Building Workplace Democracy–M.S. Srinivasan

(A case study based on the book “Maverick” by Ricardo Semler who inherited a traditional manufacturing company, SEMCO, from his father and transformed it into an exemplar of workplace democracy.)

The Self-governing Workforce

The Brazilian company SEMCO is well known in corporate circles for its unusual and egalitarian workplace practices.  In the first chapter of the book, Ricardo Semler describes how much well known it is:

“Every Wednesday afternoon dozens of men and women file through the front gate on their way to a third-floor meeting room at Semco, the company I lead in Sao Paulo, Brazil.  The guard at the entrance has been expecting them.   For years now, executives from some of the biggest and best-known companies in the world, IBM, General Motors, Ford, Kodak, Bayer, Nestle, Goodyear, Firestone, Pirelli, Alcoa, BASF, Chase Manhatten, Siemens, Dow Chemical, Mercedes-Benz, and Yashica among them, have been making an unlikely pilgrimage to our nondescript complex on the outskirts of the city.”

SEMCO is a manufacturing firm which makes an impressive range of industrial products and equipments including pumps, cooling units, mixers and entire biscuit factories.  But as Ricardo Semler states, “It’s not what Semco makes that has executives and management experts the world over waiting months for a chance to tour our plants and offices.  It’s the way the people of Semco make it.”  What makes SEMCO unique in the corporate landscape is its highly successful attempt at building a truly democratic workplace where,

  • factory workers set their own production quotas and come in any time between 7 a.m to 9 a.m to meet them without any pressure from management or overtime pay.
  • Production employees help redesign the product they make and formulate the marketing plan.
  • Most of the major decisions like choosing the location for a plant are taken by worker-groups.
  • Management has such a total trust in their employees that for traveling expenses it allows them to spend, “Whatever they think they should as if they are taking their own trip with their own money.”  There is no rules, no audit.
  • Subordinates can interview, choose or even fire their bosses.
  • Managers for their part, can run their business units with extraordinary freedom determining business strategy without interference from the top boss.

We can see from the above examples that in SEMCO, empowerment is not merely an ideal paid lip service by managers.  Ricardo Semler has displayed extraordinary courage and honesty in taking the concept of empowerment to its higher possibilities in actual practice.

The next question is what is the ideal of empowerment or democracy at SEMCO?  We will examine SEMCO’s concept of workplace democracy and its accomplishment a little later.  First let us try to understand Semler’s ideal of democracy to its higher possibilities in actual practices.  As Semler points out: “Democracy is a lot of hard work.  I kept telling myself and anyone who would listen.  It has to be exercised without subterfuge or exception.”

It is not what is called as “consultative” management or leadership where bosses consult their subordinates but ultimately take their own decisions;  In SEMCO it is more of a participative democracy where workers and subordinates actively participate in and make the major decisions with minimum interference, control or imposition from the bosses, approaching what we may call as a self-governing work-force.  What then is the role of leaders and managers?  It is to act as counsellors, coordinators and catalyst providing the help and support and the right environment in which workers can manage themselves. As Semler explains his ideal of workplace democracy:

“What people call participative management is usually just consultative management.  There’s nothing new to that.  Managers have been consulting employees for centuries.  How progressive do you have to be, after all, to ask someone else’s opinion? And to listen to that opinion—well, that’s a start.  But it’s only when the bosses give up decision-making and let their employees govern themselves that the possibility exists for a business jointly managed by workers and executives.  And that is true participative management, not just lip service to it.”

And talking about his own role as a leader and decision-make, Semler states:

“My role is that of a catalyst I try to create an environment in which others make decisions.  Success means not making them myself—Looking back on it, I can’t remember a single decisions  that I made in that period which was just as well, for I am at my best when I am doing the least.”

Let us now examine how this democratic ideal is worked out in practice:

The Empowered Groups

The core unit of SEMCO democracy is the worker committees made of representatives from every part of the office and shopfloor except management, like for example machinists, mechanics, office workers, maintenance workers, stockroom personnel, draftsman.  Every such trade group would have a delegate on these committees which would meet regularly with top managers at each plant.  However not all such groups were made of workers.  Some of the groups contain people from managerial or supervisory cadre like engineers and executives, formed spontaneously to deal with a problem or accomplish a task.  The other interesting feature of these groups is that they didn’t have a formal head.  As Semler explains,

“The strength of these groups was their diversity. They included factory workers, engineers, office clerks, sales reps, and executives. They didn’t have a formal head; whoever showed the greatest capacity to lead got the job, calling meet­ings and moderating discussions. In more than one group, a shop-floor worker guided professionals. Instead of a seniority system, or boxes on an organizational chart that guaranteed power, the groups were held together by a natural system of collegial respect.”

Initially workercommittees were given a broad mandate to look after the workers’ interest and concerns like for example pay and working conditions.  Members of the group are also given time off with pay, to dedicate themselves to the new job.  The other important aspect of SEMCO democracy is that labour unions are accepted as a part of it and union representatives are included in the worker committees.

