Corporate Democracy – Making Employees Citizens

Self-determination. Rational people believe it is a fundamental human right. Here in the West democracy is well-established and taken for granted. In places like Kiev, Gaza and Baghdad it is only now beginning to take root. But in other spheres of human activity such as business, the concept of self-rule is a largely unknown.

Many argue that companies are not the same as countries and thus should be governed differently. Corporations are legal entities designed to protect property rights. Within their walls the ‘golden rule’ applies – those with the gold get to rule. It is the owners of the company (in public companies shareholders) who have a voice in key decisions. They approve the top management board who take decisions in the interests of the shareholders. If stockholders are not happy with the management of their company, they can exercise their power as owners to vote them out.

The rule of property owners has always been the predominant model in American business. But in the 21^st Century the sources of wealth creation are not confined to tangible property like financial capital and plant and equipment. Indeed the most valuable kind of wealth-producing capital today is intellectual. Its creators are the rank-and-file workers dealing with customers, working on the factory floor, making discoveries in the research lab and creating new software programs and product content. Businesses may own their intellectual capital but they don’t own the creators of it. They cannot order them to produce new ideas at will but rather must create environments in which they are inspired to do so. Therefore, motivating and making these individuals as productive as possible is critical to the ability of organizations to leverage and grow their intellectual wealth.

What type of governance model fits organizations in which employees are the chief wealth creators? In her new book, “The Democratic Enterprise” (FT Prentice Hall, 2004), London Business School professor Lynda Gratton makes the case that democracy and its key hallmarks – freedom, choice and self-determination - are good for business. She describes how several large organizations such as Hewlett Packard, British Telecom and BP are already making significant strides in introducing democracy into the workplace.

Gratton identifies six tenets of the “Democratic Enterprise”:

1. The relationship between the organization and the individual is ‘adult-to-adult’. – Ever feel like you’re treated more like a child than an adult by your boss or that many of your staff expects to have their hands held for them? In the democratic enterprise, both sides recognize their interdependence and treat each other with respect and trust. Says Gratton, “In the adult-to-adult relationship, responsibility for behavior and changes in behavior are shared by both parties; the needs of both parties are openly debated and considered, and there is freedom on the parts of both parties to act. The emphasis is on the autonomous employee, one capable of assuming both the self-insight and self-direction the role of adult entails.”

2. Individuals are seen primarily as investors actively building and deploying their human capital. - It is up to the individual to make the most of their knowledge, skills and opportunities and the organization to provide the environment that makes this possible. According to Gratton, “In the knowledge economy, the employee is an investor, actively choosing to invest (or withhold) ideas, inspirations and skills.” Indeed like investors, employees have the personal responsibility for developing their assets and autonomy to decide how these resources are best deployed and used.

3. Individuals are able to develop their natures and express their diverse qualities. – Pluralism predominates. Individuals are free to be and express who they are. The organization provides an environment where people can discover and be themselves, indeed become the very best they can be, both in their chosen work fields and as individuals. In return, companies receive high commitment and high performance from their workers.

4. Individuals are able to participate in determining the conditions of their association. – There is no room for “take it or leave it” offers in the democratic workplace. Employees have a say in all aspects of their careers and jobs - for example they can exercise options in what, where and how they do their work.

5. The liberty of some individuals is not at the expense of others. – In democracies, individuals have rights but they also have obligations towards their fellow citizens. One person’s gain should not be another person’s loss. The organization sets up mechanisms that ensure fairness in all aspects of the work such as pay and that people collaborate rather than compete with each other.

6. Individuals have accountabilities and obligations both to themselves and the organization. – The ‘psychological contract’ is well understood. Employees are responsible for pursuing their own interests and success in ways that support the broader success of the organization. The organization makes sure that collective and individual goals are clear and compatible and that employees are given full information to do their jobs in ways that further the interests of the company.

Most companies are a long way off from becoming democratic workplaces. But Gratton’s book makes the case that businesses will succeed and thrive in the future only by giving workers lots of freedom to make choices and plenty of options from which to choose. What holds it all together is shared purpose. That’s the story of democracy. And in the future, it will increasingly be the story of the successful company.

