Andy Street - Managing Director, John Lewis HARDtalk

Zuwara. -- centred in. One of Britain's Aldous retailers,

John Lewis, is very popular at the moment. Not only what shoppers but

the British Government. It says it wants to create a John Lewis

economy. A new form of capitalism where employees have more of a

stake in their business. The thinking is that like the

department store, everyone would come together in tough times. Under

its written constitution John Lewis even asked to worry about the

happiness of its staff. Is it the And the street, often too HARDtalk.

-- Andy Street. What is so great about the John Lewis way of doing

things? What is special about John Lewis is that we like to think is

that everyone is in it together. Everyone shares the success of the

business. All of your staff own the business? Indeed, everyone owns the

business. Everyone receives a bonus when we declare our annual profit.

The same percentage for everyone in the business. This year it was 14%

of salaries. Correct. You do not have any shareholders. But you must

have a decision made at some level of how much of your profits you put

back in your business and how might is allocated to the our -- your

staff. Indeed. It is decided by a board. It has been roughly 50-50.

The interesting thing about the structure is the board itself. Five

members of the board are elected partners. The partners themselves

are taking that decision. That is why it is different from the way a

company runs. I am wandering in the ways of the conversations you have

about the interests of the company how it differs from shareholders

worrying about dividends. I like to think that the difference is the

discussion in John Lewis is all about what is in the long-term

interest of the partners. There is no conflict of interest between the

shareholders and the workers. That is what I mean by it is all in it

together. You say long-term interest. Does a company with

shareholders have a shorter term it is looking at? You can probably say

that. What I can definitely say is that John Lewis is not trying to

protect a short-term share price. We looked after our customers. We

rebuild profits. One of the counter arguments is that you cannot move

as quickly. You are constantly worried about her staff. That is

the allegation put against conventional co-operative movements.

But John Lewis has an executive management had takes decisions. We

move desperately as any retailer in the last decade. -- moved as

quickly. I do not accept your allegation. Your argument is that

we have to be aware of them. Exactly. It is not a perfect

democracy. These are active management decides. What we are is

accountable to all of our partners. But I have seen you say that this

model has weathered the downturn, but I have also seen you quoted as

saying a model is too costly. Absolutely. That is not because the

model is not competitive. We have just not taking the tough decisions

before the recession to get our cost sustainable long-term. The

great news is that the recession encouraged us to do that. We have

done some tough things. That is why our numbers have been good. What

sort of decisions are we talking about? Talking to partners in some

areas and saying that your job is no longer required. We have looked

into the efficiency of how many people we employ. But that his

surely as a result of the model itself. I do not believe that. The

management has to take the tough decisions. It was not that our

owners were holding the manager's back. We have not been forced by

the economic realities to take those decisions. Even if it is

written into your constitution that you have to maximise the happiness

of staff it can hardly be in the happiness of the people that you

were sacking. What the last cheers have revealed is that this is not

about the happiness of one individual partner, but the

happiness of the whole organisation. 80,000 people got behind the

efficiency drives. You'll retard director so that we do not operate

at the peak of efficiency. -- Euro Retail Director said. He said that

we could make decisions more or urgent plea. -- urgently. It was a

fair challenge. I would put you that since that quota from 2010

what we have done is demonstrated that we have taken tough decisions

and shown to our customers' eyes that we are on the leading edge of

the move to online shopping. We have been anything but slow. So you

would say this is not down to the structure. I would. The trouble is

that this is a structure that was put in place back in 1929 when the

son of the person who found the company said I would hand it all

over to the staff. It is not exactly something that has been

repeated many times since. If it is so successful, here you are still

decades after it happened representing a tiny part of the

whole of the British economy. is correct. That is one of our

frustrations. There has not been more adoption of this over the 80

years. We would argue that the longevity of you were John Lewis

model shows the value. It seems to be more relevant than it was before

the market crash. That is why we are welcoming what the government

said. The British government really loves you. But there are other

examples. Other companies were not saved by their employee focus.

were not and truly employee ownership. I do not accept the

comparison. That is the critical factor. A majority of the company

has to be owned by its staff. about a complete model rather than

a little bit. Why has there not been more up of the John Lewis

model? People have tried small part of it. But no-one has taken the

balance between a strong executive accountable to all of its partners

through the ownership structure. Realistically, how much of an

insight cannot seriously be? The rest of the economy runs in a

different way. Not true. It is unlikely that a conventionally

owned company will do exactly what John Lewis did back 19 from T9. --

1929. But more companies can be set up on our faces. Perhaps managers

can think of how they pass it on. There can be more diversity.

does it affect pay? We talked about bonuses. He made the point they

were 14%. The bosses are still paid an awful lot more than the staff.

