Not knowingly undersold

The John Lewis Partnership was built on the caring, sharing principles of the co-operatives of old.

When old Sam Walton - the leathery Arkansan who founded the Wal-Mart bargain stores - was wandering around London on a European visit, he was very taken by the John Lewis stores' notion that the staff were "partners". He went back home and redesignated all his own staff as "associates". There were stock-options, a lack of hierarchy and an openness about finances. But there was no doubt who was in charge. Sam died in 1992. Wal-Mart, now owned by a family trust, has just taken over Asda, whose staff will doubtless all become "associates" also.

Worker control is a phrase with many shades of meaning. Mostly it has been a recipe for a company with a short life and a far from merry one. At Wal-Mart, talk of staff as "associates" was largely window-dressing - though Bob Ortega, the investigative author of In Sam We Trust (Kogan Page, £12.99), acknowledges that many found even a small helping of openness and involvement a big advance on most other companies. But what about John Lewis itself - old Sam's inspiration - which describes itself proudly as "an experiment in industrial democracy"? It has been fighting off a campaign by some partners that it should demutualise, following in the footsteps of, for example, the old Trustee Savings Bank, which is now simply part of Lloyds. This laid bare the question of who was really in charge. Some partners, when it comes down to it, are more equal than others.

A coat-trailing little City page item in the Daily Telegraph in May 1998 had suggested that demutualisation would bring each current partner about £100,000. This was the outcome of a simple long-division sum: a supposed stock market valuation of "between £3.5 billion and £4.2 billion", divided among a workforce of about 40,000. These nine column-inches, in a Saturday edition, created a whirlwind within John Lewis's. The management hopes that it has now blown itself out, after the partnership's "central council" (mostly elected, partly nominated) rejected in September the thought of a staff referendum. The whole scheme was misconceived, a former partner wrote in the City pages of the Guardian. A subtler reckoning meant that staff might be lucky if they received £30,000. (That would still seem pretty lucky to me.) The Telegraph sardonically compared the council's vote to the spurious unanimity of the North Korean Democratic People's Republic.

In reports of the tug-of-war within the firm, John Lewis was sometimes referred to as a "worker co-operative". The battle to stay "mutual" showed it was a long way from being that. But that it isn't may explain why John Lewis is still with us, and can continue to deliver many benefits to its staff - it must be one of the best employers around - even if it does not give them ultimate control. For customers, it is also the only remaining department store chain which hasn't descended into a depressing shabbiness, and which employs staff you can rely on to know what they are talking about.

The argument about control goes back to Robert Owen and beyond. The trail is littered with failures: collectives, co-operatives, little utopias, most of which lasted less than a decade, and often very much less. The collapses generated more bitterness than an everyday bankruptcy because of the participants' psychological investment. Peter Kropotkin was the latter-day saint of "mutual aid". Building on Darwin, he argued from evidences of co-operation, rather than conflict, among animals and birds, that mutual aid was as essential to human life as the struggle of all against all. Kropotkin was unimpressed by the Co-operative Movement in Britain. He described it as "joint-stock individualism", breeding "a co-operative egotism, not only towards the community at large, but also among the co-operators themselves". When Beatrice Potter was travelling around the North of England in the 1890s - before she married Sidney Webb - to look at co-operatives, she found only 59 bodies she could define as genuine co-operative producers. To Potter, the repeated failures were due to "want of capital, want of custom and absence of administrative discipline", or all three. A system where workers were supposed to obey a manager during the day, then sat in judgement on him in the evening as his governing committee, was - she thought - impossible "in a highly organised industry".

Self-help and helping yourself are not, she found, mutually exclusive. This foreshadowed the rows and the arguments precipitated within John Lewis this past year. The founder of the partnership was Spedan Lewis, son of John Lewis. In Partnership for All, setting out the principles of his firm, Spedan Lewis spoke of his father, who successfully established the John Lewis store in Oxford Street: "The perversity of some of his notions and the arbitrariness of his temper made the strain of working with him considerable." John Lewis had pulled himself up out of poverty. The "conditions of his early life had so overdeveloped in him a passion for accumulating money and a dread of losing it that, where money was concerned, he was like a man driven by a demon". In 1929, Spedan Lewis decided to sharethe control and the money in an elaborate trust.

Here is an extract from one of the 200 rules: "While the partnership's ultimate aim shall be the happiness of its members, business efficiency will be a necessary factor in attaining this aim. But the partnership shall recognise that only tools put business too far beyond pleasure . . . " You could print this in any treatise on benevolent paternalism.

