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.
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.”
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Truskie argues that “old-style, top-down” management is outdated and that rigid, hierarchical organizations run the risk of falling behind in today’s rapidly changing competitive environment.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.
Brian Carney and Isaac Getz are the authors of a new book called Freedom, Inc., which is being released today! WorkplaceDemocracy.com spoke with them recently about their book and its connection to workplace democracy.
What is Freedom, Inc. about?
Freedom, Inc. is a book about the most important corporate movement of the last two decades, a movement that has been quietly transforming the fortunes of dozens of businesses and the lives of thousands of employees by using a source of benefits neglected by most—complete freedom and responsibility for employees to take actions they—not their bosses—decide are best.
Each of the unusual bosses and amazing leaders profiled in Freedom, Inc. have performed near-miracles in driving their companies to unheard-of levels of success, often from unlikely or disheartening beginnings. And each has something in common with the others—he believes that the key to business success is freeing up the initiative and genius of every, even the lowest-ranked employee in the firm, every day. How they set their employees free—and how their lessons can be applied to firms in every industry, of any size, anywhere in the world—is the story of this book.
After four years of research, thought and debate, we have identified three stages that each leader went through to build a radically free workplace—rejecting the command-and-control structure, enlisting employees in building a free workplace, and staying put in spite of setbacks; and in each successive stage this leader relied on one corresponding personal strength: values, creativity, and wisdom . Among the leaders of the companies we studied, these three strengths set them apart from other executives while binding them as a group.
Were most of the companies featured in Freedom, Inc. founded as democratic companies or did their management structures evolve from more hierarchical structures?
I’ll reply to all your questions considering that “democratic” means “freedom-based”–the term we use in the book to describe the companies we studied. We avoid “democratic” mainly because it focuses too much on the instruments (and none of our companies used, for example, formal voting for making decisions). Our companies, each with their own instruments, all focused rather on the end: freedom of action and initiative for every employee.
What inspired these companies to develop freedom-based workplaces?
Each company had what we call a liberating leader at its head, who initiated the changes. The leader was either frustrated with command & control companies and/or admirative of the freedom-based ones such as WL Gore & Associates.
How does democracy work at these companies?
Freedom of action is achieved when an environment satisfies universal human needs instead of hampering them. These needs are intrinsic equality, growth, and self-direction, according to the most advanced psychological research carried out by University of Rochester psychologists Edward Deci and Richard Ryan.
What have been some of the main challenges in cultivating democratic workplaces?
Workplaces struggle to evolve the often authoritarian managers’ practices into freedom nurturing practices. Some liberating leaders had to remove certain managers (albeit keeping their salary) from the positions of authority.
Why should companies consider decentralizing their workplace? What are the advantages of freedom-based or democratic companies?
Freedom of action is a tremendous advantage because in freedom-based companies, employees facing a sudden surge in competition, a downturn, a new government regulation, or an inadequate business process don’t simply wait for their higher ups or some new policies to tell them what to do. Instead, they take action that they—not their bosses—deem is best for the company and they do it right away—not when it’s too late. Add to that that frontline people always know better what’s going on and what needs to be done. So letting them take action is pure common sense.
What is the most important step that companies should take in order to become more democratic?
The most important step is for the liberating leader to stop telling people how to do their work and instead ask them how they want to do it.
CNNMoney.com recently profiled six worker-owned, democratic companies. These companies, from diverse industries such as software to auto parts to beer brewing, all credit their innovative management structures with having helped them wheather the current economic crisis.
Here are the companies that were profiled:
- We Can Do It! Women’s Cooperative (Si Se Puede! in Spanish) was founded in Sunset Park, Brooklyn, in August, 2006, to bring together immigrant women to create a women-run, women-owned, eco-friendly housecleaning business. All members have an equal vote in decisions regarding policy and operations. In addition, members work together to promote the business and meet bi-weekly for on-going training and support.