What dissatisfaction in the firm at my fear the? -- might there be.

would have to put that to my partners. Managers are paid more

than the staff but there is more relativity. We have a role in our

constitution which says our best paid partner will be paid no more

than 75 times the pay it of late selling assistant on our shop for.

75 times is still a massive multiple. But compared to other

companies or US companies it is still much smaller. There is a

regulator. Do you think that is the acceptable more to pull. It is

impossible to say what is the acceptable more trouble. This is

not a numbers game. There has to be an essential ideal of fairness.

have referred to other companies being out of control. Are they out

of control? I believe that some are. If you look at the Wellcome

packages that some of our competitors offer I do not believe

that can be justified by the performance of one individual.

the way to solve what has become a problem, I know you said the

Government should not be interfering. My view is that the

remuneration committees of organisations should be interfering.

It is the corporate governed mechanism at must ensure that an

organisation exists in a sustainable way. But they are not

having enough of an effect to make a difference. Last year the pay of

executives went up by 149 %. -- 49%. My own view is that that has

reached a critical point. It is beginning to slow quite rapidly.

We're past a tipping point. enough has been done? The issue has

become significant enough for those responsible for the image and

reputation of companies to be saying, do we want to make a stand

on this? The defence of high pay is put by the likes of of those who

say that we have to be prepared to pay the amount of money does

executives can get elsewhere in the world? Is that right? It is right.

They should be able to get a good salary. This is not a UK problem.

The US is even more extreme. We need to be competitive. I cannot

believe that is inconsistent. wonder how that applies to John

Lewis. If you pay so much less as you suggest, how can you get...

pay the market rate for a base pay at all levels. What do you be a

cashier for what the EU be a director. What we do not hate is

the individual bonuses. The bonus should be shared collectively.

that limit to you can go to? It is the bonuses that send the figures

to massive levels. Yes it does. It commits us to those people who

believe her model is fairer. I say that is a good thing. It has not

prevented us recruiting talented people who want to make a great

contribution. You mean it is So the people you have signed up to

it? Absolutely. They believe in our business model. If they are not

committed, I do not believe they would be successful leaders of our

business. They might be very successful elsewhere, but it would

not work in our business. We are talking about how this is a model

for the UK Government. We have heard countless times, the John

Lewis economy, which I am sure you would love. I wonder how the

Government could apply it elsewhere. How does it apply to other

companies? First of all there is a public sector and private sector

around this. The public sector are working on a number of pathfinder

projects, which are taking small parts of the public sector and

develops more examples. For example, we are working on a health service

project, where we are taking a small part of the health service in

Swindon to actually say it, how could we form a group that have a

financial reward if they achieve a more efficient model than they

previously had. And in the private sector? The private sector is about

encouragement of for new business start-ups, passing on between

generations and also for thinking about moving from one ownership

structure to another. What tax incentives are there for employee

ownership? So they can do things to encourage more diversity. You, as

one of the people on the Prime Minister's Business Advisory Group,

had his here on this, don't you? do not think they talk about just

that. But we have been able to lobby the Government around the

virtues of employee ownership, just as we did with the previous

governments as well. Are they going to change the tax system to

encourage it? There is no commitment yet, but in the last

Budget there was a commitment to explore it. When you are lobbying

the Government, did you also advise them that they should get rid of

the top income rate of the tax? did not lobby on that. Certainly,

businessman and companies have said, this is damaging to British

interests because it is affecting the way that business operates.

John Laws, not - -- as an organisation, did not lobby on that.

