A company of people, by people and for people
At the time when the first chartered companies started gaining the privileges and monopolies that made at least some of them successful enough to conquer entire countries, [1] almost all parts of the civilized world were governed by one monarch or another. Later generations of the corporate form went on to extract even more significant freedoms and protections from society: Victorian England set the pace by permitting companies to operate without specific charters and, most importantly, sparing owners from bearing unlimited liability for the debts of their companies. [2] By then, monarchies had either been dispensed with or severely disempowered in many nations. After another century and a couple of world wars, no advanced society was ruled by a monarch exercising traditional autocratic powers. Democracy became the aspirational model for managing the political activity of most of mankind. Of course, dictatorships exist, as do nominal monarchies, but they all legitimize themselves (with greater or lesser hypocrisy) at the altar of democracy.
Strangely enough, one relatively recent way of organizing people has remained almost totally impervious to the wave of democratization that has swept the globe. In this atavistic arena, a single ruler’s writ still runs supreme, and there is an almost religious sacralization of the territory owner’s rights. Though vast numbers of people work hard to create wealth for the entity, each individual is no more than a pyramid-building labourer in ancient Egypt, who can be used and replaced when worn out. Even when individuals have not outlived their usefulness, they can be banished if they express views that run counter to those of the Mikado. [3] Large numbers can be exiled, sold or given away as territories are sold or acquired, with no more thought for the affected individuals’ wishes than the views of Bombay’s residents when the islands were given as dowry to Charles II of England.
What I have described is, of course, not a medieval monarch’s court but a modern business corporation. It is indeed baffling that most people who would never tolerate living in a nation-state bereft of democracy, "… work in organizations where they can exercise little influence over their work – let alone over larger issues involving the managers who hierarchically control them, or relating to their organization’s strategy. Modern enterprises tend not to be very democratic, being heavily biased toward hierarchical control and owner (shareholder) dominance. These authoritarian organizations dominate the business world, applying a command-and-control system that results in mechanistic structures and low-trust environments." [4] Bob Black puts it even more savagely. "… [W]e all have rights and live in a democracy. Other unfortunates who aren’t free like we are have to live in police states. These victims obey orders or-else, no matter how arbitrary. The authorities keep them under regular surveillance… [D]issent and disobedience are punished. Informers report regularly to the authorities. All this is supposed to be a very bad thing. And so it is, although it is nothing but a description of the modern workplace." [5]
Divinity, fear, or just laziness?
There are three significant belief boulders preventing corporates from progressing along the path to democratization already traversed by nation-states. We need to be conscious of these if we are to circumvent them.
One book that goes to the heart of the reluctance to democratize was written in the 17th century and titled 'Patriarcha, or The Natural Power of Kings Against the Unnatural Liberty of the People'. Though it was intended, by Robert Filmer, for kingly guidance, it contains the core (if not openly admitted) beliefs of most business leaders about their right to decide with minimal checks on their authority. Which CEO disagrees, deep inside, with: "To majesty or sovereignty belongeth an absolute power…" or "In a well-ordered state, the sovereign power must remain in one only…"? [6] The fact that less exalted employees find CEOs exercising the Divine Right Of Lacklustre Leadership DROLL, does not detract from the deep imprinting it receives in the executive mind the higher it climbs up the hierarchy. In India, our predilection for 'Sultanism', inclines us to accept these airs from seniors even more readily than is the case in more individualistic cultures. [7]
Almost as large a block-rock is created by the fear of losing control. The foundation of this rock is laid by the spirits of managers past who have firmly believed that, unless they had the unquestioned right to command and control, they would lose the ability to supervise. This axiom arises because "[m]odern industrial organization has been based roughly on the antiquated system of the military… [though today] even the military is moving away from the oversimplified and questionable assumptions on which its organization was originally based". [8] Yet more shady progenitors of corporate structure and management practice (especially for our bean-counting brethren) are the slave plantations of the Americas. "West Indian plantations … present a brutal preview of the modern multidivisional organization…" [9] The modern predilection for assuring employees that they benefit with the shareholders also had a pernicious precedent. "The master should make it his business to show his slaves, that the advancement of his individual interest, is at the same time an advancement of theirs. Once they feel this it will require but little compulsion to make them act as it becomes them." [10]
Lastly, we have to contend with the near-ubiquitous desire for 'ease of doing managing'. Bertrand Russell did not realize he was describing a fundamental principle of managerial behaviour when he wrote: "There is a law of cosmic laziness called the 'principle of least action', which states that when a body moves from one place to another it will choose the route involving least work." [11] Instructions and checking may not get the most out of people but it is the simplest and least strenuous way for the person giving the orders.
