Each month we will be sharing four, carefully-chosen articles from the Latest Issue of our flagship publication ‘theHRDIRECTOR’ which exemplify the high standards we strive to archive. We hope you find this in-depth article of interest and decide to become one of our valued Subscribers.
Since Nobel Prize winner Ronald Coase’s work, we know that firms exist so that employees can accomplish complex tasks more efficiently than if working independently. The hierarchical bureaucracy emerged with the appearance of the first large firms – mills – as one way to coordinate these tasks. The problem was, how to coordinate the maximum numbers of (productive) workers with a minimum of (unproductive) supervisors. And the mathematical solution to this problem? Hierarchy.
Article by Isaac Getz, Professor of Leadership and Innovation – ESCP Europe Business School
Hierarchy demanded that every layer has superiors to command and control the activities of their subordinates, then came the rules, then came the bureaucracy and what followed was enough red rape to encircle the planet multiple times. Hierarchical bureaucracy, coupled with economy of scale, has proved efficient throughout the last two centuries in economic terms. According to the British economist Angus Maddison, the countries which adopted it, from Northern America to Japan and Australia, improved their standard of living twenty-fold between 1825 to 2001. Comparatively, the rest of the world has improved their standard of living over the same period by only 60 percent. The problem is that this undeniable economic and social progress has extracted a huge human toll – HR measures this by indicators such as; absenteeism and turnover. Yet, they are the symptoms of deeper issues, work stress and its health consequences and all kinds of somatisations in the short term and heart disease in the long term. Fundamentally, hierarchical bureaucracy is not natural to human beings. It denies the satisfaction of their universal psychological needs. But these human costs were once outweighed by the increase in efficiency and productivity, and companies and society as a whole could ignore them. Not anymore. As French minister of Health, Agnès Buzyn asked recently; “how long will public health insurance have to continue to pay for bad management”?
The world of VUCA requires agile, creative, resilient, and anti-fragile firms and this is impossible in a hierarchical bureaucracy, in which any problem or challenge is a monkey which one tries to pass up the ladder. Twenty-first century companies can only become agile, creative and all the rest of it, if they transform their organisation, so that teams are trusted to make decisions by themselves. A “liberated company” is one such type of business, and I have studied and observed almost 100 liberated companies, which allow their employees complete freedom and responsibility to take actions that they, not their superiors or procedures, decide are best for the company’s vision. Specifically, in some of these companies, employees set up their work schedules, fulfill orders, hire teammates, and even decide on capital expenditures, such as what new heavy equipment to buy. These employees also do their very best for their company. They do that, not because they benefit from some outlandish incentives or bonuses. Instead of being motivated extrinsically, they are motivated intrinsically, because they work in an organisational environment which satisfies their fundamental human needs. These needs are known thanks to the vast empirical work by the psychologists Edward Deci and Richard Ryan. I call them intrinsic equality; people want to be treated with respect and trust. Self-realisation; people want to realise their gifts; and self-direction; people don’t want to controlled. If even one of these needs is not satisfied, people will become disengaged and either look to do their minimum or leave – if they can. Inversely, if all three needs are satisfied, people will do their best for the shared company’s vision. No wonder liberated companies outperform their traditional competition year after year.
“Only an egoless CEO will be able to tell people; “I trust that, if you take a bit of time, you’ll find a solution”, and then doesn’t question the solution when found. When people are trusted with their intelligence, they work hard to come up with good solutions”
Since a liberated company is a business philosophy – a set of beliefs in human nature – it has no model, nor method, to put in place. There is no Liberated Company for Dummies book, but I think I’ve identified a need for one, so this philosophy needs to be brought into the awareness of the company by everyone – leaders, managers, employees, even trade unionists – believe, me, it has happened! Yet, corporate liberation can only be initiated by a CEO, since only the CEO has a mandate to transform the company’s organisational environment. Once launched, this transformation consists in articulating the liberated company’s philosophy in the firm’s human and cultural heritage to co-create – together with employees – its unique organisational mode. For example, in every large industrial company, each plant co-creates its own liberated mode, while every store does it in a large chain.
For our book Freedom, Inc. I studied – together with co-author Brian Carney – several dozen liberated companies which have been functioning in this mode for at least twenty years, all the while remaining at the top of their industries. The oldest of them, W. L. Gore, the manufacturer of Gore-Tex and a thousand other innovative products, has been liberated since its inception in 1958. Today, it employees over 10,000 people, turns over $3 billion in sales, with a double-digit average annual organic growth and has been named the most innovative American company. Another example is a Finnish office cleaning company, SOL. Since 1992, when its CEO Liisa Joronen transformed their command-and-control organisation into a liberated one, the company grew organically to close to 13,000 employees and is the number two company in Finland. Indeed, since the 2010s, the number of corporate liberations has increased dramatically, with the large proportion of them located in a proven ‘low-trust country’, France, as well as the French speaking part of Belgium. The corporate liberation movement there involves companies such as; Michelin, Airbus, Decathlon and hundreds of SMEs of all industries and various sizes. It also involves public services, such as two Belgian ministries, French social security branches, municipalities, and subsidised housing authorities. Almost every couple of days, a firm or a public service institution in France enters corporate liberation.
What has helped all these French-speaking CEOs is a corporate liberation ecosystem which has been deliberately built to serve them. Indeed liberating a company is hard and takes several years. The ecosystem allows both to fall less often and to reduce the time. At the core of this ecosystem are fellow liberating leaders willing to share their corporate liberation experience and liberated companies ready to host learning expeditions. Not to mention business journalists particularly interested in the topic, plus labour relations lawyers, showing how self-direction can comply with the law. And trade unionists witnessing how liberated companies show higher respect and equity than their traditional counterparts. In support, there are various social networks, and finally, hundreds of executive coaches.
The reason so many coaches are needed as part of the ecosystem is that they can help CEOs to remove the biggest obstacle for liberating their company, their own ego! For CEOs, having a big ego, or thinking of yourself as the most intelligent person, is natural in the traditional organisation. Indeed, typically, those who come up with the smartest decisions are traditionally promoted up the pyramid. Yet, his same trait becomes a barrier, if the CEO wants to build an organisation which fundamentally trusts the intelligence of frontline teams to come up with the best decisions. Sure, some CEOs – and we have seen it – don’t need coaching to become leaders in the service of others, but for most, several months of executive coaching is needed to resolve their ego and control issues – although some, and we have seen them – may need a shrink! Only an egoless CEO will be able to tell people; “I trust that, if you take a bit of time, you’ll find a solution”, and then doesn’t question the solution when found. When people are trusted with their intelligence they work hard to come up with good solutions. If they don’t, it’s not because they are not intelligent but because their leaders haven’t shared with them critical information or knowledge. Such errors become opportunities to learn from. They also advance corporate liberation since more information is shared with employees and they grow further in their skills – two of the three fundamental human needs. In liberated companies, employees are not viewed as “risks” needing to be controlled, but as human beings, fallible sure, but fundamentally reliable and willing to do their best for their company’s vision. Only such human beings, unlike “human resources” as they are so often called – will allow companies and public service institutions to become agile, creative, resilient and anti-fragile. That is not a luxury in the VUCA world, it’s a must.
*Ronnie Corbett, “Class sketch” – The Frost Report (7 April 1966)