- Full Sail Brewing Company is a craft brewery in Hood River, Oregon, United States. Founded in 1987, Full Sail was the first commercially successful craft brewery to bottle beer in the Pacific Northwest for retail sale, and one of Oregon’s early microbreweries. For years, they had been thinking and talking and dreaming about the idea of becoming an employee-owned company. Full Sail became an independent, employee-owned company in 1999, divvying up the company between their 47 employees. Of all our accomplishments, this is the one that makes them most proud.
- Since 1980, Isthmus Engineering and Manufacturing has provided custom machinery to address the needs of first-time automation users as well as companies well-versed in the benefits of automation. From their beginning as an engineering partnership to their incorporation as a workers’ cooperative, Isthmus Engineering has evolved into a world-class builder of automated equipment. Established as a “worker’s cooperative”, the success of our employee-owned company is contingent on the performance of the entire team. Management decisions are made democratically: one member – one vote. Each member shares in the responsibility of managing the business.
- Founded in 1994, Mushkin is best known for producing “Enhanced” memory modules. Located at the base of the Rocky Mountains in Denver, Colorado, Mushkin provides performance enhanced computer products to users worldwide. Mushkin products include an enhanced power supply line and a complete selection of memory upgrades for desktops, servers and notebooks. With customers including everyone from Apple Computer and NASA to gamers and web browsers, Mushkin knows what is important to customers – enhanced performance with uncompromised quality.
- Pelham Auto Parts was founded in the 1970’s by Pelham Auto Service, a group of mechanics in the Pioneer Valley of Western Massachusetts who specialized in small car repair. At the time imported car parts were much harder to come by than they are today. Pelham’s founders took it upon themselves to make sure they had the parts they needed for themselves and their customers by creating a parts store. Pelham Auto Parts was born and began to supply other local garages, mechanics and do-it-yourself’ers, always maintaining a desire to sell good parts at good prices and abide by a work ethic than included more than just showing up and doing a job. Pelham is a brick and mortar parts store, owned by the people who work there, rooted in their community but accessible to the world.
- Ronin Tech Collective is a worker-owned and operated technology collective, focused on workplace democracy and promoting a democratic society while supporting progressive businesses, non-profits, and cooperatives by providing open-source website development and consulting. Through their work, Ronin hopes to create positive change in our world by providing the best possible software and highest quality support for their customers. Ronin is located in Brattleboro, Vermont and serves clients all over the country.
Click here to read the entire story from CNNMoney.com.
WorkplaceDemocracy.com recently interviewed John Abrams, the co-founder and CEO of South Mountain Company and the author of COMPANIES WE KEEP: Employee Ownership and the Business of Community and Place. COMPANIES WE KEEP celebrates the idea that when employees share in the rewards as well as the responsibility for the decisions they make, better decisions result.
South Mountain Company, Inc. is an employee-owned design/build and renewable energy company founded in 1975. Located on the island of Martha’s Vineyard in Massachusetts, their worker cooperative’s 30 employees (more than half of whom are full owners) provide a full range of integrated environmental building services: planning, architecture, building, interiors, energy efficiency services, and renewable energy.
Can you talk a little about South Mountain’s history and how the workplace democracy idea began?
In the early days, we never thought of ourselves as a company. My original partner and I were hippies looking for a way to pursue our craft. The last thing we were interested in was business. When we arrived on Martha’s Vineyard, we found ourselves, ironically, in business. After a few early mishaps, I found myself interested in and wanting to learn more about business. Once I got my bearings, and had some long-time employees who wanted to stay with the company, I was ready to return to my roots and develop a community-based business that belonged to the people who did the work.
What inspired you to make South Mountain a democratic company?