Staying Sane in a MAD World

The business world is going MAD, again. That is MAD as in Mergers, Acquisitions and Divestitures. The value of MAD that took place in the fourth quarter of 2004 out paced all of 1999 – heretofore a record year for corporate buying and selling activity. And 2005 is shaping up to be a blockbuster as well. According Business Week (see: http://www.businessweek.com/magazine/content/05_08/b3921038_mz011.htm $144 billion of deals have been announced already in the first 40 days of this year! In just the past few weeks several mega deals have been announced involving some of the most venerable names in the business world such as AT&T, Gillette and MCI.

Investment bankers and merger lawyers are rushing to put in their yacht orders in time for the summer season. Executives of acquired companies are dusting off their golden parachutes. Or make that platinum in the case of James Kilts, the CEO of Gillette, who reportedly stands to make $150-$180 million if the P&G deal closes. Rank-and-file workers meanwhile are nervously looking over their shoulders for the inevitable wave of staff cuts that follows many high-profile mergers.

Mergers and acquisitions are invariably politically charged events. They can represent a major change in the status quo of the combining organizations. This means redrawing the organizational map, redistributing power, and restructuring people, processes and assets. In any significant change of this type some groups and individuals will be come out ahead of where they were before the MAD while others will see their positions diminished or even lost entirely.

Corporate combinations are notorious for destroying more value than they create. The best scenario for MAD is when it is a formal part of a sound business strategy. The rationale is explicitly articulated and consistent across a series of deals, and the principles that guide candidate selection and post-merger implementation are well understood. The post-deal implementation focuses on highly visible real synergies and a dedicated pre- and post-merger capability is deployed to quickly realize them.

The majority of these types of MAD deal are small- to medium-sized acquisitions of companies done to gain new technologies, products or key talent. Companies like Cisco, Medtronic and GE have impressive track records in doing strategy-driven deals. If you work for, or are acquired by, a company like these, a MAD event will likely improve your lot. HR and cultural compatibility considerations are often top priorities in these types of deals. But many strategy-driven combinations are also focused on consolidating operations and rationalizing costs. In this situation, the consequences can be quite unpleasant (layoffs, terminations, demotions, disposals, etc.), especially if you are on the receiving end of them.

Often MAD is not well-thought out or smartly executed to plan. It is reactive – i.e. a response to external forces such as deregulation of an industry, an economic downturn, a merging of big market competitors, etc. Many attempt to protect or rescue a business. Event-driven deals are all the more challenging because they frequently involve merging competitors and the timing of the deal is rarely optimal. Many have occurred in industries undergoing major change such as computers, telecommunications, energy utilities and pharmaceuticals.

Not surprisingly, event-driven mergers frequently deliver disappointing results because the strategic rationale is forced, due diligence hurried and big risks underestimated or ignored. People and cultures often clash as yesterday’s fierce competitors find it difficult to suddenly act like partners. Combining the best aspects of two distinct organizational cultures or morphing them into a new uniform culture is extremely difficult to pull off.

The trickiest MAD situation is one that is not driven by a clear, stable or sensible rationale. Many so-called ‘blockbuster’ deals fall into this category and the ego of the executives involved is often a critical influencing factor. Remember AOL merging with Time Warner? Steve Case, Gerald Levin, Ted Turner – these guys have egos with a capital ‘E’. In these instances, an enormous amount of power, prestige and money is up for grabs. Size matters – the bigger the deal the better. The target may be viewed as a prize and ‘financial engineering’ is often employed to portray the deal in the best possible light to Wall Street analysts and investors.

The fallout from these kinds of corporate marriages can be downright toxic. Post-merger integration is frequently an afterthought as wheeling-and-dealing executives spend little time thinking about the operational realities of combining the companies. An organizational free-for-all frequently ensues with lots of collateral damage, much of it inflicted on customers and rank-and-file employees.

So run for cover. Hide the kids. Board the windows. Hold on tight to your sanity. The corporate world’s going MAD again.