Personally, I think they did the right thing. Britain has to be

competitive. What he has done is cut the top rate of tax from 50% to

45%. Is that fair play and we are all in it together? When we are all

meant to be sharing the burden of austerity? Or George Rose Burn also

did -- what George Osborne did was take a lot of people at the bottom

of the tax scale out of paying tax at all. The fact that he did top

and bottom together seems to be an acknowledgement that he was trying

to make it has competitive as possible. I appreciate that you

want to talk about a John Lewis perspective that, but you do have

this role in the group and we are looking at the whole way it affects

the economy. We had this situation where we have a model that could

affect companies and could affect pay. And yet, the John Lewis

economy, from all that I can understand, it might affect the

public sector but it really does not seem to have any way apart from

new business start-ups of affecting it. It is about a fairer form of

capitalism, which does not necessarily mean taking all

elements of the John Lewis model and imposing those on business.

Let's have a look at what other things are in there. People say to

me, why is John there was loved? It is about a number of things. It is

about our commitment to suppliers, our commitment to the communities

that we work in, how can amendment to be a good employer, our

commitment to take the people from the ranks of the long-term

unemployed and put them into work. What I think Nick Clegg was talking

about was not a modern the cells on John Laws in terms of the ownership

structure, but to take features that are enshrined in our

constitution and apply them to your business. And as far as you're

taking long-term unemployed, do you make certain commitments on that?

We have an awful lot of young people leaving school and you could

presumably parked the cream of the crop. Benny illustrate that with a

little story. We have just opened a new store at the East End of London.

We made a commitment two years before we opened that we would work

with the agencies in the area to take a quarter of the people we

employed from the ranks of the long time unemployed. We took 273 long-

term unemployed staff members. We did that rather than taking the

cream. That is what I mean by a socially responsible business.

Another argument you have made is that private companies should be

stepping into the public sector steps back. There is an example the

John Moores has talked about using itcommunity groups for charities to

meet. -- John Lewis. That is another example of a good public-

spirited business. Across the UK we have provided a space for community

groups to meet, free of charge. wonder it is much more you should

be doing. The number of spaces is not going to be much, given the

number of stores you have. Is there much more that you could, and

should, be doing? What we should probably should be doing is giving

contributions to charitable causes. That's all overseen by the business

in the community in the UK. We would be in the top few companies

in terms of proportion of their private given to charity. I am not

saying one thing the journalist has set it aside, but what I think the

spirit of our approach is that it is sustainable, responsible and

that is what my Clegg is getting out. The Government has been

criticised for not doing enough to boost growth. Companies are in

trouble and there needs to be some help. One of the things that Ed

Balls has suggested is you have a temporary cut in VAT. Wouldn't that

be a fair and fast way to boost growth? It would be a quick thing

to do because it put spending power back in the hands of consumers. My

own view is that it is not the right thing to do. The origins of

this downturn is not a weakness in consumption, it was a weakness in

the other parts of the UK economy, which are about competitive

businesses. I actually believe that although it might be attractive in

the short-term, it will not solve any of the underlying issues.

Should the Government been doing more in other ways to boost growth?

Of course it should be. The things that it should be doing is looking

at infrastructure investment, investment in skills so that on the

supply side of the economy it is making us a more competitive place

for business to be conducted. A widespread agreement has been

holding back business of other decisions. Your chairman said in

January that he was cautiously optimistic about the economy. This

was after a Christmas that was better for some people. Since then

there have been some difficult giggles. I wonder where you are now

on how much longer the downturn will last? I am still in the

cautiously optimistic state. The reason for that is, particularly

for retailers, it is all about how much money consumers have. What is

consumer expenditure likely to be? With inflation coming down, the tax

increase is being passed, it looks as though it when we go into the

second half of this year, consumers will have a little bit more money.

Retailers can have their sales will move forward this year. You would

expect consumer sales to improve? To begin to improve and get

stronger through the year. So in terms of what that will mean for

growth? That will be a good contribution indeed. I am wondering

how... It is still only small. I am not a professional economist, but

we have to look at this bordering a planning. It is about 1% movement

in the year. It is a positive number, though. For you in terms of

the International opportunities, it is one that is online. You have

expanded into 33 countries with your online sales. The whole point

he is with the British economy facing a long period of slow growth,

many retailers have got to say, how can we get export opportunities? We

have taken our mind facility to 33 countries. The best performing

countries - France, Australia. it only a matter of time before

there is a John Lewis department store in France or Australia?