Workplace Democracy: the secret to Warren Buffet’s investment success?

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.

Warren Buffett

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.”


Professor calls hierarchical, top-down management ‘outdated’

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Truskie argues that “old-style, top-down” management is outdated and that rigid, hierarchical organizations run the risk of falling behind in today’s rapidly changing competitive environment.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.


Owner gives company to employees on 81st birthday

Bob Moore, the owner of Bob’s Red Mill Natural Foods celebrated his 81st birthday by giving the company that he founded to his employees.  Moore announced the new Employee Stock Ownership Plan (ESOP) at an all-company meeting at the headquarters office in Milwaukie, Oregon.

Moore said, “It’s been my dream all along to turn this company over to the employees, and to make that dream a reality on my birthday is just the icing on the cake.  To me, this is the ultimate way to reward employees for their contributions to our ongoing success and growth. We have many loyal and long-time employees who I expect will be joined by many new faces over the years to run the company.”

Operations VP Dennis Vaughn, said, “The partners could have sold this company many times for a lot more money, but to them this company is about so much more than the money. I’m just proud to wear the Bob’s Red Mill logo because anywhere I go in this country people say nice things about the company.”

Bob’s Red Mill, a leading provider of whole grain natural foods, has averaged an annual growth rate of 20%-30% over the past 10 years and in that time their mostly North America distribution has expanded internationally.


Netflix takes a vacation from its vacation policy

Contrary to most companies, the vacation policy at Netflix is quite simple: “there is no policy or tracking.”  Netflix CEO Reed Hastings referred to vacation limits and face-time requirements as “a relic of the industrial age.”
 
Several years ago, employees had argued that it wasn’t logical for the company to track vacation days since employees’ hours worked per day or per week were not being tracked.
 
Netflix executives agreed and did away with vacation policy after the legal issues were taken care of.  In a presentation that was leaked to the media, Neflix realized that they “should focus on what people get done, not how many hours or days worked.  Just as we don’t have a 9-5 day policy, we don’t need a vacation policy.” 

Netflix employees are encouraged to take as much vacation time as they want as long as it doesn’t interfere with their work. 

To executives who might worry about such a policy vacuum being taken advantage of by employees, Brian Carney, the author of Freedom, Inc., responds “In a large enough organization, there might be a couple of people who would take two or three months’ vacation–but if a vacation policy is the only thing holding them back from that, they’re probably ‘vacationing’ at their desks anyway.”


An argument against ‘totalitarian’ IT policies

In his Management 2.0 blog, Gary Hamel shares some thought-provoking questions about counterintuitive, yet common, IT policies that seem to discourage productivity and innovation:

  • How is it that companies are willing to trust employees with their customers, their expensive equipment, and their cash, but are unwilling to trust them when it comes to using the Web at work or loading their own programs onto their workplace PC?
  • Do IT staffers really believe that conscientious, committed employees turn into crazed, malicious, hackers when given a bit of freedom over their IT environment?
  • If leading edge IT tools are, as many claim, essential to unleashing human creativity, why would any company force all of its employees to use the same computers, phones and software programs?

Hamel recommends giving employees more freedom over their IT tools.  We agree.  One of the best ways to cultivate innovation and engagement is to empower people with the ability to decide how they can best do their jobs.

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The end of the ‘rock star’ CEO

A story published earlier this month on the Economist discussed the recent trend of companies preferring “anonymous” bosses to the “rock star” CEOs who were popular in previous decades. “The corporate world is increasingly rejecting imperial chief executives in favour of anonymous managers.”

We believe that this shift represents another stage in the ongoing evolution in the typical organizational structure – from a top-down, hierarchical system to a decentralized, democratic organizational model.

“The fashion for faceless chief executives is part of an understandable reaction against yesterday’s imperial bosses, many of whom were vivid characters. Some, such as Jeff Skilling of Enron and Tyco’s Dennis Kozlowski, broke the law and helped inspire a dramatic tightening of government regulation, in the form of the Sarbanes-Oxley legislation. Others, such as Home Depot’s Bob Nardelli and Hewlett-Packard’s Carly Fiorina, paid themselves like superstars but delivered dismal results.“

Talented, motivated, and innovative professionals are no longer willing to work for arrogant dictators in exchange for a sizeable paycheck.  Instead, employees are becoming more and more selective about the quality and type of work environment that their employers offer, and they are increasingly seeking award-winning employers that share decision-making powers and that do not tolerate workplace jerks.

