A battle that saps the spirit of John Lewis

News Analysis: Staff hope for pounds 100,000 windfalls, but to sell the Partnership would be to betray its founding principles
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The Independent Online
THE JOHN LEWIS Partnership, that bastion of the high street, is under threat. Not from retail rivals or the fragile economy, but from the current vogue for "demutualisations".

Lured by the possibility of a pounds 100,000 windfall each, staff at John Lewis, who own the group via a complex trust, have started uttering the previously unutterable; that the business should be sold and the proceeds distributed to its workers.

But City analysts say that the frenzy is premature. They warn: windfalls would be far lower than pounds 100,000 because the value of the business has fallen considerably in the past year; a sale would lead to widespread redundancies; a sale would also lead to an end to the host of privileges that John Lewis workers enjoy.

"I think if they were to experience life in a public company they wouldn't like it very much," said Nick Hawkins of Merrill Lynch.

Take the value issue first. Calculations of the possible windfall have been based on a valuation of pounds 3.9bn for the department store and Waitrose supermarket group. Divided equally among the 39,000 staff that would equate to pounds 100,000 each. This figure has entered the records and barely been discussed since.

But according to Nick Bubb, retail analyst at SG Securities, the current value of John Lewis would be closer to pounds 2.5bn. He attributes the lower price tag to the tough retail climate, poor results from the group in the past year and a de-rating of the sector. Such a figure would give workers a payout of pounds 64,000.

Mr Bubb says: "A valuation of pounds 3.9bn would be far too high. Profits have fallen and the first-half figures [due next month] will be way down. The valuation of the Waitrose business would also have fallen."

One possibility which might pacify windfall-hungry staff would be to sell Waitrose, which was not part of the original group when John Spedan Lewis first established the partnership. Waitrose might fetch pounds 500m and those proceeds (about pounds 13,000 each) could be distributed to staff. But this is ruled out by the company. "We are not contemplating selling Waitrose," a spokesman says.

Then there is the jobs issue. John Lewis is one of the most paternal employers in Britain, operating a policy that almost guarantees a job for life. It has never implemented a major round of redundancies. Indeed workers who spend five years at the group receive letters saying that the firm hopes to be able to offer them employment for the rest of their working lives.

All this would change if the group were sold. Some analysts say that while John Lewis offers excellent service, it does so through a relatively inefficient structure with decision-making slowed by layers of bureaucracy, workers councils and committees. A new owner would be certain to take the axe to central costs, analysts say.

Staff privileges would also be closely scrutinised. John Lewis staff are among the best paid and most pampered on the high street. In addition to competitive salaries the ownership structure means they also receive a bonus payment calculated as a percentage of annual profits. Last year it was 22 per cent.

But pay is just the beginning. John Lewis also owns holiday centres and farms which are available for staff use. After 25 years' service staff are eligible for six months paid leave. There is a committee for claims which makes payments to staff who have fallen on hard times.

Each department store employs a full-time registrar. These women - and they are all women - are employed to ensure that the founding principles of the John Lewis Trust are upheld in their shop.

There are outings for pensioners and trips abroad every year for a group of the company's "unsung heroes", the steady Eddies of the business employed in non-management positions.

All this has helped develop a powerful retail culture, similar to that which has dominated Marks & Spencer. Staff refer to unsuitable activities as being "not partnership", a cosy, inward-looking term they see as a strength but which the current chairman, Sir Stuart Hampson, has tried to ban. As one analyst says: "Can you imagine what an asset-stripper would make of that lot?"

Of course, the threat to the powerful John Lewis ownership structure may turn out to be hypothetical.

City experts say the "settlements in Trust" established by John Spedan Lewis are "bullet-proof." Set up in 1929 and 1950 and with a new draft to be set before the firm's council this year, it states that the business "should be owned in trust for the benefit of its members, who are partners from the day they join".

Some reports have suggested that "some clever lawyer" ought to be able to find a way around it, though an Act of Parliament would be required to alter it. And whether it is right and proper to alter a man's will for the benefit of one group of the beneficiaries is a moot point.

John Lewis is not mutually owned in the same way as building societies,which are typically owned by their members. It is more akin to Bupa or the Co- op, a collectively owned entity represented by people elected from its grass routes.

At John Lewis, branch councillors elect 120 central councillors which in turn elect members to the central board. The board consists of the chairman and deputy chairman, plus five of their appointees and five appointed from the grass roots. This thicket of bureaucracy would make demutualisation difficult.

Most commentators argue that such a course would be a mistake and would destroy the very thing that makes John Lewis different. Staff who had received the windfall would probably leave, they say, and future staff would not feel the same motivation to offer higher levels of service unless a profit share scheme was introduced by the buyer.

But retail experts also argue that John Lewis must change its operations, if not its ownership structure, if it is not to follow Marks & Spencer into the position of fallen idol.

John Lewis is - belatedly - considering changes such as the acceptance of credit cards and longer opening hours. But it gives the impression of being a reluctant moderniser.

It must navigate a path to 21st century retailing while finding a way to retain the motivation of staff who have had their heads turned by riches they can never have anticipated and which are not theirs by right to receive.

Setting Up Shop

1864: John Lewis opens small drapers' shop in Oxford Street, London, and turns it into a department store

1905: Acquires Peter Jones, Sloane Square, London

1929: Spedan Lewis, John Lewis's son, inherits shops from his father who died the previous year. Starts transferring ownership to staff

1937: Acquires Waitrose, founded in 1908 by a Mr Waite and Mr Rose

1950: Spedan transfers his voting rights to trustees and establishes a written constitution securing the structure of the group

1963: Spedan Lewis dies

1990: Opens John Lewis Kingston, closes Pratts in Streatham and Jones Brothers, Holloway Road, north London.

How the business measures up

Estimated value: pounds 2.5bn-pounds 3bn

Turnover: pounds 3.5bn

Profits: pounds 2.6bn (inc pounds 33.5m VAT refund)

Operations: 25 department stores, Waitrose stores: 117

Staff: 39,000

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