As announced this week, the John Lewis partnership is raising £50m to finance further expansion by issuing a savings bond to its ‘partners’ and customers. If it succeeds it would make a lot of expensive City activity seem rather unnecessary, and its success is not seriously in doubt. The bond will return 4.5% gross plus 2% in John Lewis vouchers which puts it slightly ahead of the field in terms of returns. City “experts” seem worried that this sort of thing might catch on. They advise investors to proceed with caution because the issue is not covered by the Financial Services Compensation Scheme. So, if John Lewis were to go bust over the next five years, investors might lose their money.
These city experts, working under the current free market orthodoxy, advise against any single company investment. Much better, they say, to spread the risk by investing indirectly, so that professional fund managers can maximise the return on your investment, exploiting the specialised skills, kit and algorithms of trading and investment banking. And take their cut.
The orthodox wisdom also claims company directors to be merely the agents of shareholders, and therefore have the duty to ensure that all management decisions are taken with the aim of maximising shareholder wealth. But it assumes directors will also seek to maximise their own ‘utility’ and therefore have to be bribed to maximise shareholder wealth. This is achieved with the provision of share bonus schemes that effectively convert them into shareholders. In fact all employees are assumed to be out to maximise their own ‘utility’, so the directors-turned-shareholders have to adopt the approach to management described by Ghoshal as ‘ruthlessly hard driving, top down, command and control focused, shareholder value obsessed’. And that approach to management, famously doesn’t work, as indicated elsewhere on this site.
It is not widely acknowledged that the directors-turned-shareholders in the free market model are, in effect, co-owners of their companies. But in that free market, maximising world, co-ownership is restricted to the top echelon. If it was extended to all employees, success would not be dependent on being ‘ruthlessly hard driving’ etc but would derive from the co-ownership benefits realised by John Lewis and the many other co-owned businesses described by David Erdal in his latest book ‘Beyond the Corporation’. These include highly successful participants in many different industries across the globe. The attractions of co-owned enterprise contrasts with the widespread perception of established corporates threatening even to dominate or corrupt democratic systems of government.
The John Lewis savings bond is evidence, not just of the success and ambition of that company, but of the confidence its ‘partners’ and customers have in that way of doing business.