Workplace Democracy: the secret to Warren Buffet’s investment success?

One of Warren Buffett’s best-kept investment secrets might be that he practices workplace democracy in managing his subsidiary companies.  Few people may be aware that this innovative management strategy has contributed to the phenomenal success of Berkshire Hathaway’s holdings.

Warren Buffett

Unlike most other conglomerates, whose executives exert tight control over their subsidiary companies and often make the major financial, operational, and strategic decisions their subsidiaries, Berkshire Hathaway apparently entrusts their subsidiaries with a high degree of discretion and with broad decision-making powers.

Berkshire Hathaway’s annual Letter to Shareholders from February 2010 states:

“We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree. That means we are sometimes late in spotting management problems and that both operating and capital decisions are occasionally made with which Charlie and I would have disagreed had we been consulted. Most of our managers, however, use the independence we grant them magnificently, rewarding our confidence by maintaining an owner-oriented attitude that is invaluable and too seldom found in huge organizations. We would rather suffer the visible costs of a few bad decisions than incur the many invisible costs that come from decisions made too slowly – or not at all – because of a stifling bureaucracy.”


Professor calls hierarchical, top-down management ‘outdated’

Stanley D. Truskie, a program professor at the Fischler School of Education, Nova Southeastern University, and author of Leadership in High-Performance Organizational Cultures, wrote an opinion in the Miami Herald where he called for a new, “enlightened” style of management.

Truskie recommends the following leadership practices to help companies quickly adapt and stay at the forefront of their industries:

  • Lead from the center.
  • Focus on culture.
  • Implement 3-C planning.
  • Move swiftly.

Truskie argues that “old-style, top-down” management is outdated and that rigid, hierarchical organizations run the risk of falling behind in today’s rapidly changing competitive environment.

Click here to read the entire opinion article.


Owner gives company to employees on 81st birthday

Bob Moore, the owner of Bob’s Red Mill Natural Foods celebrated his 81st birthday by giving the company that he founded to his employees.  Moore announced the new Employee Stock Ownership Plan (ESOP) at an all-company meeting at the headquarters office in Milwaukie, Oregon.

Moore said, “It’s been my dream all along to turn this company over to the employees, and to make that dream a reality on my birthday is just the icing on the cake.  To me, this is the ultimate way to reward employees for their contributions to our ongoing success and growth. We have many loyal and long-time employees who I expect will be joined by many new faces over the years to run the company.”

Operations VP Dennis Vaughn, said, “The partners could have sold this company many times for a lot more money, but to them this company is about so much more than the money. I’m just proud to wear the Bob’s Red Mill logo because anywhere I go in this country people say nice things about the company.”

Bob’s Red Mill, a leading provider of whole grain natural foods, has averaged an annual growth rate of 20%-30% over the past 10 years and in that time their mostly North America distribution has expanded internationally.


Netflix takes a vacation from its vacation policy

Contrary to most companies, the vacation policy at Netflix is quite simple: “there is no policy or tracking.”  Netflix CEO Reed Hastings referred to vacation limits and face-time requirements as “a relic of the industrial age.”
 
Several years ago, employees had argued that it wasn’t logical for the company to track vacation days since employees’ hours worked per day or per week were not being tracked.
 
Netflix executives agreed and did away with vacation policy after the legal issues were taken care of.  In a presentation that was leaked to the media, Neflix realized that they “should focus on what people get done, not how many hours or days worked.  Just as we don’t have a 9-5 day policy, we don’t need a vacation policy.” 

Netflix employees are encouraged to take as much vacation time as they want as long as it doesn’t interfere with their work. 

To executives who might worry about such a policy vacuum being taken advantage of by employees, Brian Carney, the author of Freedom, Inc., responds “In a large enough organization, there might be a couple of people who would take two or three months’ vacation–but if a vacation policy is the only thing holding them back from that, they’re probably ‘vacationing’ at their desks anyway.”


An argument against ‘totalitarian’ IT policies

In his Management 2.0 blog, Gary Hamel shares some thought-provoking questions about counterintuitive, yet common, IT policies that seem to discourage productivity and innovation:

  • How is it that companies are willing to trust employees with their customers, their expensive equipment, and their cash, but are unwilling to trust them when it comes to using the Web at work or loading their own programs onto their workplace PC?
  • Do IT staffers really believe that conscientious, committed employees turn into crazed, malicious, hackers when given a bit of freedom over their IT environment?
  • If leading edge IT tools are, as many claim, essential to unleashing human creativity, why would any company force all of its employees to use the same computers, phones and software programs?

Hamel recommends giving employees more freedom over their IT tools.  We agree.  One of the best ways to cultivate innovation and engagement is to empower people with the ability to decide how they can best do their jobs.

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The end of the ‘rock star’ CEO

A story published earlier this month on the Economist discussed the recent trend of companies preferring “anonymous” bosses to the “rock star” CEOs who were popular in previous decades. “The corporate world is increasingly rejecting imperial chief executives in favour of anonymous managers.”

We believe that this shift represents another stage in the ongoing evolution in the typical organizational structure – from a top-down, hierarchical system to a decentralized, democratic organizational model.

“The fashion for faceless chief executives is part of an understandable reaction against yesterday’s imperial bosses, many of whom were vivid characters. Some, such as Jeff Skilling of Enron and Tyco’s Dennis Kozlowski, broke the law and helped inspire a dramatic tightening of government regulation, in the form of the Sarbanes-Oxley legislation. Others, such as Home Depot’s Bob Nardelli and Hewlett-Packard’s Carly Fiorina, paid themselves like superstars but delivered dismal results.“

Talented, motivated, and innovative professionals are no longer willing to work for arrogant dictators in exchange for a sizeable paycheck.  Instead, employees are becoming more and more selective about the quality and type of work environment that their employers offer, and they are increasingly seeking award-winning employers that share decision-making powers and that do not tolerate workplace jerks.

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Michael Moore, ‘Capitalism: A Love Story’ and Workplace Democracy

Capitalism: A Love Story, the 2009 documentary movie directed by Michael Moore, criticizes the current economic order in the United States and capitalism in general while covering the financial crisis of 2007–2009 and the recovery stimulus.  In his movie, Moore highlights workplace democracy as an alternative model to capitalism.

Many would argue that workplace democracy should not be considered a replacement to the capitalist economic system.  Instead, workplace democracy is a highly effective management strategy that helps enable companies to engage and motivate their employees and to maintain a competitive advantage in their industries.

Workplace democracy is not limited to a specific type of company ownership structure.  Democratic companies come in all shapes and sizes and range from high tech start-up companies such as Brainpark, to small worker-owned cooperatives such as South Mountain, to large privately-held companies such as W.L. Gore and Associates, to large publicly-traded companies such as DaVita.

Workplace democracy is an innovative management strategy where company information and decision-making powers are shared and distributed among employees so that customer-facing workers (who are closest to customers and usually know them best) are aware of the company’s goals and performance and have the ability (and motivation) to make smart decisions quickly, which is essential in today’s fast-moving and hyper-competitive marketplace.

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