Managing and resisting ‘degeneration’ Managing and resisting ‘degeneration’ in employee-owned businesses. A in employee-owned businesses. A

comparative study of two large comparative study of two large retailers: Eroski and John Lewis retailers: Eroski and John Lewis

PartnershipPartnershipResearchers:Researchers:

John Storey (Open University, UK)John Storey (Open University, UK)Imanol Basterretxea (UPV/EHU)Imanol Basterretxea (UPV/EHU)

Graeme Salaman (Open University, UK)Graeme Salaman (Open University, UK)

Storey, Basterretxea, Salaman (2014)

Link to the paper:http://orgsagepub.com/content/21/5/626.full.pdf+html

Link to open access version in the University repository:https://addi.ehu.es/bitstream/10810/13408/1/Accepted%20paper%20pdf%20version%20Managing%20and%20resisting%20degeneration%20in%20two%20employee%20owned%20retaileres.pdf

Text version of present research:

Storey, J; Basterretxea, I and Salaman, G. (2014). Managing and resisting ‘degeneration’ in employee-owned businesses: A comparative study of two large retailers in Spain and the United Kingdom . Organization  21 (5): 626-644,

Storey, Basterretxea, Salaman (2014)

IndexIndex Brief presentation of John Lewis Partnership

and Eroski Literature Review: Degeneration and

Regeneration in employee owned companies Methodology Results

Source: Source: Storey, J; Basterretxea, I and Salaman, G. (2014). Managing and resisting ‘degeneration’ in employee-owned businesses: A Storey, J; Basterretxea, I and Salaman, G. (2014). Managing and resisting ‘degeneration’ in employee-owned businesses: A comparative study of two large retailers in Spain and the United Kingdom . comparative study of two large retailers in Spain and the United Kingdom . OrganizationOrganization  21: 626-644, p. 630  21: 626-644, p. 630

Brief presentation of JLP and Brief presentation of JLP and EroskiEroski

Storey, Basterretxea, Salaman (2014)

EROSKI. The biggest coop of Mondragon corporation

Mainly hypermarkets and Mainly hypermarkets and supermarkets, but also travel supermarkets, but also travel agencies, petrol stations, agencies, petrol stations, sport stores, drugstores…sport stores, drugstores…

JLP, 1999-2012 evolutionJLP, 1999-2012 evolutionFinancial yearFinancial year TurnoverTurnover Profit before taxProfit before tax Net profitNet profit Partner bonusesPartner bonuses Profit retainedProfit retained

2011–20122011–2012 £8.73 billion£8.73 billion £393.3 million£393.3 million £353.8 million£353.8 million £165.2 million (14%)£165.2 million (14%) £188.6 million£188.6 million

2010–20112010–2011 £8.2 billion£8.2 billion £431 million£431 million £367.7 million£367.7 million £194.5 million (18%)£194.5 million (18%) £173.4 million£173.4 million

2009–20102009–2010 £7.4 billion£7.4 billion £389 million£389 million £306.6 million£306.6 million £151.3 million (15%)£151.3 million (15%) £155.3 million£155.3 million

2008–20092008–2009 £7 billion£7 billion £279.6 million£279.6 million £580 million£580 million £125.5 million (13%)£125.5 million (13%) £146.0 million£146.0 million[20][20]

2007–20082007–2008 £6.8 billion£6.8 billion £379.8 million£379.8 million £320.4 million£320.4 million £181.1 million (20%)£181.1 million (20%) £198.7 million£198.7 million

2006–20072006–2007 £6.4 billion£6.4 billion £319.2 million£319.2 million £263.2 million£263.2 million £155 million (18%)£155 million (18%) £164 million£164 million

2005–20062005–2006 £5.7 billion£5.7 billion £251.8 million£251.8 million £215.1 million£215.1 million £120.3 million (15%)£120.3 million (15%) £94.8 million£94.8 million

2004–20052004–2005 £5.3 billion£5.3 billion £215.3 million£215.3 million £175.9 million£175.9 million £105.8 million (14%)£105.8 million (14%) £70.1 million£70.1 million

2003–20042003–2004 £5.0 billion£5.0 billion £173.5 million£173.5 million £148.8 million£148.8 million £87.3 million (12%)£87.3 million (12%) £61.5 million£61.5 million