It is not easy for managers to move away from these centuries-old methods of ordering, checking and rechecking work. To do so, we first need to review the core benefits of bringing democracy to corporates.
Y2D – the organisational ecology for tomorrow
Douglas McGregor’s Theory X and Theory Y have been cornerstones of the HR temple for sixty years now. [12] By and large, the base structure has held up well enough [13] but the time has come, I believe, to provide it with some reinforcement so that it can take the load that modern organizations will place on it.
McGregor posited that all supervisors have a (frequently implicit) theory of motivation. At one extreme are 'Theory X' managers, who think people are innately lazy and have to be constantly instructed, monitored and given carrots at one end and sticks at the other, to work. 'Theory Y' subscribers, on the other hand, believe people are intrinsically motivated and, under the right conditions, not only work hard and take initiative but contribute innovative ideas to the activity. McGregor "argued that a manager’s cosmology (i.e., assumptions about people at work) was potentially a self-fulfilling prophecy." [14]
Traditional (let’s call them T-type) environments, with authoritarian leadership, large volumes of prescribed and unchangeable routine and people who have been conditioned against taking initiative are comfortable with Theory X leaders. [15] The fact that XT organizations can be profitable and proliferate says nothing about their ability to get the best out of their people talent. As soon as we look at them through an artificiality-filtering polarizer, their happiness-stripped, innovation-starved, barely-adequate-quality-producing and arthritically-moving people are quickly revealed. [16]
Far more conducive to raising corporate performance as well as the happiness metrics this column has been advocating [17] are the New-age (N types in our nomenclature) environments, which have participative leaders and give employees a say in designing and scheduling their work. Millennials love these work environments and Theory Y advocates fit right in here. Are these YN organizations the end of the evolutionary road for businesses? Calling it quits at this stage would be as advisable as joining Fukuyama in announcing the end of history once the cold war was over. [18]
Since the time Homo Sapiens won out over Neanderthals, owing (some say) to our greater capacity for social organization, effectiveness in teams has played an inestimable part in human evolutionary success. Theory Y, I believe, doesn’t pay sufficient attention to this social part of our humanness and, therefore, needs to be extended (not contradicted). While retaining what Y assumes about the individual, to unleash the maximum innovation, working pleasure and sustainable results out of a group, they have to be synergized as a team responsible for its own leadership and playing a role in the leadership of the organization. Since we are holding on to Theory Y while broadening its remit in the social dimension, it would be fitting to call it Theory Y2, in recognition of its potential to power us to the next motivational plane. Even the N-type environment would be inadequate to mesh with the demands of Theory Y2, especially in the vertical dimension. This is where the need for the Democratic (or D-type) environment emerges. What would it take to build the Y2D organization? A full description of a functioning corporate democracy and managing the transition to it would take far more than a column. In the next section, therefore, I shall only touch upon the leadership, ownership and internal checks that are essential for a truly democratic corporation.
