Partnership is often a misused term in the world of corporate social responsibility. Companies sometimes describe simple cash donations to charities as partnerships, or often talk about their relationships with the community as partnerships, perhaps in an attempt to break down the barrier between the corporate entity and the consumer. Yet in the case of John Lewis, partnership lies at the very heart of its organisation, providing the foundation for its relationship with the community.
“A point of difference for us is our partnership structure,” says John Lewis head of CSR Nick Monger-Godfrey. “Our co-ownership structure provides a very different way of working. Co-ownership is not just about profit-sharing, it is as much about sharing the responsibilities of ownership.”
In practice that means all partners are expected to act in a socially responsible manner by respecting each other and the wider community. “But if they choose, any partner, can take a more active roll in management decision-making as an elected member of one of the partnership’s numerous democratic bodies,” Monger-Godfrey says.
This is not to say that John Lewis, Europe’s largest and longest surviving employee co-owned company, does not face challenges in the management of CSR. With over 63,000 Partners, 27 department stores and 174 Waitrose food shops, the company is highly visible in the community and as such is under constant scrutiny. And with more product lines than any other retailer in the UK – a staggering half a million – ensuring suppliers adhere to the John Lewis code of ethics is an enormous task.
Modern-day CSR wish list
The company’s modern-day constitution is based on John Spedan Lewis’ original. “These principles and rules read like a modern-day wish list for corporate social responsibility,” Monger-Godfrey says. “The difference is they were first written over 70 years ago”.
Spedan Lewis, the son of founder John Lewis, signed away his personal ownership rights in 1928 to allow future generations of employees to take forward his experiment in industrial democracy. Chairman Sir Stuart Hampson says Spedan Lewis was committed to establishing “a better form of business… the challenge for partners of today is to prove that a business which is not driven by the demands of outside shareholders and which sets high standards of behaviour can flourish in the competitive conditions of the third millennium”.
The structure of the company is one based on partner engagement and not just co-ownership, explains Monger-Godfrey. John Lewis has a two-track approach to management. At every level there is the typical executive management structure – a board of executives, divisional board, and senior management teams within every shop, which effectively run the business – lying alongside democratically elected management committees. For instance, on the 12-strong board of directors, five are elected by the partners every two years to represent the business.
At the other end of the democratic structure lie the branch councils, one for each John Lewis department store (branch) consisting wholly of elected partners. The elected partners represent constituencies within the branch, such as audio and television, fashion fabrics, and furniture, and the council sits alongside the shop’s steering group to take responsibility for supporting, engaging and contributing to the decision-making process.
At the divisional level, lies the John Lewis council and the Waitrose council, made up, once again, with elected partners, sitting alongside the divisional board. A partnership executive board lies at the partnership-wide level, with elected directors and a partnership council consisting of 85 members.
CSR governance
The company has a similar process for managing CSR and community affairs. For instance, local charity committees consisting of elected partners manage the company’s relationship with the community. The committees run the budgets and have complete authority over which charity they support and how much they give to each.
Ultimate responsibility for corporate responsibility rests with John Lewis’ deputy chairman Alastair McKay, who chairs the CSR committee, consisting of senior executives from the two trading divisions and a registrar, who represents the democratic side of the business. At the divisional level, Waitrose and John Lewis department stores each have CSR committees consisting of divisional directors and heads of departments. Working groups on areas such as health and safety, environmental issues, ethical trade, diversity and community affairs, report into the divisional CSR committees.
Monger-Godfrey and his team of three based in Bracknell coordinate the process. “The role of the CSR department in this business is predominantly the organisation, management and interface of all of these activities,” he says. “Our job is to develop corporate policy and strategy on issues such as climate change, ethical trade, or sustainable timber sourcing, and in true democratic style, all our partners have a responsibility to implement and support them”.
Community investment
Charitable donations are assigned at the local level by charity committees and as such vary from branch to branch. In the latest year, the company as a whole supported over 4,500 different community projects. “Some branches are very proactive, they will nominate a charity of year and give a substantial part of their budget to a single initiative, whilst other branches for example, will choose to help as many different charities as possible. There are different levels of engagement but we believe that locally elected partners, are best positioned to understand and assess local community need,” Monger-Godfrey says.
Monger-Godfrey is convinced that this devolved structure is the best way to serve the community: “At a national level, we don’t necessarily understand what local needs are. The challenges of taking national community campaigns local are quite clear”. Given John Lewis’ and Waitrose’s wide geographic and demographic spread, it would be very difficult to serve every community successfully with a nationwide programme, Monger-Godfrey explains. For instance, a national campaign aimed at getting the homeless back to work would have little relevance in a relatively prosperous area.
John Lewis and Waitrose are involved in a number of partnerships across the country. The partnership joined Business in the Community in 2002 in order to help understand how well it was managing CSR relative to its peers. “We are, by our very nature, a very inwardly looking organisation. For instance the company didn’t have a marketing function until 1999 and only started TV advertising in 2002. We’ve always been quite shy about communicating our wares,” Monger-Godfrey says.