When my original partner left, I was left with a great company and a great team. The inspiration for organizational restructuring came from two long-term employees who said they wanted to stay with the company rather than spin off their own buisnesses, but that they needed a greater stake. Together we looked for models that would do more than address their situation, assuming that if we did our job well this same situation would arise again and again over time. We heard about the Mondragon Cooperatives in the Basque region of Spain and were excited by their values and their success. The Industrial Cooperatives Association in Boston (now the ICA Group) helped us implement a similar cooperative ownership model in our organization on a much smaller scale.
How does democracy work at South Mountain?
In terms of governance, our employees make decisions by consensus about significant policy issues. South Mountain has 18 employee-owners out of 30 total employees. We hold meetings once every two months and the group deliberates about issues that concern the company’s future. Consensus decision-making has worked for us and has been very valuable. Fortunately, we have a backup 75% supermajority voting system for times when consensus is stalemated. Over 22 years we have only had to use it three times, but it is key to the success of the system.
In terms of the day-to-day operation of the workplace, there is a tremendous amount of collaboration at South Mountain, and all voices are heard. We are always looking for the right balance and seeking the best way to make decisions by learning the skills of facilitation and fostering utterly productive and engaging meetings.
What effects have South Mountain’s democratic workplace had on your employees?
I can tell you one thing, they are still here! People stay for 3 to 4 years, or they settle in and stay for good. People are extremely energized by the company culture; they truly care about the company and give their best.
This also affects our hiring practices. When we recruit new people, we are not just looking for people with specific skill sets; we are looking for great future owners.
What have been some of the main challenges in cultivating a democratic workplace?
Early on, people were used to their roles, so a lot of people had a hard time making the switch to ownership and leadership roles. But once we made that shift and people actually became owners, discovered their opinions and voices and relished the opportunity to take part in the decision-making process.
Even though 2009 has been a difficult year because of the recession, it has been a great year for South Mountain in many ways. We had to think differently and address issues we hadn’t had to before. For 35 years, for every day of every week of every month of every year, everyone came to work with productive work to do. Layoffs were unknown. But now we had to consider the unthinkable. What if there was not enough work for all? Good discussions led to a tiered group of actions:
1. We would offer voluntary, temporary, rolling furloughs.
2. We would use the company’s capital to support projects that would not generate immediate revenue but that might provide us with a return later on, or community projects that would keep as many people working as possible.
3. We would have a reduction in hours.
4. We would have a reduction in pay.
5. Finally, if there was no other choice, we would initiate involuntary furloughs.
Surprisingly, during this year’s annual evaluations, even though it was a tough year, employees gave the company higher ratings than they did last year (8.7 in 2009 vs. 8.4 in 2008), mainly because they were impressed with the internal communication, the supportive atmosphere, and how the company is performing and weathering the recession while many other companies have been doing poorly, conducting massive layoffs, etc.
Do you think that employee ownership is an integral part of workplace democracy?
Absolutely. I don’t really believe in ‘responsibility without accountability’. Sharing ownership is critical. When people will personally benefit or suffer as a result of their decisions, they will naturally make better decisions.
Rune Kvist Olsen, a consultant, author, and former lecturer at the University at Tromso, Norway, has written a paper called “The DemoCratic Workplace.”
The paper was written in order “to approach workplace organization through a ‘participatory strategy’ which is based on the involvement and engagement of the individual human being in the workplace.”
Click here to access “The DemoCratic Workplace.”
Last week, WorkplaceDemocracy.com spoke with Lisa Joins to get an inside look at one of the nation’s largest and most successful democratic companies. Joins is a director of people services at DaVita, a FORTUNE 500 company and a leading provider of dialysis services in the United States.
DaVita has serves approximately 115,000 patients in over 1,500 outpatient dialysis facilities and acute units in over 700 hospitals. DaVita has been selected by FORTUNE as one of the World’s Most Admired Companies for the past 4 years and has been ranked by Modern Healthcare as one of the 100 Best Places to Work in Healthcare.
DaVita has been selected to the WorldBlu List of Most Democratic Workplaces. Can you talk a little about DaVita’s history and how the workplace democracy idea began?
