Is John Lewis the best company in Britain to work for?

It's just before opening time on bonus day at John Lewis and, boy, are we excited. Up and down the country, the 69,000 people who work for the nation's favourite retailer are gathered, impatient. At head office in London's Victoria, in 28 John Lewis department stores from Southampton to Aberdeen, 223 Waitrose supermarkets from Plymouth to Norwich, the ritual's the same: a specially chosen staff member ("partner" in JL-speak) opens an envelope, and reads out a number.

The number will be a percentage. Over the last decade or so, it has ranged from 9% to 22%. It's the percentage of their salary that each John Lewis employee, from executive chairman to checkout operative, takes home as that year's bonus. If the number is 8%, they're looking at an extra month's pay; 16% is two months. So what's in the envelope is pretty important, and in the partnership's flagship Oxford Street store, partners, nearly 2,500 of them, are everywhere: crowded dozens-deep in beauty on the ground floor, lined up on the escalators, hanging over the balconies in the atrium.

"This is the moment," says Adrian Wenn from pictures, lights and mirrors. "This is the moment when all you've done, the contribution you've made, when it all comes home. Hope it's a good one. I've got a wedding to pay for." A good one it is. Frank d'Souza from furniture (picked because he closed the store's largest single sale of last year, at £50,000) tears open the envelope as the assembled throng counts down. He holds the card triumphantly high: 15%. "Magic," cries Lee Bowra from childrenswear. "Absolutely brilliant. That's our deposit complete. We can buy a house."

In the depths of what everyone keeps telling us is the deepest financial and economic crisis since the second world war, John Lewis plainly has not done badly (operating profit up 20%, if you didn't read the business pages last week). That's partly because it stacks its shelves with goods of a certain quality, and sells them to a certain kind of customer with a certain standard of service. After all, Middle England loves John Lewis: if a product is on sale in one of its stores, you know you can trust it. Plus you can be sure you'll be served by someone who really knows what they're talking about and, most unusually of all, is eager to help.

Partly, it's down to that splendidly arcane Edwardian slogan: Never Knowingly Undersold. It also has something to do with the reason everyone was cheering so loudly last Thursday: unlike other high-street names (unlike most companies, in fact), John Lewis is owned by a trust on behalf of its employees, each of whom has a say in its running and a share in its profits. This is Britain's largest and most venerable example of worker co-ownership. Its avowed purpose is not the making of shedloads of short-term profit to placate a bunch of remote and greedy shareholders, but "the happiness of all its members, through their worthwhile and satisfying employment in a successful business" (that's from the partnership's constitution. It bears re-reading).

And at a time when the limits of the more traditional capitalist model of shareholder ownership stand cruelly exposed, John Lewis's ongoing success is increasingly prompting all three main political parties to point to it as a possible template – for other companies, for schools, hospitals, even local councils.

But what's it like to work for an outfit run like this? Well, it's worth noting that there are some partners who weren't at work last week to hear the 2010 bonus announced. They were off staying at one of the five holiday centres the partnership owns and runs for the benefit of its employees. These include a 16th-century castle with private beach on Brownsea island in Poole harbour, an imposing Victorian pile on the shores of Lake Windermere, a 24-room outdoor and watersports club on Lake Bala in north Wales, and a country house hotel in 4,000 rolling acres of Hampshire.

Nicola McRoberts and her partner, Pedro Pereira, are staying in one of the 12 modern wooden lodges on the Leckford Estate, near Stockbridge. The self-catering cabins, popular with young families, have two or three bedrooms and are smartly furnished with leather sofas and bedlinen that a John Lewis shopper might recognise. Nicola works in the stationery department in Welwyn, and Pedro is a Waitrose chef. They're here for five nights, at a cost of £176. "It's a good company to work for," says Pedro. "I didn't realise how good until I joined." Employer-employee relations at John Lewis, says Nicola, "are completely different. They want you to be happy."

The estate is a working farm which, says its managing director Malcolm Crabtree, sitting at the wheel of his Land Rover, supplies Waitrose with flour for bread, barley, oats for cereal, free-range chickens and eggs, organic milk, apples, pears and a lot of mushrooms. It also supplies partners with two nine-hole golf courses, a cricket pitch, bowling green, tennis courts, two swimming pools and some of the finest fly-fishing in the country, on the fabled river Test.

Just down from the lodges, in the heart of the estate and a stroll from the river, is Leckford Abbas, an appealing ivy-clad manor house now run as a hotel for partners. There's an oak- panelled library, an elegant lounge, a billiard room and a well-stocked bar, and the food in the dining room is fresh from the Leckford estate. The most noticeable difference between this and some chic home counties hostelry is the price. B&B here is £20.25 per person per night, and the three-course dinner costs £11.25. The other significant difference is that the bedroom doors lack keys. "There are privacy locks on the inside," says manager Chris Marston, "but you can't lock the rooms from the outside. There's a feeling it wouldn't be . . . right. It's partners and their guests who stay."

