The following is an interview that WorkplaceDemocracy.com conducted with Traci Fenton. Traci is the Founder and CEO of WorldBlu, a non-profit organization that champions the growth of democratic organizations worldwide. She is also author of the forthcoming book, Democracy at Work.
What makes a company ‘democratic’?
A company is democratic when it operates using the principles of organizational democracy, such as accountability, transparency, and decentralization, as opposed to a top-down, command-and-control model. This mode of operation is fundamentally determined by the design of the organization, and it influences performance on the individual, leadership, and systems and processes levels.
Why should companies consider democratizing their workplace? What are the advantages of democratic companies?
Operating democratically can have a huge impact on the bottom-line. A recent Gallup poll showed that 73% of the workforce in the U.S. is disengaged at work, costing the US economy over $300 billion a year. This is an incredible waste of resources and talent. Democratic workplaces tend to have lower turnover and absenteeism, attract and retain top talent, have higher levels of productivity and efficiency, and are more innovative. Gallup has also found than people who work in democratic or highly engaged workplaces are both physically and psychologically healthier. Plus, the people who work in democratic organization are just plain happier too!
Additionally, in today’s economy, advances in technology are requiring organizations to be faster, more creative, networked, and non-hierarchical. Generations X and Y expect their workplaces to be authentic, personal, and flexible, and they thrive in that type of environment. Customers are eyeing companies with increasing scrutiny and are demanding more transparency and accountability. The current economic crisis has caused companies to rethink their rules of corporate governance, systems and processes, and operating values. Organizational democracy offers a new business design that addresses these challenges.
In addition to being financially successful, democratic organizations can make a social impact, fighting corruption, and increasing economic prosperity, peace, and civic engagement in their communities, according to research by the Ross School of Business at the University of Michigan.
Please tell us about the WorldBlu List of Most Democratic Companies.
The annual WorldBlu List of Most Democratic Workplaces™ is a global award that shines a spotlight on visionary companies successfully practicing organizational democracy.
Any for-profit, non-profit, governmental or non-governmental organization can apply for the WorldBlu List award as long as they have a minimum of five full or part-time employees in have been in operation at least one full year. The process is simple – once they sign up their employees compete a survey evaluating how democratic the organization is based on the WorldBlu 10 Principles of Organizational Democracy. Unlike other awards and certifications, the employees themselves – not an outside panel of judges — let us know if the organization is democratically designed or not.
The WorldBlu List award has been recognized by global media worldwide, including The Wall Street Journal, The New York Times, The Christian Science Monitor, The BBC, BusinessWeek, US News & World Report and Fast Company magazine, to name a few.
We are accepting applications now for the WorldBlu List 2010. I invite your readers to learn more by clicking here. The deadline to apply is November 30, 2009.
Can you give us a few examples of innovative and successful democratic policies that some of the WorldBlu companies have implemented? How have these policies impacted those companies?
One of the companies on the WorldBlu List 2009 that used organizational democracy from the very beginning was Menlo Innovations, based in Ann Arbor, MI. I had the opportunity to visit Menlo back in January of this year and was so impressed with how they work. For example, team members are paired together and do their work on a shared computer. Yes, that’s one computer, two people. The pairs then change each week to ensure transparency and accountability across the organization. By using this system, Menlo avoids bottlenecks that occur when only one person knows information and builds high levels of trust among team members. Menlo’s employees also get to design their open work environment. The space contains lightweight tables and electrical/network drops from the ceiling that provide for infinite flexibility in layout.
Most people think that organizational democracy can only work in small companies. But DaVita, a healthcare company that provides dialysis services, proves that it can work in FORTUNE 500® companies too. But it wasn’t always that way.
Back in 1999, DaVita was struggling and they brought a new CEO, Kent Thiry, on board. He then transitioned DaVita into a democratic company, a decision that resulted in an increase in annual revenue from $1.4 billion in 1999 to $6 billion in 2008. DaVita’s democratic practices include opportunities for employees to vote on significant decisions for the company, regular Town Hall meetings between the senior leadership and staff members, and a decentralized structure that allows each of DaVita’s 1,400 clinics to determine their own rules and guidelines.
What are some initial steps that companies can take in order to become more democratic?
1. Open the books. Provide information to employees about the company’s financial health, strategies, and even salaries, and teach them what the numbers mean. The Great Game of Business and Zingerman’s offer courses on how to practice open-book management.
2. Create and strengthen opportunities for dialogue and listening across all levels. This practice can take the form of DaVita’s Town Hall meetings that I mentioned before, having an employee participate in management meetings at every level, or having seats on the Board reserved for elected employees.
3. Co-create the company vision and purpose statements. This practice give employees a greater feeling of ownership of the company’s purpose and vision, and it also allows each staff person to find the greatest alignment between his or her individual purpose and vision, and that of the company.