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An interview with the authors of Freedom, Inc.

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.


“The DemoCratic Workplace” Research Paper

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.”


Investors Benefit from Zappos Democratic Work Environment

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’.


Workplace Democracy at W.L. Gore & Associates

Last week, WorkplaceDemocracy.com spoke with Steve Shuster about what it’s like to work at one of the nation’s largest and most successful democratic companies.  Shuster is part of the enterprise communication team at W.L. Gore & Associates, his employer for the past 27 years. 

With more than $2.5 billion in annual sales and 8,000 employees in over 50 facilities worldwide, Gore is a leading manufacturer of thousands of advanced technology products for the electronics, industrial, fabrics and medical markets.  Gore is one of only 12 companies that have been on the Fortune 100 Best Places to Work list since it began.

What is it like to work at Gore?

You feel like you’re part of a family.  I have been working at Gore for 27 years, and I still get excited coming to work each day.  There is a sense of being among family, and this creates a special bond between associates and a connection with the company.  

Everyone is an owner in the company and shares in the good times and in the bad times.  Everyone works in teams, and there is very little hierarchy at Gore. 

How would you describe Gore’s company culture?

The company culture at Gore gives people a sense of belonging and gives us a sense that we are making an impact on society via our products.

There are four principles that are the foundation of Gore’s culture: fairness, freedom, commitment, and waterline.  The waterline principle means that it’s ok to make a decision that might punch a hole in the boat as long as the hole is above the waterline so that it won’t potentially sink the ship.  But, if the decision might create a hole below the waterline which might cause the ship to sink, then associates are encouraged to consult with their team so that a collaborative decision can be made. 
 
Our culture is based on integrity and a high level of ethics.  The organization operates as a flat, or ‘lattice,’ organization, where all employees are referred to as ‘associates.’   There are no bosses, only ‘sponsors’ who are similar to sports team coaches.  Sponsors are responsible for leading the teams and who are mainly focused on their team members’ growth and development.  The process of becoming a sponsor is through followership, and each group chooses their own sponsor.

Do team members have the power to remove or replace their sponsors?

In the event that a sponsor is not doing a good job, the team members speak with the sponsor about the problems.  If they are unable to resolve the problem, then the sponsor or team members might suggest an alternative team member to become the team’s new sponsor  This type of situation happens fairly often at Gore, as the teams are fairly fluid and adapt to the changing environment and market. Often when associates change commitments, they will seek out a new sponsor.

Do team leaders have the power to remove members of their team? 

If a leader doesn’t feel that a certain team member is contributing sufficiently but the other team members disagree, then the team will first meet to decide about how to make the decision.  Most often, the decision will be made collaboratively with all of the team members  being able to voice their opinions and vote on the outcome. Leadership at Gore is defined by followership, not by being given a title.

Gore has been described as having a democratic workplace.  Can you give us a few examples of innovative and unique HR/management policies that Gore has implemented?

Gore’s lattice, team-based organizational structure and the opportunity to provide feedback about other team members are two of our innovative work practices.  Associates get to manage what type of projects they are working on.  Also, associates’ compensation is based in part on their contribution to the enterprise.  All associates rank each of their colleagues according to what they feel their contribution has been to the enterprise.

What is the hiring process at Gore?  How does it differ from the hiring process at other companies?

The main difference is that Gore looks for individuals who fit Gore’s unique culture.  We look for people with an entrepreneurial spirit who are not focused on titles and hierarchy.  We conduct behavioral interview questions to help determine whether candidates fit our culture.  Gore includes several team members and representives from the business in the interview process to ensure the right candidate is selected.  Gore is not for everyone; some people don’t mesh with Gore’s culture because they can’t work without a title, or because they want to be directed.

How does Gore encourage its associates to be more innovative?

The innovative culture, which started with our company founder Bill Gore, helps foster innovation and gets people working towards a common goal.  The company culture makes associates feel that it’s ok to take risks and make mistakes.  For example, Gore asked me early on how many mistakes I’ve made so far.  He then told me that if I’m not making mistakes, then it means that I’m not taking enough risks and trying to innovate as much as I should be.