In the lounge is Anna Clark, who worked for John Lewis for 27 years before retiring last year – retired partners, providing they completed 10 years service, get the same benefits as working ones. "I can't tell you what that means to me," she says. "But I've always used my benefits – I've been in the gliding club, the sailing club, the photographic club. It's not just the bonus at John Lewis, you know."

Too right it isn't. Besides the bonus, John Lewis partners also have a rare and near-priceless non-contributory final salary pension scheme. They and a named other (husband, girlfriend, mother, whoever) get 25% off most John Lewis products, and 15% in Waitrose. There are half-price theatre and concert tickets; subsidies for whatever educational or leisure course they want to follow; plus a raft of sabbatical and extended leave possibilities.

What matters to Ann King, who is on a Leckford art course with Clark, is that "you still belong. I'm retired, and single now, and it's precious to know there's all this to do, and that everywhere you go you'll meet people you feel you have a connection to."

It's not easy to find an unhappy John Lewis partner, despite the fact that they stay with the company twice as long as the industry average. That's partly, says Wenn at the Oxford Street store, "because if you're unhappy about something, you have a responsibility to do something about it." Which brings us to the man who invented the John Lewis model. Long before it became a hotel for staff of the two retailers Britain loves best (see the last few Which? and Verdict consumer satisfaction surveys), Leckford Abbas was his country home.

Born in 1885, John Spedan Lewis was a radical with the means to do something about it. There were plenty in the early 20th century (and, for that matter, now) who believed, like him, that "the present state of affairs is a perversion of the proper workings of capitalism"; that it is "all wrong to have millionaires before you have ceased to have slums"; that "the dividends paid to some shareholders" for doing essentially nothing were obscene when "workers earn hardly more than a bare living"; and that co-ownership and partnership, rather than exploitative employment, might be "the new source of working energy of which our country is in such grave need".

Spedan Lewis was the elder of two sons whose father had founded the John Lewis department store in Oxford Street, so by the age of 21 he not only had a quarter share in that but was also on his way to becoming director of Peter Jones, his father's other shop. It was at about this time that he came to the realisation that between them, he, his brother and his father were raking in a sum equal to the combined salaries of everyone else who worked for them. He was determined things should change.

Spedan Lewis swapped his stake in the Oxford Street store for total control over Peter Jones, where he instituted shorter hours, longer holidays, and a dose of democracy. Within five years, the Sloane Square store had turned an annual loss of £8,000 into a profit of £20,000. Heartened, he added a partial profit-sharing scheme, then, in 1928, a constitution, and finally the John Lewis Partnership Limited (he ran the business, but shared the profits). The ultimate step was an irrevocable trust settlement that turned ownership of the partnership – and a responsibility in the running of it – over to the people employed within it.

What does that responsibility mean? "We ask not only that you do your day job, but that you play an active role as an owner," says Patrick Lewis a member of the partnership board and of the family. "That you engage with your colleagues and work with them in thinking through what will make the business successful. Our shareholders aren't passive and distant . . . they have lots of opinions." Those opinions are voiced through democratic channels. The chairman and board run the company's commercial activities, but an 82-member partnership council elects nearly half the board (and in theory, can sack the chairman). And the Partnership council itself is largely elected through a network of forums representing every department of every JL branch and Waitrose supermarket.

"It works," says a chirpy Ashley Davis in menswear at the spectacular marble-and-glass Cardiff store, new last September (9,000 applicants for 750 jobs; queues round the block the day it threw open its doors). "It was branch forum week last week and each department had its say – on local branch issues mainly. Opening hours, the canteen, that kind of thing." For Sallie Beech, also a newbie, "there is a feeling of equality. You belong to the business, but it belongs to you too."

A veteran of five years, Kirsty Reilly in womenswear, speaks of the "passion and commitment" that come from "being engaged, because you have a vested interest in making sure it works, for you and for the people you work with." In floor-coverings and furnishings, Beth Smith says co-ownership ensures you "make that extra effort. And because you're all partners, there's no backstabbing. Motivation's different." She also likes working for a company where "the thinking's long-term. It's not about making a quick profit at the expense of bigger values. The partners' voices really do carry weight. It's not just window-dressing: we decided we didn't want to work on Boxing Day, and we didn't." Smith reckons another company would have to double her salary to get her away from John Lewis, "and even then I wouldn't be happy".

