|Reinventing the Firm|
The belief that the primary purpose of companies is to maximise profits for shareholders has been called into question by the economic crisis. Mutual and employee-owned models of business offer an alternative vision where democratic companies drive a happier and more sustainable economy, says a report by Demos.
11th September 2009
September 2009 - Demos
The financial crisis has called into question many of our core assumptions about economic structures, governance and institutions. But there has been little attention paid to the basic unit of economic collaboration and production: the firm. In recent decades Britain developed a corporate monoculture in which the ‘shareholder value’ creed treated firms simply as the property of their shareholders, to be traded, exploited and disposed of in pursuit of profit.
Government policy making has done little to call this culture into question, depriving our economy of a richer vision of what a good company is and what it can do. This crisis is a chance to ask deep questions about our firms: how can they meet social and political as well as economic goals?
How can firms be modelled so that not only shareholders but employees, the economy and society profit? Many of these models already exist. Mutual and employee-owned models of business operate with longer time-horizons, achieving higher levels of performance and customer satisfaction. They nurture greater power for individuals over their economic lives and increase the accountability of managers. This report argues it is time to bring these models out of the wilderness and into the debate about where capitalism goes next.
Presenting a wide range of quantitative data alongside three new case studies of employee-owned firms, it offers a new vision of economic autonomy where democratic companies drive a happier and more sustainable economy.
September 2009 - Charlie Mayfield, John Lewis Partnership
This September marks the anniversary of the collapse of Lehman Brothers, when the world’s biggest bankruptcy plunged the financial markets into freefall and more than £50 billion was wiped off the FTSE 100 index in a single day.
Thankfully, economic Armageddon has been avoided. As stability has been returning to the financial system, it is human nature to hope that normal service will be resumed and that our economy will return to the benign conditions that prevailed before the credit crunch. Yet many of the economic assumptions of the past 20 years have been decisively swept away.
Capitalism is not in meltdown but it is at a critical juncture, as William Davies argues in this significant contribution to the debate about the future of the firm and its relationship with society. For many years it has been the received wisdom that the pursuit of ‘shareholder value’ was the best way to motivate management and maximise value for shareholders. The crisis has exposed the weaknesses of the drive for short-term maximum gain.
It is only now that the urgency of addressing the banking system has abated that business leaders, policy makers, commentators and citizens have begun to reflect on what alternative types of capitalist structures might be more inclusive of all stakeholders, be more resilient in the long term and reduce the risk of future crises.
Greater diversity in the way companies are owned and run should be welcomed. As this report highlights, there are multiple ownership models and corporate governance structures that can generate wealth as well as positive benefits for society and shareholders alike.
Employee ownership is one solution to the problem of building a more sustainable economy built on long-term foundations. That does not mean blunting the entrepreneurial spirit – far from it. Employee ownership can also help fulfil the increasing desire we have for more influence in our work, reflecting the greater choice we have come to expect in our personal lives, so as to unleash our potential and productivity.
The UK employee-owned sector is worth £25 billion annually and is a growing force in the economy. It has the potential to contribute significantly to the long-term well being of employees and communities as well as to greater social cohesion.
That is why the John Lewis Partnership is proud to have supported this project – and why we welcome Demos’ call to government to highlight employee ownership and take the lead in providing incentives and removing barriers to the growth of the sector.
Employee ownership may not be right for every business but it has worked for the John Lewis Partnership for 80 years. I believe it can help us to build an economy in which employees and others have a real stake, and in which success is judged not just by short-term returns but by long-term sustainable performance.
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