4. Give employees a voice in decisions that impact their work. This practice can range from letting employees participate in strategic planning and goal setting, to letting them to choose their work, projects, and teammates, to letting them determine new hires and salaries.
WorkplaceDemocracy.com conducted an interview with Peter Leeson, economics professor at the University of Chicago and author of The Invisible Hook: The Hidden Economics of Pirates. The Invisible Hook is a fascinating book that explores why and how lawless and violent pirates organized themselves into what may have been the world’s first democratic workplaces.
The Invisible Hook shows how pirates’ search for plunder led them to pioneer remarkable and forward-thinking practices. Pirates understood the advantages of constitutional democracy–a model they adopted more than fifty years before the United States did so. Pirates also initiated an early system of workers’ compensation, regulated drinking and smoking, and in some cases practiced racial tolerance and equality. Revealing the democratic and economic forces propelling history’s most colorful criminals, The Invisible Hook establishes pirates’ trailblazing relevance to the contemporary world.
What is the “invisible hook” and how does it relate to workplace democracy?
The “invisible hook” is the piratical analog to Adam Smith’s “invisible hand” idea, which describes how individuals’ self-interest seeking guides social cooperation among legitimate persons. My argument is that, similarly, criminal self-interest seeking guided social cooperation among pirates. As my book describes, in pirates’ particular economic context, rational self-interest seeking led pirates to socially cooperate through a kind of workplace democracy in which pirates were more-or-less equal shareholders in their ship and its proceeds and democratically made important workplace decisions.
How did pirates’ organizational structure differ from that of law-abiding merchant ships?
On pirate ships, crewmembers democratically elected important officers, such as the captain, and enjoyed similar perquisites of crew membership. Further, power was divided among multiple officers, such as the captain and quartermaster, who checked one another’s authority. In this sense, pirates’ organizational structure was ‘flat.’ On merchantmen, in contrast, the organizational structure was much more hierarchical. The captain wielded the lion’s share of the power and the ordinary crewmembers were subjected to his largely uncontrolled authority. Authority was much more concentrated and ship-board governance mirrored governance in landed legitimate society in being much more autocratic.
Why did pirates organize their activities democratically?
Pirates organized their ships democratically becuase this organizational arrangement maximized profits in pirates’ particular economic context. Unlike crewmembers on merchantmen, where a very different economic context dicated a different profit-maximizing organizational structure, crewmembers on pirate ships were owners and employees of the ‘firm.’ It therefore made economic sense for each man to have a say in the firm’s enterprise–to make decisions democratically. Democratic organization was ‘cheap’ for pirates to adopt (in contrast for merchantmen for reasons discussed in the book) and yielded large benefits in the form of effectively preventing officer predation, which plagued merchant ships.
What effects did the pirate organizational structure have on the crew?
Pirates’ democratic organization had at least two major effects on the crew. First, it empowered pirates to popularly elect and depose important officers, which gave pirates great control over their ‘leaders.’ This in turn created strong incentives for pirate ‘leaders’ to wield their power in the crew’s interest rather than against the crew’s interest for personal benefit. Second, since pirates’ democratic organization extended to their method of pay as well–each pirate received a roughly equal share of the booty–it created several “collective action problems” for pirates that they needed to solve. For instance, this method of payment encouraged crewmember shirking, which pirates overcame by instituting a system of social insurance and bonuses.
What lessons can today’s managers learn from pirates?
Among the most significant modern management lessons from 18th-century pirates is the importance of letting the pursuit of profit determine ideas about a firm’s organizational features rather than the other way around. It’s tempting to conclude from pirates’ success with workplace democracy that this highlights the desirability of this organizational form more generally. But that would be mistaken. In pirates’ particular case–a relatively small ‘workforce’ operating a firm that required no external financiers in which information about each laborer’s contribution to production was difficult to glean by observation–workplace democracy was profit maximizing. And for other firms that also satisfy these economic conditions this will also tend to be true. But for firms that don’t satisfy such conditions, for instance large firms, or those that require lots of external capital to function, or those in which it’s relatively easy to measure laborers’ contribution to team production–which is the vast majority of firms–workplace democracy won’t be a profit-maximizing form of firm organization. Workers would be better off under a different organizational arrangement. Thus what pirates teach us is the desirability of letting profit dictate the particular organizational features a firm adopts rather than the universal desirability of particular organizational features across firms.
Zappos, the online shoe retailer famous for its quirky company culture and unconventional management practices, recently announced that it is being acquired by Amazon.com for $847 million. Founded in 1999, it took Zappos less than a decade to achieve revenues of over $1 billion, and the company has been profitable since 2006.
Tony Hsieh, Zappos’ CEO, credits his company’s meteoric rise in a highly competitive market to the company’s laser-like focus on providing excellent service and support.
