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Democratic management at Semco

Semco is a Brazilian conglomerate that specializes in complex technologies and services like manufacturing liquids, powders and pastes for a variety of industries; refrigeration; logistics, and information processing systems; real estate, inventory and asset management; and biofuels. Semco’s revenues are around $200 million a year.

 

Semco is a self-managed company. There is no HR department. Workers at Semco choose what they do as well as where and when they do it. They even choose their own salaries. Subordinates review their supervisors and elect corporate leadership. They also initiate moves into new businesses and out of old ones. The company is run like a democracy.

 

Says CEO Ricardo Semler: “I’m often asked: How do you control a system like this? Answer: I don’t. I let the system work for itself.”

 

Semco is organized around the belief that employees who can participate in a company’s important decisions will be more motivated and make better choices than people receiving orders from bosses. Workers in each business unit are represented by an elected committee that meets with top managers regularly to discuss any and all workplace issues, and on important decisions, such as plant relocations, every employee gets a vote.

 

Workers at Semco choose their own hours. CEO Semler recalls that when he first proposed the idea, managers were convinced this wouldn’t work, especially when it came to factory work. But Semler was confident. “Don’t you think they know how to manage their own work?” he asked. Turns out they did, and they do.

 

Semler says simply, “if you want people to act like adults you need to treat them like adults.”

 

Things do take longer than they do in a traditional, hierarchically-managed company. Semler elaborates in his book Maverick: The Success Story Behind the World’s Most Unusual Workplace:

 

“Dissent and democracy go hand in hand. It’s also good management technique. What traditional executives don’t consider is that decisions arising from debate are implemented much more quickly because explanations, alternatives, objections, and uncertainties have already been aired.”

 

One of the principles underlying Semco’s success is the idea that every business should be small enough that each worker can comprehend it as a whole system. If a business grows to more than 150 people, Semco will split it into two.

 

Another principle is transparency and trust.

 

“The only source of power in an organization is information, and withholding, filtering, or retaining information only serves those who want to accumulate power through hoarding,” says Semler.

 

Once a month Semco holds open meetings for the employees of each unit, where all the numbers in the business are presented for open examination and debate. The company also offers courses to help employees better understand financial reports such as balance sheets, Profit-and-loss reports, and cash flow statements.

 

What about profits?

 

“Profit is highly important to us at Semco, and we’re as avid about it as a general is about his supplies. If provisions run out, his soldiers will die. If a company ceases to make money, it too will die. But armies are not created to feed soldiers, just as companies don’t generate income just so they can hire more employees. Food fuels the soldiers and keeps them going. Yet to serve as more than mere gun fodder, they must have a higher purpose, a reason for going through boot camp and charging the enemy in battle… This is where profit and purpose meet and, unfortunately for most organizations, it’s a head-on Humvee wreck.” ~ Ricardo Semler, The Seven-Day Weekend: Changing the Way Work Works.

 

Nearly a quarter of Semco’s profits go to employees, but the company doesn’t decide how to distribute it. Each quarter, the profit contribution of each unit is calculated, and 23% of profits go to that units employees, who can distribute it however they wish. So far, they have always decided to distribute that money evenly to everyone.

 

Employees who are particularly confident can choose to put up to 25% of their pay “at risk.” If the company does well, they get a bonus raising their compensation to 150% of normal; if the company does poorly, they are stuck with 75% of their pay.

 

Does it work? Semco’s growth from $4 million in 1980 to more than $200 million today seems to point in that direction.

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Taken on November 27, 2011