A case for workplace democracy – relevance for 21st century managers and leaders operating in a new world order.

By Ingrid Ashwin | 10 July 2013

Challenging South African Business Leaders to leverage their influence to achieve workplace democracy
According to two of the world’s most powerful business leaders, Ellen Kullman and Dominic Barton, the business leaders most likely to succeed are those that expect and plan towards a business environment that will be very different in two years’ time, never mind a decade or half century.
There is also further growing pressure from the Gen X and Gen Y talent in your organisation who are no longer willing to accept a career that does not firmly embrace their values and emotions.

Formal employment is governed by businesses that lead workplace populations larger than some small countries
Governments are continually challenged to change, acknowledge and practise democracy. But when one considers that businesses lead and govern populations larger than some countries in the world we have to ask ourselves why we go to workplaces that still operate with a 20th century autocratic business model or perhaps a diluted version of a democratic workplace? 13 million people are formally employed in South Africa. Source: Free Market Foundation Bulletin March 2013. A vast majority of these people report into hierarchies that defy our political dispensation of democracy.
“Corporate pyramids are the cause of much corporate evil. Pyramids emphasise power, promote insecurity, distort communications and make it difficult for the people who plan and the people who execute to move in the same direction”, according to Ricardo Semler.

Building a better business with undiluted democracy
Ricardo Semler, acknowledged by the World Economic Forum as a Global Leader of Tomorrow, has championed his workplace democracy model for the past 25 years. He has constantly challenged 20th century management thinking and actively combats hierarchical business practise.
Think about this he says, “Outside the factory, workers are men and women, who elect governments, serve in the army, lead community projects, raise and educate families, and make decisions everyday about the future. Friends solicit their advice. Salespeople court them. Children and grandchildren look up to them for their wisdom and experience. But the moment they walk into the factory, the company transforms them into adolescents.”
Source: Harvard Business Review

Workplace democracy makes money and delivers record profitability
Since committing fully to a participatory management model, the SEMCO model has produced significant bottom line performance. Whichever way you slice- and- dice it, the people at SEMCO have come through achieving 27% growth for 25 years each year. What follows are just a few statistics to appease the cynics and evidence the hard core business value further:
– Heightened involvement in one facility led to double the sales, inventories fell from 136 days to 46 days, 8 new products that were previously stalled in R & D were unveiled. Quality improved from a one third rejection rate to 1%. Increased productivity led to a workforce reduction of 32%.
– In another facility, employees were given full rein to set up a new flexible manufacturing system. The units productivity in dollars, jumped from $14 200 in 1984 to $ 37500 in 1988 and the goal in 1989 was $ 50 000. Over the same period market share went from 54% to 62%.
– “People” turnover is just 2% in an industry with 18% of people turnover.
*At SEMCO they do not refer to workers or employees – they refer always to people

Still not convinced? An investment of $100 000 made in Semco, 20 years ago, would be worth $5.4 million today. All of this was achieved in a volatile Brazilian economy, with banks failing and countless business collapsing.
Semler says, “Rethinking ways of doing business will rarely be popular or easily adopted. But we like it our way, and hope that we will sow some seeds out there.”
Applying deep democracy in the workplace for a better South African future
Ricardo Semler asks, “Why do we demand and go to war for democracy as nations, yet accept with docility that no one has the right to choose their own boss?” We send our children, grandchildren and loved ones to war and yet we show up and spend the lion’s share of our time in a workplace willing to be dictated to and controlled by leaders, managers and employers who take control of our lives.

If we can agree that a better future for South Africa is firmly reliant on leaders wanting to start new businesses or grow the businesses they currently have, and, then agree further that aspirational leaders in both the private and public sector recognise that the business environment will be very different in the years to come, then we can surely remain optimistic that a better participatory workplace for ourselves and generations to come will deliver real economic and business success.

Ricardo Semler will present his unconventional leadership thinking at The 2nd Annual FNB Progress Conference on Happiness@Work on the 17th September 2013. Click here for more information.

The Seven Day Weekend – lessons learned from Ricardo Semler – the corporate President who unconventionally saved a company from bankruptcy and created one of Brazil’s fastest growing companies with happy workers.

Aside from the hard work, Ricardo Semler, officially entitled Counsellor, attributes the success of SEMCO most importantly to the drastic changes in their concept of management. If doubling your sales, reducing inventory levels, improving productivity and reducing headcount are of interest to you, read on.

The first of SEMCO’s values is democracy or what he calls employee involvement. He says, “Workers who control their working conditions are going to be happier than workers who don’t. There is no contest between the company that buys the grudging compliance of its workforce and the company that enjoys the enterprising participation of its employees.” Democracy is linked to their 2 other values – profit sharing and information. These 3 values work in a complicated circle with each dependent on the other two.

Most people just talk about participatory management because it is complex, difficult and frustrating at times.