To give a more complete picture of company contributions, John Lewis uses the methods developed by the London Benchmarking Group (www.lbg-online.net)., managed by The Corporate Citizenship Company, Briefing’s publisher. Fiona Cameron, assistant to the corporate affairs director says in the latest CSR report that where the LBG model has been piloted the company’s total community contribution has been three times the cash figure.
The supply chain challenge
The biggest challenge for John Lewis is the management of its supply chain, explains Monger-Godfrey, noting that the company currently sells over 500,000 product lines, from over 6,000 suppliers across the world. Furthermore, the task of supplier management is complicated by the nature of the trading relationships with suppliers, which are sometimes very small, In haberdashery, for instance, John Lewis might buy just £100 of buttons a year.
The company introduced supplier reporting and auditing programmes in 1999 to verify the supply chain of its own-branded products. For all of its own-branded products the company has a code of ethics setting out its views on pay, working hours, working conditions, animal welfare and environmental protection.
The assurance process begins with a supplier self-assessment questionnaire consisting of several hundred questions. The data is then used to assess a supplier’s compliance with its code, and priorities those suppliers most in need of support. This risk-based approach to assessment is based on known factors (for example there is more likely to be poorer labour standards in the Far East than the UK) and individual responses to the self-assessment to find where within the business there are pockets of concern. John Lewis then uses an independent, third-party audit programme, whereby suppliers with the most non compliances will be individually audited.
Engagement with the suppliers which do not comply with the company’s code is important: “It’s not just about saying we will walk away from a supplier because they’re undertaking activities that do not comply with our code,” Monger-Godfrey says. “It’s about communicating and educating our supply chain to say these values are important to us and then to guide and support our suppliers to help raise standards”.
Although the partnership initially developed its own online supplier management system through which suppliers could complete the self-assessment process online, and then monitor and manage any corrective actions, Suppliers Data Ethical Exchange (Sedex) has now replaced this.
Briefing notes that the partnership is not a member of the Ethical Trading Initiative, a UK-based alliance of companies, unions and NGOs that promotes and implements best practice supply chain management. But as Monger-Godfrey explains, there were “original differences between our code of ethics, particularly our views on worker representation” – John Lewis has its own established systems of employee participation – and the ETI, which believes that union membership was the most effective form of worker representation. This has since been reconciled and the partnership works closely with the ETI on projects such as developing registration and audit procedures for regulating temporary labour.
Because the partnership is not a listed company, it is not subject to the scrutiny of the investment community, and as such is not included in the Dow Jones Sustainability and FTSE4Good indices. However, it is still one of growing number of companies willing to openly report its performance, and the BITC’s corporate responsibility index, in which John Lewis was ranked ninth last year, is therefore an important measure.
Reporting
The partnership’s approach to CSR reporting more generally is a little unconventional. It publishes divisional CSR reports every two years, distributing more than 5,000 copies to ‘informed’ readers – government ministers, NGOs, CSR professionals, and in the intervening year produces a summary report specifically designed for its key stakeholder, all 63,000 partners. “It’s essential that we report openly to our partners, and in an accessible style – cutting through the jargon and focusing on the issues they will be most familiar with and can influence,” Monger-Godfrey says.
The company does not have its CSR reports verified by an external auditor. “It is important that a verification body holds credibility with the audience, and with interest in CSR coming from such a huge cross section of stakeholders, it’s hard to find an organisation that fits the bill. A statement in a report from some organisation that they’ve never heard of does not give our stakeholders any assurance,” Monger-Godfrey says.
The partnership does, however, use independent auditing across its CSR activities. For example, the company has developed an online information management system, SR Online, which acts as a portal taking data from across John Lewis’ operations. This ‘digital dashboard’ enables the CSR team and senior managers to monitor and assess CSR performance in real time. Because the company uses this data to make management decision, it employs “very specific” external assurance services to verify the data and see how far it has gone in reaching its targets.
in conclusion
With co-ownership so firmly ingrained into John Lewis’ constitution, CSR is certainly embedded into the company’s operations and functions. Employees play a pivotal role in decision-making – from which local charities to support to protection of the environment – ensuring the company avoids some of the difficulties surrounding employee engagement encountered by some of its more conventionally governed peers.
Yet the focus on employees as the prime stakeholder group arguably has certain limitations. Does the absence of scrutiny from the investment community and trades unions reinforce the partnership’s insularity? Does the company fully engage with multistakeholder groups in society? Monger-Godfrey freely admits that John Lewis is by its very nature a “very inwardly looking” organisation. Bringing outside stakeholders closer to the company, or bringing the ‘outside’ in (see Management briefing page 25) – may be a better way forward if John Lewis wants to fully address the potential of its constitution’s seventh principle, that is “contributing to the well-being of the communities where it operates”.
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