After the 2008 financial crisis, many argued the existing operational formula of large firms was dated – with the ‘shareholder value’ and business structures having, in many cases, been proved to fail. For some, the aftermath of the crisis should have been a turning point, after which alternative structures would be widely adopted. However, businesses in the UK have been slow to embrace these alternatives. Our current economic crisis has very different causes – yet we may find that having more sustainable and inclusive ownership models helps to make our economy more resilient against future shocks. Back in 2009, at the tail end of the banking crisis, we explored different models of ownership and corporate governance.
Read the foreword from Charlie Mayfield, then-Chairman of the John Lewis Partnership, below – or the full report here.
This September marks the anniversary of the collapse of Lehman Brothers, when the world’s biggest bankruptcy plunged the financial markets into freefall and more than £50 billion was wiped off the FTSE 100 index in a single day.
Thankfully, economic Armageddon has been avoided. As stability has been returning to the financial system, it is human nature to hope that normal service will be resumed and that our economy will return to the benign conditions that prevailed before the credit crunch. Yet many of the economic assumptions of the past 20 years have been decisively swept away.
Capitalism is not in meltdown but it is at a critical juncture, as William Davies argues in this significant contribution to the debate about the future of the firm and its relationship with society. For many years it has been the received wisdom that the pursuit of ‘shareholder value’ was the best way to motivate management and maximise value for shareholders. The crisis has exposed the weaknesses of the drive for short-term maximum gain.
It is only now that the urgency of addressing the banking system has abated that business leaders, policy makers, commentators and citizens have begun to reflect on what alternative types of capitalist structures might be more inclusive of all stakeholders, be more resilient in the long term and reduce the risk of future crises.
Greater diversity in the way companies are owned and run should be welcomed. As this report highlights, there are multiple ownership models and corporate governance structures that can generate wealth as well as positive benefits for society and share- holders alike.
Employee ownership is one solution to the problem of building a more sustainable economy built on long-term foundations. That does not mean blunting the entrepreneurial spirit – far from it. Employee ownership can also help fulfil the increasing desire we have for more influence in our work, reflecting the greater choice we have come to expect in our personal lives, so as to unleash our potential and productivity.
The UK employee-owned sector is worth £25 billion annually and is a growing force in the economy. It has the potential to contribute significantly to the long-term well being of employees and communities as well as to greater social cohesion.
That is why the John Lewis Partnership is proud to have supported this project – and why we welcome Demos’ call to government to highlight employee ownership and take the lead in providing incentives and removing barriers to the growth of the sector.
Employee ownership may not be right for every business but it has worked for the John Lewis Partnership for 80 years. I believe it can help us to build an economy in which employees and others have a real stake, and in which success is judged not just by short-term returns but by long-term sustainable performance.
Charlie Mayfield is Chairman of the John Lewis Partnership (2009).