The idea of workplace democracy began when DaVita was formed in June 2000. Kent Thiry, our CEO, saw that the company was in need of a different level of leadership with the team concept as its driving force, so he decided to make the company culture one of the areas of priority. He made a concerted effort to ensure that everyone had a voice promoting full buy-in to our new strategy and direction.
How does democracy work at DaVita?
Each local area of the company is managed independently by its local leadership team. And it is that team’s responsibility to be creative to meet and maintain the company’s strategic goals. Each area gets to decide on how to best achieve its goals according to their local market. This philosophy includes not only the senior leaders but those who sit on the front lines of the organization. DaVita is unique in how we communicate with each other, and this speaks to all levels within our organization. Our CEO is very active in communicating with the teammates about the company’s progress. Virtually every large team meeting provides an opportunity for a question and answer session. For example, we conduct local town hall and homeroom meetings. We also host ‘Voice of the Village’ calls where all teammates in our Village are invited to call in and to receive company updates from our core senior leadership team. Anyone participating in these calls can ask the CEO and the core team any questions about the business, policies, etc.
Another example is our profit-sharing program, which is given on a regular basis multiple times per year. At many other companies, the top managers determine the specifics of their profit-sharing programs. At DaVita, each leadership group together with the help of their local teams chooses their goals of measurement. These goals are used as the key factors for measuring the success of the team and profit-sharing payouts are tied to those accomplishments.
There is a village atmosphere here at DaVita which helps people feel as though they are part of a community and less like they are part of a large company full of “red tape”. Local teams are given the opportunity to name themselves and create identities. Ongoing communication plays an important part in helping the teammates connect with each other and to the company. And this feature is critical in keeping a company that has 30,000 plus teammates alive and full of energy. There are daily ‘Homeroom’ meetings that are hosted in local clinic/office environments and weekly ‘Village Voice Communications’ go out in email to all teammates. These venues give teammates the opportunity to receive valuable real-time information regarding policies, company updates, items of recognition, etc.
There are a number of village-level programs that help enrich the lives of teammates. For example, there is a program called the ‘DaVita Village Network,’ where people can donate money to emergency funds to help other village teammates in times of need. There are also educational funds which are given to teammates and their families, and there are vacation award programs that our CEO personally donates to reward teammates for outstanding work and service to the Village. We also have many programs that reach out beyond our company such as the Bridge of Life. The Bridge of Life program gives our teammates an opportunity to participate in starting dialysis clinics in several under developed countries around the world.
What is the hiring process at DaVita? How does it differ from the hiring process at other companies?
First of all, DaVita places a great deal of importance on promoting from within. We are constantly evaluating our internal talent and looking at these individuals for promotional opportunities. DaVita offers ‘stretch assignments’ where people can learn and apply new skills.
Prospective job candidates often have the opportunity to interview with a team of representatives from the department so they can meet all levels with the team and learn more about the company from those who hold different levels of roles. Job interviews at DaVita are very interactive, and we encourage candidates to ask questions about the role, team, the company and culture. During the onboarding process, we make strategic efforts to ensure that our new teammates receive an in depth acclamation to DaVita’s philosophy, culture and our “village-like” way of operating.
Is the process of firing an employee different at DaVita than at other companies?
Yes, we do our very best to ensure that every teammate who is performance managed receives every opportunity to improve, receive “on time” feedback and get back on target in their role. We have a multilayered progressive discipline process that includes not only reviewing performance but also evaluating whether or not a teammate who is not successful has the right attributes for the requirements of the position. Often times, we will consider looking at other roles within the organization for teammates who we find are great teammates who add value but are not in the right role for their levels of experience.
What is it like to work at DaVita?
It’s the best company I’ve worked for. DaVita is a fun, energetic company that stresses collaboration and a team-based environment. The company offers tremendous opportunities to its teammates for growth and development. This is the first company that I’ve had the opportunity to work for where the culture resonates throughout all facets of the organization.