Workplace Democracy and the Layoff-Furlough Dilemma

There is a debate going on about whether companies hit hard by the recession are better off conducting layoffs or ordering furloughs in order to align expenses with rapidly-shrinking budgets.  The opinions of executives differ widely as to whether layoffs or furloughs are less damaging to employee morale and productivity. 

What’s interesting is that this is the type of decision that, purportedly because of its highly sensitive and potentially damaging nature, is made by executives behind closed doors without consulting with the very employees whose motivation the managers are trying to preserve.  The decision, once made and finalized, is then revealed to employees (who are often shocked and traumatized) and hastily executed.

This gut-wrenching dilemma does not have to be one that keeps executives up at night.  Executives do not have to try to guess which option would be less disruptive to workers.  In fact, many problems in the workplace originate from miscalculations by managers about how their decisions will affect their employees. 

There is a much better way to reach a decision about which would be the lesser (and more effective) of the two evils: ask your employees. 

Managers should inform employees about the company’s financial situation and should encourage an open discussion about which cost-cutting measures should be taken.  Having participated in the decision-making process, workers will take ownership of the final decision and its outcome, and management won’t be blamed for a decision that was dictated to the employees without seeking their input. 

Involving workers in the decision-making process is one of the best ways that companies can boost loyalty and employee engagement.

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Democratic Company Profile: The John Lewis Partnership

The John Lewis Partnership is a large retailer based in the United Kingdom which generates revenues close to $9.9 billion from its 27 John Lewis department stores and 199 Waitrose supermarkets.
 
What separates John Lewis from its competitors (and from most other companies) is the fact that the stated purpose of the company, which is owned by its 69,000 employees, is to ensure “the happiness of all our members, through their worthwhile, satisfying employment in a successful business.”

The John Lewis Partnership calls itself “a unique and vibrant democracy.  We share knowledge and information about the business between Partners, giving everyone the opportunity to contribute to decision-making as well as to challenge and question.  We recognize every Partner’s right to be listened to and heard regardless of their point of view.”

In addition, every employee at John Lewis receives an annual bonus equivalent to 9%-18% of their salary, depending on the company’s profitability, with everyone receiving the same percentage.  These democratic company policies of sharing information, decision-making powers, and rewards among all employees have had a significant impact on shielding John Lewis from the impact of the current recession.

In 2008, when most retailers were hit hard by the economic crisis, the John Lewis Partnership made a $403 million profit on revenues that were 3.6% higher than in 2007, and every employee received a bonus of 13% of their salary, equivalent to about seven weeks’ worth of pay.

Here’s what the chairman of the John Lewis Partnership had to say about the secret to their success:

We’re a partnership, which means our business is owned and run by the people who work in it. It makes John Lewis a different kind of place to work for our 68,000 staff – known as Partners – and a different place to shop for over eight million customers.

Our success…over the years has everything to do with our Partners owning the business. Retailers often suffer from high levels of staff turnover. Our turnover is around half of the industry average.

Because people stay with us for longer, they know our products and our customers better. When success depends on getting a lot of things right, having experienced and motivated Partners is the difference between success and failure.

Our ownership structure also means we are stewards of the business for Partners working today and for future generations. We invest our capital carefully and demand a good return, but we make investment decisions for the long-term interests of our partners, rather than trying to satisfy outside shareholders.”

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Gore’s Democratic Culture Drives Innovation

The CEO of W.L. Gore & Associates recently gave a lecture at MIT titled “Nurturing a Vibrant Culture to Drive Innovation.”

Gore is a highly successful and innovative company that has developed a unique democratic environment.  Gore’s culture, which despises bureaucracy and hierarchy, has been credited as one of the key enablers of its explosive growth and market leadership over the past several decades as well as its expansion into entirely new product areas. 

At Gore, there are no job titles, bosses, or chains of command.  Instead, everyone is an “associate,” and team leaders are chosen by their coworkers.  New associates, who are interviewed and hired by groups of their peers, are assigned a “sponsor” to introduce them to Gore’s team-based culture.  New associates are then encouraged to join groups whose projects are best suited to their skills and interests.

Innovation and experimentation are encouraged, and mistakes are not punished.  It is therefore not surprising that Gore, which was started out as a small chemicals company in 1958, has been able to invent numerous industry-leading technologies that have dominated their markets, such as GORE-TEX fabric and Elixir guitar strings.  The 8,000 associates working at Gore’s 45 locations around the world currently generate over $2 billion per year.

Gore has been named to FORTUNE’s list of “100 Best Companies to Work For” in each of the past 12 years.