This article makes comparisons between John Lewis Partnership and its Spanish equivalent Eroski—the supermarket group which is part of the Mondragon cooperatives. The contribution of this article is to examine in a comparative way how the managers in John Lewis Partnership and Eroski have constructed and accomplished their alternative scenarios. Using longitudinal data and detailed interviews with senior managers in both enterprises, it explores the ways in which two large, employee-owned, enterprises reconcile apparently conflicting principles and objectives.

1. Managing and resisting ‘degeneration’Managing and resisting ‘degeneration’
in employee-owned businesses. Ain employee-owned businesses. A
comparative study of two largecomparative study of two large
retailers: Eroski and John Lewisretailers: Eroski and John Lewis
PartnershipPartnership
Researchers: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)

2. 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)

3. IndexIndex
 Brief presentation of John Lewis Partnership
and Eroski
 Literature Review: Degeneration and
Regeneration in employee owned companies
 Methodology
 Results

4. Source:Source: Storey, J; Basterretxea, I and Salaman, G. (2014). Managing and resisting ‘degeneration’ in employee-owned businesses: AStorey, 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 andBrief presentation of JLP and
EroskiEroski
Storey, Basterretxea, Salaman (2014)

5. EROSKI. The biggest coop of
Mondragon corporation
 Mainly hypermarkets andMainly hypermarkets and
supermarkets, but also travelsupermarkets, but also travel
agencies, petrol stations,agencies, petrol stations,
sport stores, drugstores…sport stores, drugstores…

6. JLP, 1999-2012 evolutionJLP, 1999-2012 evolution
Financial 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)

7. Literature review:Literature review: Degeneration
and Regeneration in employee
owned companies
Storey, Basterretxea, Salaman (2014)

8.  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 employeeDegeneration thesis in employee
owned companiesowned companies
Storey, Basterretxea, Salaman (2014)

9.  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 employeeDegeneration thesis in employee
owned companiesowned companies
Storey, Basterretxea, Salaman (2014)

10.  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 employeeDegeneration thesis in employee
owned companiesowned companies
Storey, Basterretxea, Salaman (2014)

11.  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 degenerationREGENERATION vs degeneration
thesis in employee owned companiesthesis in employee owned companies
Storey, Basterretxea, Salaman (2014)

12. 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 at
Eroski and JLP: (Annual Reports and Sustainability Reports;
Internal reports: Web pages, presentations, internal
magazines,...)

13. ResultsResults
Storey, Basterretxea, Salaman (2014)

14. 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 5,602
Employees 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: AStorey, 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)

15. Organizational degeneration: power and control
increasingly concentrated in a few oligarchic hands
 Eroski: Rising centralization of decision making in centralEroski: 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 ofCentralization to simplify growth and search advantages of
standardization, efficiency and economies of scale.standardization, efficiency and economies of scale.
Storey, Basterretxea, Salaman (2014)

16. Organizational degeneration: power and control
increasingly concentrated in a few oligarchic hands
 JLP: Growing concentration of decision-making in managementJLP: Growing concentration of decision-making in management
handshands
 ‘‘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)

17.  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 beOriginal JLP Constitution: no one in the Partnership should be
paid more than 25 times the pay of a full-time partner working inpaid 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 25In 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)

18.  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 aEmployees 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)

19.  Cooperativization: conversion in 2012 of twoCooperativization: conversion in 2012 of two
subsidiaries in second-degree cooperativessubsidiaries 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 aRenewing 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 ourWe started our ‘cooperativization project’ because we wanted our
management practices to be consistent with our principles... We believe that amanagement 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)

20. www.ehu.es/basterretxea
JLP-Waitrose: Leveraging employee ownershipJLP-Waitrose: Leveraging employee ownership
differencedifference 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 theCommunication of the bonus daybonus day http://www.youtube.com/watch?http://www.youtube.com/watch?
v=x2wh2dyzVbQv=x2wh2dyzVbQ

21. Discussion and conclusionsDiscussion and conclusions
 Our study corroborates and deepens the findings of the cooperativeOur study corroborates and deepens the findings of the cooperative
regeneration literature (Batstone, 1983; Cornforth, et al. 1988; Estrin andregeneration 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 democraticLong 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 betweenManagers in Eroski and JLP looking for an appropriate interplay between
commercial success and the maintenance of the distinctive underpinningcommercial success and the maintenance of the distinctive underpinning
principles. In the case of Eroski, this debate has led to a significant retreatprinciples. 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 employmentmembers. 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)

22. 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)