(I should say at this point that everyone I speak to in the John Lewis Partnership, is astonishingly, almost relentlessly nice. It's a word the very nice Cardiff managing director, Liz Mihell, hates: "Can't you say decent?" she says. "Caring? Warm? Nice is horrible. It's shared values, really." Whatever, it's plainly another factor in the firm's success: good service can only come from people who like people, who are happy discussing their needs, who want to help. Half the new Cardiff employees had no retail experience: what counts in recruitment, says Beth, is behaviour. "You can train anyone to do things," she says. "But nobody can teach someone how to be." It's known as having "green blood".)

In any event, the net result of these rights and responsibilities is employees who think and feel rather differently about their work than most. That feeling extends to the 30-odd nationalities represented among the 200 or so partners at Waitrose's new supermarket in Westfield, the huge upmarket London mall in downmarket Shepherd's Bush. Since the complex opened at the end of 2008, says department manager Ceira Thom, one rival retailer has had to fire 42 staff, mostly for stealing. Waitrose has sacked one. "The level of emotion she aroused was astonishing," Thom says. "It was like: how dare she? That's my bonus. This is my company!"

The point, though, is how this different way of thinking and feeling about work translates. John Lewis, we've seen, does more than all right. Employee-owned companies currently contribute some £25bn to the British economy. According to an annual index compiled by a leading law firm, they outperform the FTSE by roughly 10% each year. Research by the Cass Business School indicates that employee-owned businesses also create jobs faster; are significantly more resilient in an economic downturn; deliver far better customer satisfaction; boast substantially higher value added per employee; and, depending on the sector and size of the business, can deliver markedly higher profits (co-owned businesses seem to work best when they've got fewer than 75 staff and operate in knowledge- or skill-intensive sectors).

So why isn't every company organised this way? Partly, as Lewis points out, because it's not easy. "We're a commercial organisation," he says. "We have to make a 'sufficient profit' to sustain and develop the business. That sets the bar quite high for the commercial success we need. On top of that, we distribute a share of the profits in the form of a bonus, and also in other ways, that will benefit our members collectively." (The constitution says a share of profits must be spent "undertaking other activities consistent with its ultimate purpose" – which is, remember, "the happiness of all its members".)

What constitutes "sufficient profit" is, obviously, a tricky one. The total amount the partnership redistributes to members, in bonuses and all those benefits, is more than a regular PLC might pay out in dividends, Lewis reckons. But what's best for individuals isn't always best for the business, and achieving a good balance is both hard work and a source of discord between executives and partners (opening hours and pensions are two notable recurring headaches). "Running a business this way isn't an easy option," says Lewis. "In many ways it's simpler to have one boss who just says: right, we're doing this."

But mainly, as Will Davies of the Demos thinktank points out in Reinventing the Firm, the received wisdom for years now has been that shareholder value – "the belief that a company's primary purpose is to maximise its value for the benefit of external shareholders" – is the only way to judge a business. In fact, as Davies says, a company is about far more than the price of its shares. It's about "people, relationships, knowledge, reputation, all of which have enormous impact on long-term value. Firms are social and political, not just economic and financial." That's not, though, the way many people see things – at least until the recent banking crisis showed just how bad the shareholder value model was "as a mechanism for accountability, and for creating value".

Post-crisis, and in the run-up to a general election, politicians from all parties have made much of the "John Lewis Model" being transferable to public services: giving local providers ownership of their own (public or private) budgets, and of the services they deliver. In theory, public services are fertile terrain for co-ownership, a great way to harness the strong vocational commitment in the sector. In practice, reckons Nigel Mason, policy director of the Employee Ownership Association, "it raises a multitude of questions about how it could really be made to work".

Politicians like the sound of employee ownership, Mason says, because despite increased expenditure, public service productivity continues to fall, "and they really need to increase engagement, motivation and innovation, and provide a better service to the user". Westminster also likes the notion that with public service spending cuts inevitable, "co-ownership would be a nice sweetener". Employee ownership, though, is "not a panacea. It won't work if the conditions are such that any independent business would fail. It needs careful thought and planning about ownership and governance structures, and the precise terms of contracts. It can certainly work in some sectors – small-scale community care provision, for example. Big, complex enterprises running on fine margins may be more problematic."

Of course, as Patrick Lewis notes, John Lewis has had 80 years to get its "virtuous circle" working: look after the partners and the partners look after the customers, who look after the profit. "It's a culture and a way of working," he says. "You can't do it overnight, and it won't be right for everyone. But it's worth trying." And if we're really talking, as perhaps we are, about where capitalism should go next – about what exactly a good company is, and what it should do – there are worse models to look at than John Lewis.