The 4 BIG Obstacles to effective participation.
SEMCO recognised the obstacles and tackled them head on. Here is what they learned and more importantly achieved.

OBSTACLE # 1 – Size
In large organisational units people feel tiny, nameless and incapable of exerting influence on the way work is done or their contribution to the profit made. Back in 1950, Antony Jay explained why human beings were not designed to work in large groups. For more than 5 million years our hunter gatherer ancestors refined their ability to work in groups of no more than a dozen people. The industrial revolution changed this and workers suddenly found themselves working in groups of 100’s and even 1000’s. At SEMCO they found the most effective production unit is made up of 150 people. Big groups have too many managers in too many layers and hold way too many meetings.

The 1st break up of a large group created a rise in costs due to duplication and loss in economies of scale but the heightened sense of belonging and involvement improved the results beyond our expectations.

OBSTACLE # 2 – Hierarchy – a corporate evil
Employees feel a sense of helplessness with managers who refuse to let their subordinates make decisions for themselves – sometimes even about going to the bathroom. Ricardo Semler views hierarchical pyramids as a corporate evil. They emphasise power, promote insecurity and make it difficult for people to plan and execute in the same direction. SEMCO reduced their management levels to 3. 1 corporate level and 2 operating levels. The corporate level includes a small circle of counsellors who integrate the company’s movements. The second level includes the partners who are the heads of the 8 divisions and the third circle, comprises the people they call co-ordinators or team task leaders. The rest are associates. They do research design, sales and manufacturing work and have no one reporting to them. Although they value leadership, a great associate can often earn more than a co-ordinator or partner. Associates decide on the appointment of partners and co-ordinators.

Letting people participate in decisions that affect their lives has a positive effect on employee motivation and morale.
A lot of decisions are made by company-wide vote. In one case the associates voted and made a decision the partners and counsellors did not particularly like. A test of their commitment to participatory management, SEMCO’s partners stood by the associates’ decision. They bought the building selected by the associates. This building was positioned in a labour unrest hotspot and the partners anticipated front row seats for every labour dispute. The workers designed the layout and hired a prominent artist to paint the whole thing inside and out – including the machinery. The division’s productivity in dollars per employee jumped by 250%.

Semler shares, “My employees outvoted me on the acquisition of a company that I really should have bought. I accepted I was outvoted so that I did not discredit our management system. Anyway, what is the future of an acquisition if the people who operate it don’t believe it’s workable?”

You hire adults – treat them like adults
“Outside of your workplace the people who work for you, elect governments, serve in the army, lead community projects, raise and educate children and make decisions every day about the future. Children and grandchildren look up to them for their wisdom”, explains Semler who goes on to say, “The moment they walk into the workplace the company transforms them into teenagers. They have to eat lunch when told, ask permission to go to the bathroom, spend longer than 5 minutes explaining why they were 5 minutes late. So I abolished rule books – rule books that justify the worst silliness people can think up.”
The rule books were replaced with common sense, personal responsibility and civil disobedience using people’s own judgement.

OBSTACLE # 3 – Ignorance
The reason participatory management programmes fail is often due to ignorance.
SEMCO takes things head on. Twice a year they ask employees, what would make them quit or go on strike?
To say “many profit sharing programmes are failures” is true. SEMCO recognised why and fixed it.

1. The company makes it easy for people to see how their own work is related to profits.
2. The company gets all their employees to attend classes to learn how to read and understand the financials.
3. Every month each employee gets a balance sheet, a P&L and a cash flow statement for his or her division.
4. Twice a year 23 % of after tax profit on each division is allocated to the profit share pool for each division. Then the unit meet and they vote on how it should be split. In most cases the guy who sweeps the floor gets as much as the partner.

Most executives are terrified of sharing the financial info because they have to disclose their earnings. As far as Ricardo was concerned, if execs were embarrassed by their salaries they were probably not earning them. He says, “Confidential payrolls are for those who cannot look themselves in the mirror and say, “I live in a capitalist system that remunerates on a geometric scale. I spent years in school, I have years of experience, I am capable, dedicated and intelligent. I deserve what I get.”.” When Ricardo Semler told the union and the workers at SEMCO what the executives made – they started calling them Maharaja.

OBSTACLE # 4 – Lack of motivation
The SEMCO model was hard work and this could have deterred their unconventional progress.
Still not convinced?
Results from that first break up at SEMCO: Within 1 year, sales doubled, inventories fell from 136 days to 46, SEMCO unveiled 8 new products that had been stuck in the R & D department for 2 years and their 33% rejection rate on inspected product dropped to less than 1 %. Increased productivity enabled a 32% reduction in work force through attrition and retirement incentives.

Ricardo Semler will be presenting at the 2nd Annual FNB Progress Conference on Happiness@Work on the 17th September in JHB South Africa.

Click here for the full event programme.