motivated, engaged workforce. Clearly, employees will naturally perform better when they feel that they have a genuine stake in their organisation over and above its ability to pay their wages. Similarly, co-ops tend to be able to harness the collective wisdom of their employees far better than other organisations.

Nick Clegg was quick to praise the potential for growth in co-operative businesses, saying that he didn’t believe the problem in the economy is “too much capitalism”. But co-operatives are set firmly outside the normal boundaries of capitalist enterprise by a simple fact: their purpose is to create value for the people who do the work – not for outside shareholders.

Just as importantly, though, co-ops can help to ensure that employees enjoy as dignified a working experience as possible, in the knowledge that their work is benefiting them and their community, rather than a speculator with little or no knowledge of their activities. Co-ops enable their members to work more effectively, while sharing the benefits more fairly.

How can I start a co-op?

As the situation currently stands there is no dedicated co-operative legal structure. Instead, businesses that want to operate on co-operative lines need to choose another, existing structure – for example a limited company.

The limited company structure provides members with the benefit of limited liability. But this is not the only option available. The industrial and provident society (IPS) model is another popular choice amongst co-ops, as it obliges the business to operate along co-operative, democratic lines.

Starting a co-op can be a lengthy process. If you would like more information on the realities of the co-op system, you may wish to contact Co-Operatives UK.

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