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Wednesday, March 7, 2012

Strategic CSR - John Lewis

The article in the url below focuses on the arguments in favor and against employee-owned firms (Issues: Employee Relations, p168). In particular, it focuses on John Lewis, a well-known UK department store founded in 1928:

It is owned by its 76,500 workers—or, to be more precise, an independent trust holds all the shares and allots staff an annual bonus.

The article notes that, in spite of the many apparent advantages of this organizational structure, its long history (“Staff share-ownership schemes emerged in America in the 1920s”), and its favored status as “a more caring, cuddly capitalism,” it has not been widely adopted beyond a few firms. This is strange, given that there appear to be economic and competitive advantages to employee ownership:

Employee-owned companies are more productive and hardier in a recession, …. [At John Lewis] Staff turnover is low; the shop beat many competitors on Christmas sales. Firms with similar structures concur: Arup, an engineering outfit, attributes its business range and “family feel” to being owned by its 10,000 employees.

The article notes, however, that in spite of higher productivity and a more dispersed ownership, there is little evidence to suggest employee-owned firms are any more socially responsible than firms with other ownership structures:

It does not prevent bad decisions: having a quarter of shares in employees’ hands did not save Lehman Brothers from bankruptcy.

Perhaps more importantly, employee ownership poses real risks to employees. While their job security is often higher, financially, their heavy investments in their own firm can easily leave them exposed:

It is rash to put a worker’s livelihood, savings and pension in one basket case; many employees lost everything when Enron, an energy-trading company, collapsed in 2001.

Ultimately, the disadvantages of employee ownership may outweigh the advantages:

Companies that are wholly-owned by their staff may face barriers to growth. Many firms need a flexible capital base to expand—one reason the partnership model in banking declined. Employee mobility promotes innovation. At base, it is unrealistic to expect many bastions of capitalism to turn their shares over to their workforce.

For a good example of a U.S., employee-owned firm, see CH2M Hill: http://www.ch2m.com/corporate/about_us/employee_ownership/default.asp

For more information about employee stock ownership plans, this site is interesting: http://www.esop.org/