Key markers of corporate democracy
Imagine a company with not one but two leaders having equal power. Further, important decisions need to be ratified by a large collegial group, many of whom wield authority coming from having discharged the same leadership role in the past. As if a co-leader and a ratifying group aren’t a sufficient drag on the freedom of each leader, there is a group of hawk-eyed auditors whose sole task is to check each decision and who have the power to countermand it. To confound the confusion, these leaders hold office for just one year and, worse still, they are chosen by election (albeit from a limited choice set). A recipe for total chaos and disaster, right? No right-thinking CEO would accept a job on such terms. What I have described, rather briefly and with some disguise, is the governance structure of the Roman Republic and it served them very well for almost five hundred years. [19] I won’t repeat the shock experiment with the political structure of the Athenian Republic which operated a direct democracy and chose its leaders by lot. Athens too went on to rule its own empire and effloresce a crop of thinkers and wise men (though it did execute the wisest of them), proportionately unequalled in the history of the world. [20] Both instances are intended to get us out of our strong-man-with-absolute-power-for-indefinite-time mindsets and open our eyes to what democratic leaders can achieve. While these models are not suggested for corporate adoption – not to start with, anyway – it would be hard to claim to be a Y2D organization without some form of employee validation or approbation of leadership choices even if these are for a limited type (say CXOs) of position and from a limited choice set (no, that doesn’t mean just the promoter’s family!). Y2D leaders would also not take decisions unilaterally. "Either directly or indirectly, employees have to be involved in operational and strategic decision-making processes." [21] The gains in unbottling innovation and providing a sense of ownership would be incalculable.
Ownership would also need to be literally shared with employees since much of what is proposed for Y2D organizations cannot work with the current patterns of equity ownership. The expectation that cooperation, productivity, patience, loyalty, flexibility and risk-taking would go up in Employee Owned Companies (EOCs) is borne out by several "case studies that demonstrate the positive economic impact of employee ownership." [22] More equitable pay differentials and gain-sharing that have been highlighted as serious pain points in previous columns [23] would find their quickest resolution under EOCs without having to resort to exhortation and appeals to conscience that seems to work as well as importuning by Angada to Ravana for the release of Sita.
Untrammelled democracy, even on the national scale, brings severe problems in its wake (e.g. a majoritarian over-riding of minority rights) unless it is channelled through a constitution, checked by a fearless judiciary and kept in view through transparent sharing of information. There is every reason to imagine similar parallels for each of these curatives in a Y2D organization. An illustrative, corresponding list would be a Fair Organization Code, total freedom of accessing any but the most competitively damaging information in a timely and user-friendly fashion and an ombudsman or very independent Nomination and Remuneration Committee of the Board.
Both for those whose appetite has been whetted by these glimpses and, even more so, for the ones who remain sceptical about the possibility of running successful commercial organizations on these principles, my response is the same. Please take the time to study real-life successes like the Dutch Breman Group in Holland [24] and the Mondragon Cooperatives in Spain [25]. Their stories are remarkably inspiring and, though both have faced challenges, they and others like them are more than sufficient to point us to the future of the corporation.
A transition that can’t be refused
The transition to Corporate Democracy – the Y2D organizational form – will not be easy even for the most progressive of our existing companies. It will certainly not be total for years to come. XT and YN organizations will proliferate for a long time even as the former continue paying the price of sacrificing a large part of their people potential. The time may come, however, when society itself refuses to underwrite the externalities of anachronistic commercio-monarchical forms that business organizations use. Should society threaten to withdraw limited liability, unlimited duration of existence, the multiplicity of purpose and other concessions (that it granted in the past few centuries) to organizations that choose to stay rooted in the past, the democratic transition will, of course, be forced far more speedily. Richard Wolff [26] and Yanis Varoufakis [27] provide different and radical but very convincing justifications for (and even the inevitability of) society forcing the pace of change.
The argument that may carry far more weight with business leaders is the one from survival in a competitive environment. In explaining why post-revolutionary French armies (guided by the genius of Napoleon) swept from victory to victory throughout Europe, Margaret MacMillan emphasizes the national spirit that drove the soldiers of France once they had a say and stake in the way their nation was run. [28] In corporates we use purpose and feeling of ownership rather lightly. How can employees be fired (figuratively) by a purpose they have had no say in fashioning or feel ownership for an organization that (literally) fires them in the interest of shareholder value? The performance difference between Y2D organizations and the rest will become obvious over a period of time and, particularly in industries that demand high degrees of innovation, complex coordination and a sense of citizenship, only corporate democracies will survive.
Notes:
