The best moment in the first part of BBC's new fly-on-the-wall series, Inside John Lewis, shown last week, was hearing the managing director, Andy Street, explain why he didn't mind not being paid the millions he could earn if he were working elsewhere on the high street.
When asked why he stayed at John Lewis earning only £500,000 a year, Street said he felt that what he was doing was "worthwhile". It was so uplifting to hear from a businessman at a time when there is so much mistrust about the way big business operates, and he clearly meant it, even if the hyper-active Street did come across as a little earnest. But fairness runs deep in the DNA at John Lewis, and is clearly the secret to the retailer's astonishing success. This was demonstrated again last Thursday when it reported record operating profits – up 20.5 per cent to £389.7m. Not bad in any market, but stunning in the worst recession for decades.
Record profits allowed the country's favourite retailer to pay out £151m in bonuses between its 70,000 staff, giving them a 15 per cent bonus each, equivalent to around eight weeks' pay and an average of around £2,000. While much of the media attention surrounding results always centres on the way staff share in the profit (what is left after the board decides on what goes on new investment) my own sense from the programme was that the low differentials between pay levels – and that the highest paid, Street, can only earn up to 75 times the lowest – is the real key to the obvious harmony between staff.
John Lewis's chairman, Charlie Mayfield, put it well when he said that while we live in a world where not everyone is equal, people do expect fairness. Some would say that 75 times is too high – that old bombast, Plato, for one, thought that no man should earn more than four times another, while some Quaker businesses are a little more relaxed, setting the pay difference between top and bottom at seven times.
In the UK generally, until the late 1980s, most pay differentials between the lowest and highest paid in big companies was about 60 to 80 times. Those levels have become distorted, mainly because of the way the American high-pay culture has infiltrated British companies. And now, in many FTSE 100 firms, that differential has soared to more than 300 times. It's interesting that in most European – and Japanese – companies it is still much lower than in Britain or the US, and that these countries don't seem to suffer the social divisiveness so chronic in Anglo-Saxon economies. I'm not suggesting firms should be forced to set arbitrary caps on pay, but they could do worse than study the John Lewis partnership. You only have to watch the TV series to see how this spirit of fairness is truly infectious, and you get the feeling that staff love working there, not something you can say about many workplaces.
What is surprising is that more businesses don't borrow these principles. For inspiration, they should listen to a 1957 BBC interview (on the company website) with the elderly John Spedan Lewis in which the founder of the partnership explains why he came up with his "experiment" to find a better way of managing business – a compromise between rampant capitalism and Bolshevism. He succeeded, and we haven't come up with anything much better in the past 80 years.
One reason for this is that equity investment is too highly taxed in this country. Both Labour and the Conservatives say they want to use the John Lewis model to improve the way the public sector works but in fact they should start with the priate. If either party were serious, it would promise to change the tax regime, which still favours debt over equity, to encourage share ownership.
If you want to know how devious a banker is – just count his wife's shoes
There seems to be a strong correlation between the number of shoes owned by bankers' wives and the duplicity to which their husbands will go to get enough money to fund them. In her new book 'The Devil's Casino: Friendship, Betrayal and the High Stakes Games Played Inside Lehman Brothers', Vicky Ward details the flashy ways of Lehman wives such as Niki Gregory, wife of president Joe, and Kathy Fuld, wife of chief executive Dick.
Ward's book reports that Niki Gregory had a shoe closet reputedly twice the size of the Jimmy Choo store in New York and used to give tours of it to other Lehman wives. On Friday we discovered that Joe and Dick had their own closet – the Repo market – into which they stuffed $50bn in loans and investments, but they didn't invite any of their friends – and certainly not their investors – to see it. According to Anton Valukas, the examiner appointed by a New York bankruptcy court to investigate Lehman's collapse, the bank used Repo 105 to hide from creditors, markets, rating agencies, its own board, and the regulators, just how much it had borrowed compared to its capital. While all banks use the repo market as a way of swapping assets for short-term loans, Lehman manipulated the transactions – something that could only be done in the UK – by moving assets representing 105 per cent or more of the cash it received in return.
Accounting rules allowed these transactions to be treated as sales, not financings, enabling Lehman to shift debt off its balance sheet so investors didn't see the full picture. This is devastating stuff, and, frankly, doesn't come as any surprise. Watch out for even more legal action. It's time investors wised up – before the event. All the signs were there – Gregory alone boasted of a personal annual budget of $15m, as well as owning a seaplane and a helicopter ready for his daily commute. Well, the Choo's on the other foot now.
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