Open business: publishing pay, abandoning hierarchy and creating the democratic firm

In this week’s The Economist, Schumpeter (the business columnist) discusses the application of open methods to management in ‘Corporate Burlesque: the case for stripping away secrecy surrounding firms’ finances’. 

Schumpeter gives a couple of examples:

Srijan, a small Indian software company, keeps a Google spreadsheet that employees can check to see what each of their colleagues, including Rahul Dewan, the firm’s founder, is being paid. Dane Atkinson, the boss of SumAll, an American software start-up…has crafted a corporate “constitution” that lets employees get involved in all kinds of decision-making.

The classic case Schumpeter missed is that of Gore Tex, a company of 10,000 people which claims to have abandoned job titles, bosses and hierarchy. Instead, their website suggests that leadership ’emerges’:

Gore’s unique “lattice” management structure, which illustrates a nonhierarchical system based on interconnection among associates, is free from traditional bosses and managers. There is no assigned authority, and we become leaders based on our ability to gain the respect of our peers and to attract followers.

Gore are essentially advocating a democratic way of running a business.

Back in The Economist, Schumpeter goes on to suggest that:

Corporate democracy might work at a tiny firm, but it would probably paralyse a big one. Transparency on pay could be horribly disruptive, especially at talent-heavy firms where output is hard to measure.

But the robustness of these arguments should be tested by making similar claims against open  government. If they sound ridiculous when applied to government, then their relevance for the firm should be questioned too.

Given the success of websites such as PublishWhatYouPay, a platform for companies in the extractive industries to make mining deals more transparent – and corruption therefore easier to spot – it would be interesting to try something like ‘PublishWhatYouEarn’. It could be voluntary at first, though there would certainly be calls to make such publishing compulsory: especially in banking and finance. If this sounds crazy, consider that, essentially, pay is already published in the sports sector.

But it’s much more than just pay, as Gore demonstrates. Openness acknowledges that good ideas come from anywhere, that leadership should be flexible, and that transparency ultimately improves our knowledge and thus decision-making. And it probably makes for happier, more effective staff too.

Further reading:

  • WorldBlu, on ‘freedom at work’. WorldBlu runs the awards for ‘The World’s Most Democratic Companies’.

Update Dec 2012: Just discovered Valve Software. Amazing. This ‘political economy’ analysis of the firm is a bit long, but for a quick intro, skim through this staffers’ blog:

it takes new hires about six months before they fully accept that no one is going to tell them what to do, that no manager is going to give them a review, that there is no such thing as a promotion or a job title or even a fixed role (although there are generous raises and bonuses based on value to the company, as assessed by peers). That it is their responsibility, and theirs alone, to allocate the most valuable resource in the company – their time – by figuring out what it is that they can do that is most valuable for the company, and then to go do it. That if they decide that they should be doing something different, there’s no manager to convince to let them go; they just move their desk to the new group (the desks are on wheels, with computers attached) and start in on the new thing…

any part of the company can change direction instantly at any time, because there are no managers to cling to their people and their territory, no reorgs to plan, no budgets to work around…

So does this only work in software companies? Where innovation, creativity and design are the key attributes for a successful firm? Would it work at a giant company like Apple? Could any kind of knowledge business benefit from this approach? What about a professional services firm – it’d never work right? Because they dance to the tune of the clients. Whereas at Valve, it sounds like the customers dance to Valve’s tune. What about government? Public service provision?

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