As many democratic and decentralized companies have realized, the key to offering fantastic support is to enable employees to rely on their instincts and to trust them to make their own decisions. At Zappos, customer service call center reps are not required to read from scripts. Instead, they are encouraged to use discretion in making their own decisions without seeking approval from their supervisors.
Zappos has worked hard to blur the lines between managers and employees that are common in traditional organizational hierarchies. The company’s goal is to develop a fun, playful work environment where coworkers and bosses feel more like friends. Managers are required to spend time socializing with their employees.
Inc.com provides a detailed look at ‘the Zappos way of managing’.
There has been a lot of discussion going on about whether the workers at General Motors and Chrysler will become the owners of their respective employers and about the kind of impact that this ownership stake will have on the future of the two car manufacturers.
Without decentralizing the management structure and decision-making processes, simply turning the employees into shareholders at GM and Chrysler will have minimal impact on rectifying the core problems and overcoming the obstacles that have crippled these companies. It is not enough for employees to hold ownership stakes if their employers still function as top-down hierarchical bureaucracies.
Remaining innovative and competitive in today’s rapidly changing environment depends on a highly engaged and motivated workforce. Employees can only break free from the confines of bureaucracy if they are able to act and feel like owners in the day-to-day management of the company.
Employees will not feel like motivated owners until they are aware of the company’s goals and the ongoing progress towards those goals. Financial and operational data should be shared freely among all employees. In today’s information age, there is no reason to keep secrets and for executives to hoard information, even with regards to “sensitive” information like salary data.
Employees, especially those closest to the customers, need to have the power to make quick decisions autonomously, without having to wait for approvals to trickle down the management hierarchy. Team-based, bottom-up decision making should replace the command-and-control, top-down structure that was so successful at stifling innovation, common sense, and competitiveness at GM and Chrysler.
In order for these companies to stand a chance at surviving the current crisis, General Motors and Chrysler must not limit their innovative turnaround efforts to their product and operational strategies. They must also adopt cutting edge and creative solutions for transforming their organizational processes and culture.
A recent post on USNews.com listed some nice tips on how to be “a good boss in bad times.” While things such as smiling, listening, and providing feedback would certainly the workplace environment a bit more pleasant, the root causes of most employee disengagement and employee-boss problems stem from a deeper, structural level.
The main reason why most people are unhappy at work boils down to the nature of the boss-employee relationship. The definition of a boss is “a person who exercises control over workers and makes decisions.” Since most people don’t especially enjoy being controlled by someone else or having decisions made for them, it’s not surprising that so many people are miserable and feel unmotivated at work.
The best way for someone to be a good boss is to not be a boss at all, but to be a leader instead. The main difference between a boss and a leader is that bosses are selected (from above) while leaders are elected (by their peers). If you want to become a true leader, try “putting yourself up for election.” Tell your team members that you will lead them only so long as you have their support and that you agree to step aside should the team members decide at some point that you are no longer suitable for the job.
Last month Paul Levy, CEO of Beth Israel Deaconess Medical Center in Boston, found his organization facing a $20 million budget shortfall caused by the economic crisis. Instead of ordering the layoffs of the 600 workers necessary to cover the $20 million deficit, Levy decided to discuss this problem with his employees and to solicit their feedback on how the medical center should respond.
Levy said the following at a meeting with employees of the medical center: “I want to run an idea by you that I think is important, and I’d like to get your reaction to it,” Levy began. “I’d like to do what we can to protect the lower-wage earners – the transporters, the housekeepers, the food service people. A lot of these people work really hard, and I don’t want to put an additional burden on them. Now, if we protect these workers, it means the rest of us will have to make a bigger sacrifice. It means that others will have to give up more of their salary or benefits.”
What followed was an enormous amount of applause by the medical center employees, the vast majority of whom expressed their willingness to take pay cuts so that none of their coworkers would have to be laid off. Over the next several days, Levy received over 600 emails from employees suggesting various ideas for reducing expenses. These ideas enabled the medical center to find creative ways to trim $16 million in expenses, which saved 450 of the 600 positions that had been originally slated for layoffs. (They are still looking for ways to keep the remaining 150 people in their jobs.)
Two of the pillars of workplace democracy are sharing information among employees and involving them in the decision-making process. Paul Levy’s experiment with these innovative management practices will undoubtedly have a huge impact on the workers’ motivation and loyalty towards the organization. Instead of facing sudden traumatic layoffs, the employees of Beth Israel Deaconess Medical Center were given a unique opportunity to participate in the decision-making process, and the center followed through and implemented the ideas that were generated. The results have proven to be a huge success.
I wonder how many additional layoffs could have been prevented during the past year if executive managers had been more willing to seek out and act on the knowledge of their team members….
Source: Boston Globe