In the beginning the main concerns of these worker committees were money.  They gave the reasonable suggestion to survey other companies to find out what their workers paid, and when SEMCO was lagging behind, gave sufficient time for a phased increase in wages.  Later they turned their attention to improving the working condition like for example:

  • Subcommittee to modernize locker rooms and bathrooms, buying the materials and sending the bills to management.
  • Electing mayors to take care of common spaces such as gardens and reception area, maintain lightings, change furniture.
  • Forming teams to paint offices and machines
  • Making the interior design: one of the committees asked a famous Brazilian artist to sketch the design.

Advancing further, worker committees turn their attention to concerns related to management.  And SEMCO management allows worker-committees to look at the managerial cadres and behaviour with a critical and questioning eye.  The workers ask critical questions on the relevance of some managerial positions like strategic planning manager and thereby help the management in identifying surplus managers.  They are also given the freedom to question the snobbish behaviour of mangers.  For example when Semler has to cancel a worker-committee meeting because the date clashed with a managerial retreat, a worker questioned Semler on the purpose, nature and cost of such retreats.  When the bosses told the truth about the retreat another worker muttered, “Sheer waste.”  And management responded positively to workers opinions and reduced the expenses, number of participants and the lavish entertainments indulged in such retreats.

And finally, workers take responsibilities and functions belong to management like choosing the location for a plant, suggest major changes in products, designing new production process set production goals, mange plant cafeteria.  The following example brings out concretely the spirit behind SEMCO work-culture.  When SEMCO wanted to build a new plant, 120 employees of the unit, were given all the pertinent facts like for example the reasons for moving, budget etc.  Workers formed search parties and finally choose a vacant factory which was next to a factory that was frequently on strike.  Managers were hesitant and apprehensive but still respected the decisions of the workers and moved in.  After entering into the plant, workers designed a new and flexible manufacturing system which is very different from the Ford-type of assembly plants.

The traditional ford-type plants are based on Taylorism.  In Taylor’s scheme, a complex production process is divided into small, simple and repetitive tasks.  In ford-type of plants designed according to Taylor’s philosophy each worker is given single repetitive task like welding which he has to perform the whole day.  In this approach, the worker becomes a mindless cog in a vast, complex system, doing his task with monotonous drudgery.  In SEMCO, workers designed a new system where a production team will make a product from beginning to end giving them the creative satisfaction of making things.  As Semler describes the innovative system created by SEMCO workers:

“Instead of a series of lathes and then a series of welding operations and so on, all in a long line Henry Ford-style, the workers formed small groups of different machines. The idea was to have, at each of these clusters, a team whose member would fashion a product from beginning to end, giving them accountability for the product’s quality and the enormous satisfaction that comes with completing a task. What’s more, these workers would know how to operate all the machines in their cluster, not just one, and do whatever else was needed, too, even drive forklifts to and from the storeroom. This type of organization, which had first been adopted by the workers on the dishwasher line at the Ipiranga plant, was known as a manufacturing cell.”

Profit-Sharing

We tend to equate democracy with individual liberty and equity with socialism.  But there cannot be sustainable democracy without reasonable equity which means equitable sharing of wealth, power, information, knowledge with all the members of the community.  SEMCO has made remarkable progress in empowerment which means sharing power or to be more specific, decision-making powers.  Let us now examine how SEMCO fares in sharing wealth with the employees.

Profit sharing is not something new.  For example bonus is a profit-sharing mechanism.  But in most of the companies, management decides how much to share and with whom.  And most of the profits goes to either shareholders or executives.  Secondly very few companies share financial information with employees.  In SEMCO, Semler has institutionalized a transparent and fare profit-sharing system.  The first step is sharing of financial information with employee.  As Semler explains,

“We decided we wanted a new kind of profit-sharing plan, one that would not only be fully comprehensible to our workers but also controlled by them.  Before we could share the wealth, however, we knew we would have to share something even more valuable: information.  No one can expect the spirit of involvement and partnership to flourish without an abundance of information available even to the most humble employee.”

Since most of the employees know nothing much about corporate finance, regular classes are conducted to educate employees on how to read balance sheets, cash flow statement and other financial parameters.

After the employees became reasonably well informed of the financial condition of the company, SEMCO management enters into a long and intense negotiation and discussion with worker-committees to arrive at  fare and acceptable formula for sharing wealth for each plant.  In SEMCO, the formula is something like this:  Total profit is revenues minus expenses.  40% would be deducted for taxes.  25% for dividends to shareholders.  12% for reinvestment and the remaining 23% to be shared with employees.  Finally, the money is given to the worker-committees to distribute them according to what they think as best.

