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.


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.