2002–20032002–2003 £4.7 billion£4.7 billion £145.5 million£145.5 million £108.6 million£108.6 million £67.6 million (10%)£67.6 million (10%) £41.0 million£41.0 million

2001–20022001–2002 £4.4 billion£4.4 billion £141.5 million£141.5 million £103.3 million£103.3 million £57.3 million (9%)£57.3 million (9%) £46.0 million£46.0 million

2000–20012000–2001 £4.1 billion£4.1 billion £149.5 million£149.5 million £120.4 million£120.4 million £58.1 million (10%)£58.1 million (10%) £62.3 million£62.3 million

1999–20001999–2000 £3.7 billion£3.7 billion £194.7 million£194.7 million £161.0 million£161.0 million £77.8 million (15%)£77.8 million (15%) £83.2 million£83.2 million

Storey, Basterretxea, Salaman (2014)

Literature review:Literature review: Degeneration and Regeneration in employee

owned companies

Storey, Basterretxea, Salaman (2014)

First researchers on the evolution of cooperatives during the 19th century (Potter, 1891; Webb and Webb, 1920), found a record of commercial disaster and repeated failure. The few organizations that survived, quickly ‘degenerated’ by moving away from their democratic roots.

The degeneration thesis (cooperatives are bound to fail or to degenerate into capitalist forms of business) has remained prevalent in the literature on EOFs for close to a century (Ben-ner, 1984; Meister, 1974, 1984; Miyazaki, 1984).

Degeneration thesis in employee Degeneration thesis in employee owned companiesowned companies

Storey, Basterretxea, Salaman (2014)

Dynamics of cooperative degeneration (Cornforth, 1995; Cornforth et al.

1998): Denying membership status to a growing percentage of the workforce Organizational degeneration: power and control increasingly concentrated

in a few oligarchic hands, disqualifying members from taking part in decision making and governing bodies

Goal degeneration: increasingly prioritising profits or growth as the prime purpose.

Selling parts of the company to outside shareholders…

Degeneration thesis in employee Degeneration thesis in employee owned companiesowned companies

Storey, Basterretxea, Salaman (2014)

Lyfe cycle of coops and 4 steps of cooperative degeneration (Source: Meister, A. 1984. Participation, Associations, Development, and Change. New Brunswick, NJ: Transaction Publishers.)

1ST step: Idealism. High idealism and commitment; decisions made in the assembly, but economic activity is poorly established

2nd step: Transition: if the cooperative survives, conventional principles of organization are adopted, growing indifference of members; power of management reinforced;

3rd step. Democracy restricted to a representative board, cooperative values subordinated to economic ones

4th step Members and their representatives lose all their power and managers assume total control.

Degeneration thesis in employee Degeneration thesis in employee owned companiesowned companies

Storey, Basterretxea, Salaman (2014)

Cooperative degeneration is not inevitable; cooperatives can also regenerate (Batstone, 1983; Cornforth, 1995; Cornforth et al., 1988; Estrin and Jones, 1992; Hernandez, 2006; Stryjan, 1994)

Regeneration takes place in cooperatives with a culture of open criticism and discussion (Cornforth, 1995) and with an active and explicit commitment of members to change their organization (Stryjan, 1994).

After some stages of cooperative degeneration, many cooperatives experience a “resurgence of democracy” (Batstone, 1983)

REGENERATION vs degeneration REGENERATION vs degeneration thesis in employee owned companiesthesis in employee owned companies

Storey, Basterretxea, Salaman (2014)

Methodological design of the case studyMethodological design of the case study

Interviews: 37 in-depth interviews with managers of both companies conducted between 2010 and 2013

Direct Observation: speeches by managers of both corporations.

Registration and classification of evidence: Interviews transcription, data tabulation and revision. Categorization and combination of evidence depending on propositions derived from the theoretical framework

Documentary evidence from the sources atEroski and JLP: (Annual Reports and Sustainability Reports; Internal reports: Web pages, presentations, internal magazines,...)

