John Lewis and the perils of raising capital in a mutual

John Lewis, and the perils of raising capital in a mutual

March 2023

Press reports in recent days that John Lewis is seeking external investment to fund its future strategy are yet another reminder of the challenges of being a mutually-owned organisation.

Mutuals, whether member-owned or employee-owned, still make up a significant part of the UK economy today. The best known, as well as John Lewis, are the Cooperative Group, Nationwide Building Society, and Royal London. Traditionally, mutuals like these have had to rely on retained profits to grow their capital base, as there are no external shareholders to call on to raise new funds. This may constrain their options to grow, and in turn this makes them vulnerable to competitor activity and to takeover.

Demutualisation has been the solution for many in the past, but the story of demutualised building societies and insurers in the past is a sorry one, with most businesses and their customers losing out. And this was the problem LV= recognised in 2021, which led it to an attempt to demutualise and to sell the business to private equity. That failed, because insufficient of its members supported the proposal, and LV= is now cutting its cloth, and rejuvenating itself as a member-focused organisation.

The challenge for John Lewis is made more acute by the woes of the High Street, where many of the department stores that once dominated have been washed away. John Lewis’ strategy, combining high street and online, with groceries and other business ventures, calls for a scale of capital support that it appears is not supportable internally.

Access to capital has been a long-held challenge for mutual businesses. Legislation was brought forward in 2015, for mutual insurers and friendly societies to create new forms of shareholding without diluting the ownership model, but the ‘Mutual Deferred Shares Act’ has been thwarted by dogmatic resistance in HMRC.

The perils for John Lewis are that on the one hand, a lack of new capital might ultimately undermine the business, and on the other, that new investors will seek to overtly influence the business model. Either of those outcomes will be bad for everyone that cherishes John Lewis and Waitrose, as important, purpose-led businesses.

John Lewis needs a proper capital solution that allows it to raise funds, and properly reward investors, without having to compromise its business model. The Government should not stand idly by and let another bastion of mutuality slip away.


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