20 April 2015 by Alexandra Jones
After 14 years at the helm of one of the most successful businesses in British history, The John Lewis Partnership, Sir Stuart Hampson talks to Governance and Compliance about leadership, the role of business in today’s society, the value of regulation and achieving long-term stability through an ethical culture.
I was involved in the Royal Society of Arts inquiry into Tomorrow’s Company which began with the question, ‘what is the company for?’ Although a company is clearly there to create economic activity and fulfil a useful purpose in the field it is operating in, I have always been absolutely clear in my belief that a company, which is narrowly focused on maximising benefits to its shareholders, is short sighted.
I was also involved in the working group that produced a reform of the Companies Act, which made clear that directors have a responsibility beyond creating shareholder value. They have a responsibility to their employees, suppliers and the community.
It was a major breakthrough in company law to recognise that and to underline what many forward-thinking directors knew: if you focus not just on your shareholders but on your customers, your employees, your suppliers and the community, you actually have a much better chance of creating a business which can achieve lasting success.
One should not be misled into the belief that there is an old-fashioned idea called the shareholder model. In this country, we have moved on in our thinking to the idea that what is in the interest of employees, customers and suppliers, is also in the interests of shareholders.
If you just focus on one group of stakeholders, you destroy the balance of long-term success. Clearly any business that believes its only interest is in satisfying its employees is not going to succeed. Employees want to work in a successful business and that successful business will be one which achieves balance across all the interested stakeholders.
The key thing is to act with integrity in every sense. John Lewis has built up tremendous trust from its customers by operating with integrity. If it gets something wrong, it admits it and does its best to put it right.
Customers are aware of that and feel they can shop there with great reliance. It is very telling that when economic conditions are difficult John Lewis and Waitrose consistently outperform the market – when the economy is down people really do recognise the significance of dealing with a company that has strong values. The John Lewis Partnership is in tune with customers’ thinking and customers can rely on it.
Although some companies put a greater emphasis on talking about ethics, most major businesses now understand the importance of behaviour, its relationship with the community and the importance of trust in all parties it interacts with. A distinction between a company that is focused on profit and one that is focused on ethics is old-fashioned thinking. Progressive businesses understand that the only way to achieve long-term sustainability is by being a company that is recognised as having strong ethics.
Profit is a result – it is not an aim. It is something which happens when you manage a business in the interests of all the stakeholders. If the aim is only to produce profit, there is often a failure to do so. Profit is not and should not be the starting point.
Corporate governance should not be viewed as a set of rules that are dealt with separately from mainline business activity. Corporate governance should be part of the lifeblood of the business. It should be considered the only way to set about running a business properly, rather than it being a specialised field which one or two people are charged to look after. The chief executive, finance director and chief operating officer should consider it a part of their job and should be absolutely aligned with it.
It is like managing in a goldfish bowl because the business has got a strong democratic history. However, it is not a workers’ cooperative in the sense that everybody stands around in huddles asking, ‘what shall we do next?’. The management is conscious that they need to ensure everybody understands the direction the business is going in – it is not a few people making decisions and then expecting everybody to follow blindly.
There is an openness to engage with people and, as a result of that, there are so many good ideas. By having 85,000 people in the business identifying with its purpose, feeling that they have a role to play in moving it forward, there is much more momentum behind new ideas.
John Lewis is a strongly managed business because retailing is a fast moving environment. Unless you move as quickly as your competitor, you quickly get left behind. As one can see from the way it operates in the market, and indeed Waitrose, it is right at the front of thinking on how to operate in a modern retail environment.
An awareness of the activity of a business is obviously crucial, but just as crucial is the broader perspective that directors can give to ensure a business really is being run in a proper way. Directors must ensure the company has integrity in its operations and look to the long term. Although shareholders might nominally have an interest in quarterly returns, those who are investing for the long term want to see the forward direction of the business over a long period of time. It is the responsibility of the directors to ensure that the business is being run in a way which will give it true sustainability.
Any code sets out, for good reasons, an argument for a particular structure but it does not mean that it is the only way of doing things. I can see in many businesses that there is a very strong argument for segregation of the chairman and the chief executive but there will be businesses where having the two together makes very good sense.
In the case of John Lewis there is a very specific situation – the chairman is responsible for the running of the John Lewis Partnership. He has a managing director who runs John Lewis department stores and a managing director who runs Waitrose. So he is not the executive chairman of the businesses. He is the executive chairman of the John Lewis Partnership, which is the body that owns and controls the business as a whole.
This role is very much about looking at the long-term direction of the business as a whole: where it is going and its democratic character, rather than actually interfering in the day-to-day management of the business.
So it is not that different to a conventional model and it is specifically appropriate in terms of an organisation like John Lewis. With all these codes, the important thing is to understand their purpose and then to relate them to a specific organisation rather than thinking there is only one way.
John Lewis has what you might call in a conventional company non-executive directors – five of the 12 members of the board were elected by the partners in the business rather than being part of the senior management team.
They are there to provide a corporate governance function. I decided, a year or so before the end of my time at John Lewis, that it would be valuable to have people on the board from outside the business to give a lateral vision.
Although I felt that we had a highly active and lateral-thinking team, you never know if something which is happening in another business, which somebody else has seen, could give you the chance to challenge your conventional thinking.