ResultsResults

Storey, Basterretxea, Salaman (2014)

Table 2: Evolution of different employment models in Eroski (2000-2011) Source: Authors’ analysis based on Annual Reports and Social Responsibility Reports of Eroski (2002; 2007; 2010-2013;

2002-2013)

  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cooperative working members 6,321 6,834 7,207 7,506 7,835 8,053 8,062 8,177 8,426 8,935 8,229 8,463

Employees with partial employee ownership (GESPA) n.d. n.d. n.d. n.d. n.d. 4,632 4,713 5,154 6,307 6,468 6,350 5,602Employees without ownership n.d n.d. n.d. n.d. n.d. 18,609 19,877 37,227 37,972 32,136 28,436 27,769

Total employment 18,188 22,067 23,837 28,351 30,455 31,294 32,652 50,558 52,705 47,539 43,015 41,834% of cooperative working members 34.8% 31.0% 30.2% 26.5% 25.7% 25.7% 24.7% 16.2% 16.0% 18.8% 19.1% 20.2%

Table 2: Evolution of different employment models in Eroski (2000-2011) Source: Authors’ analysis based on Annual Reports and Social Responsibility Reports of Eroski (2002; 2007; 2010-2013;

2002-2013)

Table. Evolution of different employment models in Eroski (2000-2011)

Source: Source: Storey, J; Basterretxea, I and Salaman, G. (2014). Managing and resisting ‘degeneration’ in employee-owned businesses: A Storey, J; Basterretxea, I and Salaman, G. (2014). Managing and resisting ‘degeneration’ in employee-owned businesses: A comparative study of two large retailers in Spain and the United Kingdom . comparative study of two large retailers in Spain and the United Kingdom . OrganizationOrganization  21: 626-644, p. 635  21: 626-644, p. 635

Coop degeneration employing a growing percentage of non-members

This move to employing non-members also found within the John Lewis Partnership at a lower scale in particular areas: IT outsourcing, diversification into new smaller formats in deals which often entail working with other companies, contract cleaning, and some parts of transport and logistics.

Storey, Basterretxea, Salaman (2014)

Organizational degeneration: power and control increasingly concentrated in a few oligarchic hands

Eroski: Rising centralization of decision making in central Eroski: Rising centralization of decision making in central offices during the 1995-2008 growth period between. offices during the 1995-2008 growth period between.

Centralization to simplify growth and search advantages of Centralization to simplify growth and search advantages of standardization, efficiency and economies of scale. standardization, efficiency and economies of scale.

Storey, Basterretxea, Salaman (2014)

Organizational degeneration: power and control increasingly concentrated in a few oligarchic hands

JLP: Growing concentration of decision-making in management JLP: Growing concentration of decision-making in management hands hands ‘‘Now we are very clear that management make the decisionsNow we are very clear that management make the decisions’ (JLP Manager ’ (JLP Manager

5).5). (Source: (Source: Storey, J; Basterretxea, I and Salaman, G. ,2014, p. 636)Storey, J; Basterretxea, I and Salaman, G. ,2014, p. 636)

JLP weakening of the power of the Council attest. JLP weakening of the power of the Council attest.

Storey, Basterretxea, Salaman (2014)

Concentration of power in JLP and higher pay differentialConcentration of power in JLP and higher pay differential Original JLP Constitution: no one in the Partnership should be Original JLP Constitution: no one in the Partnership should be

paid more than 25 times the pay of a full-time partner working in paid more than 25 times the pay of a full-time partner working in London (Lewis 1954, p. 30). London (Lewis 1954, p. 30).

In 2012 a revised constitution increased the ratio threefold from 25 In 2012 a revised constitution increased the ratio threefold from 25 to 75 (JLP 2012b, p. 22)to 75 (JLP 2012b, p. 22)

Organizational degeneration: power and control increasingly concentrated in a few oligarchic hands

Storey, Basterretxea, Salaman (2014)

Creation of consumer participation forums in 2006. Creation of consumer participation forums in 2006.

Bringing back decision-making power to the storesBringing back decision-making power to the stores Employees of each store began organizing work schedules in a Employees of each store began organizing work schedules in a

participatory way; participatory way; Empowerment to decide how to deal with complaints from customers, Empowerment to decide how to deal with complaints from customers,

and how to solve common logistic problems at the shop level. and how to solve common logistic problems at the shop level.