Flattening the Hierarchy

The traditional organisations, as they grow bigger, tend towards a complex bureaucracy with many layers of hierarchy.  SEMCO also fell into this trap.  But Semler was fully aware of it and made a conscious attempt to eliminate bureaucracy and unproductive layers of hierarchy.  In a retreat, Semler figured out an innovative organisational structure made of just four levels of hierarchy.  Counsellors, Partners, Coordinators and Associates.  Counsellors belongs to the top management cadre who will frame and coordinate the general policies and strategies of the company Partners are the leaders of Company’s business units and plants.    Coordinators are the managers and supervisors of basic functions like marketing, finance or production.  All the rest are called as Associate.

Furthermore, in SEMCO, there is a constant questioning and reappraisal of the functions and validity of all the managerial cadres.  If the function of a manager or executive becomes rebundant, then he or she is either asked to leave or shunted to other plants or positions, where he or she can make a better contribution to the organisation.    This is a controversial element in SEMCO democracy.  Semler seems to have no hesitation in laying off people, especially exectives.  Here is an illustrative episode from Semler’s book: A marketing manager at SEMCO, Mara, narrates to Semler, some of the problems bothering her.  Semler asks her to present her problem in the committee.  Mara asks Semler what happens if her sales representatives don’t like the mailing she makes.  The rest of the conversation, reproduced gives an indication of SEMCO’s approach to managers.

 “It’s up to you to decide whether you are going to consult them before you publish,’ I told her. ‘If you feel confident about it, go ahead. If they don’t like it, your rating as Marketing Manager will suffer, and next time you’ll be sure to consult them. We’re not against mistakes here. If you’re not making some mistakes, you probably aren’t taking enough risks.’

‘But what if they don’t like my work?’ Mara persisted.

 ‘One of two things. If sales go up, they will learn to trust your judgement.’ I paused for emphasis. ‘If they go down, they won’t.’

‘And then?’ Mara asked.

‘Well, this group puts together the budget, and they’ll only include you in it if they think you’re a good investment.”

Later, Mara has to leave SEMCO because in a subsequent reorganization, her position became redundant and her functions were taken over by a marketing team made of her subordinates.

This brings us to the questions, is Mara a mere “investment?”  Is this attitude which views human beings interms of financial parameter in harmony with a humane democracy?  Semler admits that he has lost much talent in these reorganisations.  In this domain SEMCO is not very different from many traditional organisations which frequently lay-off people.  But latest research studies show that such layoff are ultimately counter-productive in the long term.  In an article in Newsweek, Jeffrey Pfeffer admirably sums up these new researches on downsizing and concludes: “The facts seem clear.  Layoffs are mostly bad for companies, harmful for the economy and devastating for employees.  There is substantial research literature in fields from epidemiology to organizational behaviour documenting these effects.”

For example, Toyota and Southwest Airlines never lay off employees but still both these companies remain one of the most, profitable, productive and innovative firms in the world.  The example of Toyota and Southwest show that layoffs are not inevitable.  Companies like SEMCO which has a culture of questioning, has to reexamine some of the assumptions behind the practice like for example, “It is necessary to cope with change.”  Much of the need for layoff and hierarchical layers can be eliminated, if management pays more careful attention while creating new management cadres, asking the question whether this cadre was really needed?  For example, in the case of marketing manager, Mara, which we have mentioned earlier, if her function can be performed by subordinate teams, then there is no need for it from the very beginning.

 The Integral View

We have made a brief review of the culture of workplace democracy built by Ricardo Semler in SEMCO.  Let us now examine SEMCO’s achievement in an integral perspective.

When we look at SEMCO’s achievement from the evolutionary perspective, we can see this Brazilian company has surged from the techno-economic level to the socio-political stage.

Most of the traditional companies live in the techno-economic level focused on achieving higher levels of efficiency, productivity and profit through application of technology using the term to include engineering well as management technology.  But a business organisation is not merely an economic organism but also a social organism, a human community with a social, political and cultural dimension.  So if an organisation wants to progress further from the techno-economic stage, it has to move up to the the social and political dimension, which means it must make a conscious attempt to build a human community governed by the triple values of French revolution: Liberty, Equality and Fraternity.

Liberty means not merely individual rights but a free participation of the people in their own development, especially in decision making, with maximum freedom to grow from within through a self-directed development and minimum of external rules or compulsion.  Equality means equitable distribution of or access to wealth, power, knowledge, resources, opportunities and an equal, full and joyous participation of each individual in the communal life.  Fraternity means social cohesion, solidarity, harmony and comradeship.

When a company makes a successful attempt in this direction, it leads to a greater and higher manifestation of human potential ─individual and collective─in the organisation.  SEMCO’s achievements represent this higher step in organisational evolution.  To progress further in this stage of evolution SEMCO has to make a more and more conscious attempt to understand, implement and manifest this triple values in the inner being and outer life of people in the organisation.

But even this socio-political stage is not the highest stage in the organisational evolution.  There is one more step which we may call as cultural or psychological.  This third stage begins when the organisation makes a conscious attempt to build a corporate culture that leads to the inner growth of the individual in the ethical, aesthetic, psychological and spiritual dimensions of consciousness and create an outer environment that felicitates the creative self-expression of this inner growth in the outer life.

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