Even today, reference is constantly made to the spirit of the founder, and what he might have wanted. (Commercially, you could argue that this is a weakness.) The partnership's house journal, the Gazette, is amazingly unlike any other house journal I have ever seen. Spedan Lewis saw it as the main conduit of information between management and staff. With very rare exceptions, all letters are printed. They get management replies. During the row over demutualisation, the letters have been like a vitriolic correspondence in a local newspaper. I noticed that most were written under pseudonyms: Thin Cat, White Van Man and Shares for All favoured a sell-out; Wise Owl was anti. The management was described as little better than vultures. Those who wanted to sell were described, often by company pensioners, as little better than jackals.

Lewis seems to have created his trust ingeniously enough to prevent a sell-off. The firm is owned by the John Lewis Partnership Trust Limited, which exercises its powers through the board. It has a duty to run the trust in the interests of present and future staff. Even a referendum among current partners could not force a sell-off. The malcontents probably have only two options: a High Court ruling, to vary the trust; or a private parliamentary bill. Such a bill demutualised the TSB in 1986. Both seem like very long shots.

So far, too, the Nationwide, which began life as the Co-operative Building Society, has held off the demutualisers. The high-water mark of this tide may have been reached. Or it may just be a pause. At the very least, the John Lewis row revealed a large number of dissatisfied partners. This might not have come as such a shock to the managers - headed by a former civil servant, Sir Stuart Hampson, on almost £500,000 a year, who tends to give lectures on such subjects as "Tomorrow's Company" - if they had looked back at a sociological study of John Lewis carried out in the 1960s. The ethos of companies tends to endure. Allan Flanders, Ruth Pomeranz and Joan Woodward sounded out several hundred partners to pin down the inner reality of Britain's largest experiment in "common ownership" or "industrial democracy". Their findings, they regretted, might have disappointed Spedan Lewis (who had died in 1963). "The significant feature of its system of democratic control is, quite simply," they wrote, "that it has been conceived by management and thus introduced from above rather than having evolved from below." In their different ways, Beatrice Potter and Spedan Lewis might have argued that this was precisely why John Lewis's is still with us.

Even then, 80 per cent of the letters in the Gazette were anonymous. The shyness about speaking up in public was not as new as I thought. Flanders and his colleagues found that partners were exceptionally secure in their jobs (they still are) and benefited from generous bonuses (they still do), but partners' relationship to their jobs was, in their language, "calculative" - meaning that the members of an organisation are committed to it to the extent that they are prepared to do a fair day's work for a fair day's pay.

The ideology of partnership, the sociologists agreed, "inculcates a strong sense of responsibility among managers at all levels"; freedom of criticism pervades the organisation. They found "little real sharing of power in the partnership". But they thought that the arrangements made for sharing gain and sharing knowledge, together with the existence of representative institutions, however limited their powers, have made the employment relationship positively attractive to most employees, and especially - a little sting here, I think - "to those who want to involve themselves in institutions".

In their questionnaire survey, 58 per cent of the staff felt that they really had no more say than in any other firm. Not surprisingly, the three sociologists had a battle with the company, I believe, to get their findings published.

If the demutualisers take the long view, they could decide to wait till the present trust expires, which it does 21 years after the death of the last surviving descendant of King Edward VII who was alive in 1929 - namely, the Queen and the Earl of Harewood. For customers of the 25 department stores and 118 Waitrose food shops, the worry must be whether the homage to Spedan Lewis will not, eventually, cause the same kinds of fatal delay in innovation that did for the Co-op as a serious movement.

A hundred years ago, J C Gray, a leader of the Co-operative Movement, argued for a single Co-op with branches rather than hundreds of little autonomous stores. Today few, I think, would shop at a Co-op unless there were no other shop to hand. John Lewis is still noted for its high quality and its service.

But in Oxford Street, the flagship store was the last to open on Saturday afternoons, long after everyone else in the street. The company resisted Sunday opening and out-of-town shopping. Even now, its new store in the Bluewater mall, in Kent, and its out-of-town store at Cheadle, in ultra-prosperous Cheshire, close on Mondays. Waitrose was slow to bring in electronic accounting, and at one time suffered accordingly. The John Lewis stores only started to accept credit cards on 27 September.

The half-yearly results showed a 22 per cent drop in trading profit, which Sir Stuart Hampson described as "deeply disappointing". (Better than Marks & Spencer, all the same.) They were released four days before the central council rejected demutualisation as "an act of collective greed", saying "we are caretakers of a unique business". Maybe so. But as Beatrice Potter's sharp eyes noticed, "want of custom" has brought many a high ideal down. The John Lewis balancing act continues. I wish it luck. But Wal-Mart and many others circle the stockade.

Paul Barker is a senior fellow of the Institute of Community Studies