3 Democratic Companies Featured on CNN.com

Fortune Magazine featured seven small companies as ‘great places to work.’ Not surprisingly, three of these top-ranked employers are run as democratic workplaces.

Companies that have adopted participative management practices typically have more highly engaged employees who are more hardworking, creative, and feel greater loyalty towards their employer.

The South Mountain Company of Martha’s Vineyard, is a design and construction company with annual revenues of $9 million that provides integrated development, architecture, building, and energy services. South Mountain has been practicing workplace democracy for over 20 years.

Currently 17 of its 33 employees are owners, and the rest are on the five-year process to become ’employee owners.’ Employee ownership has played a big part in helping South Mountain retain its workers, who have been with the company for an average of 12 years.

Each employee owner has an equal vote in major strategic decisions, one of which authorized a profit sharing program which distributes 33% of South Mountain’s profits amongst all employees.

Similarly, the New Belgium Brewing Company credits workplace democracy with helping them become the third largest craft brewery in the US, with $93 million in revenues. All of New Belgium’s 320 employees become owners after their first year of employment, and the company’s open-book management policy ensures that all workers know where the company is going and how it’s progressing.

Another democratic company that shares financial data and strategic information with its employees is Badger Mining Corporation, which is the fifth largest manufacturer of industrial silica sand, limestone and other aggregates.

The company has been operating under a flat organizational structure for close to 25 years. Bosses are called coaches, employees are referred to as associates, and the executive management is called the advisory team. All 170 employees share 20% of the company’s profits.

Treating its workers like responsible adults and sharing information, decision-making abilities, and profits among all team members has helped Badger minimize employee turnover, which is very expensive and disruptive to a company’s operations.


Workplace Democracy at Brainpark

Imagine a rapidly-growing startup company where the CEO answers not only to his board of directors but also to his employees.  Mark Dowds, who founded Brainpark about a year and a half ago, decided that he only wanted to lead a company if the employees accepted his leadership.  As a result, any of the employees, including Dowds, can be removed by a vote of their coworkers.
 
WorkplaceDemocracy.com spoke with Dowds to get an inside look at how this innovative company is embracing innovation in its management practices.  Brainpark has made it a priority to democratize its policies and culture in order to develop a transparent and engaged work environment. 
 
The company conducts off-site meetings every six months to discuss Brainpark’s performance and recalibrate their strategy.  As opposed to many company strategy-setting meetings, where the CEO determine the agenda, Brainpark has adopted an ‘open agenda’ system, where each employee writes down their concerns, interests, and goals on papers which are posted on the wall.  Everyone reviews the papers and votes on which of the items are most important and will be included in the off-site agenda and strategy discussions.
 
Any of the team members can suggest potential candidates for open positions.  The job candidates are interviewed by two coworkers, and the new hires are selected collectively by Brainpark employees. 
 
Managers at Brainpark choose not to exercise their power to fire employees.  Instead, if a manager is having problems with one of their subordinates, then a team is put together to make a decision about whether the person should leave or stay with the company.
 
If anyone, including the top managers and CEO, is not pulling their own weight and delivering value to the company, their coworkers can talk to them to dicsuss the problem and to give them a chance to improve their performance.  If the person in question fails to change by a certain period of time, their colleagues can then decide to find them a replacement.
 
To help facilitate better decision-making throughout the organization, Brainpark has adopted an open book management policy, where company financial data is shared among employees, who are all granted ownership stakes in the company through a stock option program.  
 
New employees are usually very surprised when they learn about Brainpark’s innovative workplace policies, but most adapt quickly and can’t imagine working anywhere else.  The company’s outside investors strongly support its democratic practices after having witnessed their impact on the employees’ engagement and motivation levels. 
 
Brainpark, which has been named to the WorldBlu List of Most Democratic Companies, is proof that employees act like owners when they are treated like owners.


Workplace Democracy at GM and Chrysler?

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.

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The Cost of Having a Boss

Management guru Gary Hamel provides an excellent explanation as to why only 21% of employees are highly engaged at work.  Contrary to common belief, it is not the type of job or salary level that determines the extent of one’s motivation, which is why companies such as Wegman’s Food Markets and QuikTrip convenience stores in “unglamorous” industries like retail consistently rank among the best places to work.

“The real damper on employee engagement is the soggy, cold blanket of centralized authority. In most companies, power cascades downwards from the CEO. Not only are employees disenfranchised from most policy decisions, they lack even the power to rebel against egocentric and tyrannical supervisors. When bedeviled by a boss who thwarts initiative, smothers creativity and extinguishes passion, most employees have but two options: suffer in silence or quit.

“In a well-functioning democracy, citizens have the option of voting their political masters out of office. Not so in most companies. Nevertheless, organizations here and there have taken steps to make leaders more accountable to the led. HCL Technologies, a progressive Indian IT services company, encourages employees to rate their bosses, and then puts those ratings up online for all to see. Bullies and bunglers have no place to hide. And W.L. Gore, the Delaware-based maker of Gore-Tex and 1,000 other products, lets its highly decentralized teams appoint their own leaders. These are interesting aberrations from the norm, but in most organizations, power is still allocated top-down.”

Until people are free from a system where their boss wields compete power over their livelihoods, companies will find it difficult to harness and benefit from the full potential of their most valuable asset.

The key to unlocking employee engagement lies in flattening the organizational hierarchy and democratizing the decision-making powers.  A good place to start is to allow employees to set their own salaries.  Teams of employees must also be trusted with the power to hire and fire their leaders and coworkers. 

More and more people are coming to the conclusion that command-and-control is no longer an effective way to manage a company.  There is no reason why responsible adults should be treated like irresponsible and dishonest children as soon as they arrive to work.  In a later post, we will explore additional democratic policies that companies can implement in order to cultivate a more innovative and engaged workforce.


How to be a “good boss”

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.


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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The End of Management?

Gary Hamel, best-selling author of The Future of Management and one of the leading proponents of decentralized, innovative, and democratic management practices, recently wrote an excellent article about the following three forces which he feels “will mostly destroy management as we know it”

  • New web-based collaboration technologies
  • Dramatic changes that have made the competitive business environment more challenging
  • New expectations that “Generation Facebook” will bring as they enter the workplace

Hamel believes that we are on the verge of a management revolution that will transform society as much as the industrial revolution and that will put an end to the command-and-control hierarchical structure that has characterized the 20th century workplace. 

It will become common practice for companies to share information freely amongst all employees, and decision-making responsibilities will migrate towards the team members closest to the customers.

This shift of power and influence from top executives to the customer-facing employees carries both opportunities as well as risks for companies.  The people closest to customers obviously receive a more accurate picture of customers’ problems and are potentially better equipped to develop and deliver solutions to meet customers’ needs. 

The main challenges that executive managers will encounter will be to ensure that all employees have the ability, the freedom, and the motivation to do their jobs properly.  The best way to engage employees is to democratize management practices by making information accessible to all team members, decentralizing the decision-making abilities, and sharing financial incentives with the entire workforce in a more equitable manner.