Cooperative REGENERATION: The cooperativization process in Eroski

Storey, Basterretxea, Salaman (2014)

Cooperativization: conversion in 2012 of two Cooperativization: conversion in 2012 of two subsidiaries in second-degree cooperatives subsidiaries in second-degree cooperatives

Conversion of 4,142 employees to full cooperative membership. Conversion of 4,142 employees to full cooperative membership. Renewing cooperative principles as a way of achieving a Renewing cooperative principles as a way of achieving a

differentiation strategydifferentiation strategy and gaining competitive advantages. and gaining competitive advantages.

““We started our ‘cooperativization project’ because we wanted our We started our ‘cooperativization project’ because we wanted our management practices to be consistent with our principles... We believe that a management practices to be consistent with our principles... We believe that a cooperative is the best model to develop a business and develop people.cooperative is the best model to develop a business and develop people.” ” (Eroski Manager in (Eroski Manager in Storey, J; Basterretxea, I and Salaman, G. ,2014, p. 636)Storey, J; Basterretxea, I and Salaman, G. ,2014, p. 636)

Cooperative REGENERATION: The cooperativization process in Eroski

Storey, Basterretxea, Salaman (2014)

www.ehu.es/basterretxea

JLP-Waitrose: Leveraging employee ownership JLP-Waitrose: Leveraging employee ownership difference difference externally to create a positive image.externally to create a positive image.

Waitrose Reasons to shop: “…, people who work at Waitrose, owns Waitrose, so if you are happy, they are, …”

http://WWW.YOUTUBe.com/watch?v=l1QiyjTUNZk

“…there’s something else that makes us different too. Waitrose customers often tell us they find our staff friendlier and more helpful than the staff in other supermarkets, and that’s because everyone who works here is a Partner –a co-owner of the business – so it matters to each of us, personnally, that we look after you well. We all share a love of good quality food and some Waitrose Partners choose to train as specialist in cheese, wine, meat or fish, so if you have a question, you can ask an expert.” (Press advertising, may 2013)

Communication of the Communication of the bonus daybonus day http://www.youtube.com/watch?http://www.youtube.com/watch?v=x2wh2dyzVbQv=x2wh2dyzVbQ

Discussion and conclusionsDiscussion and conclusions Our study corroborates and deepens the findings of the cooperative Our study corroborates and deepens the findings of the cooperative

regeneration literature (Batstone, 1983; Cornforth, et al. 1988; Estrin and regeneration literature (Batstone, 1983; Cornforth, et al. 1988; Estrin and Jones, 1992; Stryjan, 1994; Cornforth, 1995; Hernandez, 2006), sJones, 1992; Stryjan, 1994; Cornforth, 1995; Hernandez, 2006), s

Long term survival can be accompanied by a resurgence of democratic Long term survival can be accompanied by a resurgence of democratic features, principles and practices. features, principles and practices.

Managers in Eroski and JLP looking for an appropriate interplay between Managers in Eroski and JLP looking for an appropriate interplay between commercial success and the maintenance of the distinctive underpinning commercial success and the maintenance of the distinctive underpinning principles. In the case of Eroski, this debate has led to a significant retreat principles. In the case of Eroski, this debate has led to a significant retreat from previous policies of centralisation and the employment of non-from previous policies of centralisation and the employment of non-members. In JLP, it has led to reforms in management and employment members. In JLP, it has led to reforms in management and employment practices and in governance structures. practices and in governance structures.

Storey, Basterretxea, Salaman (2014)

Link to the paper:http://orgsagepub.com/content/21/5/626.full.pdf+html

Link to open access version in the University repository:https://addi.ehu.es/bitstream/10810/13408/1/Accepted%20paper%20pdf%20version%20Managing%20and%20resisting%20degeneration%20in%20two%20employee%20owned%20retaileres.pdf

Text version of present research:

Storey, J; Basterretxea, I and Salaman, G. (2014). Managing and resisting ‘degeneration’ in employee-owned businesses: A comparative study of two large retailers in Spain and the United Kingdom . Organization  21 (5): 626-644,

Storey, Basterretxea, Salaman (2014)