RegulationBusiness RegulationJohn Lewis economy? Not a universal solution

John Lewis economy? Not a universal solution

Iain Redford comments on Nick Clegg’s view that British companies should make employees shareholders to increase productivity

NICK CLEGG announced this week that the government will unveil proposals next week to usher in a new era of ‘responsible capitalism’ by encouraging greater employee ownership throughout corporate Britain. He cited John Lewis as the shining example of how a ‘corporate partnership’ leads to success. After all, last year John Lewis achieved sales over £8 billion and all 76,500 partners (namely all employees) were paid the same bonus of 17% of salary.

Clegg is not talking about a new concept. It is actually a tried and tested legal model in the UK. Partnership law was established in the nineteenth century and has evolved ever since. The huge success of UK professional services firms in recent decades, which are virtually all partnerships or corporate partnerships, validates the theory that increasing employee engagement by giving more employees a greater say and share of profits, can work extremely well for many service-based businesses.

What will frighten the horses though, is the notion that this will work for all businesses and that, consequently, we should introduce new laws to further entrench employee rights.

For example, talk of introducing a right for all employees to receive shares if they want them is fraught with difficulty. What if the employee wants to leave of his or her own accord?

The trust structure adopted by John Lewis overcomes such problems, but the reality is that it is too complex and costly for many of the entrepreneurial businesses the government wants to encourage. Many would also argue that the way corporate law has evolved, with the introduction of tax efficient share options and limited liability partnerships, has already given businesses the flexibility they need to include employees as stakeholders. As ever, whether this latest initiative will work, will very much depend on striking the right balance and recognising that a ‘one size fits all’ approach is rarely the answer in the corporate world.

Iain Redford, corporate partner, Bristows

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