Organisational democracy is a stepping stone, not the final answer

Since I first became a fan of organisational democracy, I’ve often wondered what’s next. Will we will find an even better model for how humans can work together? The best answer I have found so far lies in a theory called Spiral Dynamics.

Spiral Dynamics explains how our values and worldview as humans have become increasingly complex – like an unravelling spiral – as life conditions for us have also become more complex. The journey has taken us through survivalismtribalism, superstition and magicego-centrism, feudalism and heroismpurposefulness and authoritarianismstrategic, industrial and materialismhumanism and egalitarianism. Phew, that’s a lot of isms.

Here’s a good slideshare which explains the model, and I also recommend this 43-page ebook on the subject. If you’re brave, you can read the Spiral Dynamics book. It’s awesome but awfully written and took me forever to get through.

What particularly interests me about Spiral Dynamics is that it puts the changes we see happening in the world into the broader context of the ongoing evolution of human consciousness. In developed nations today there is a gradual shift away from the currently dominant industrial, materialistic, individualistic worldview towards a more egalitarian, socially-minded perspective. This is being driven by our life conditions stretching the limits of an industrial perspective:

  • natural resources are finite and so the global economy cannot grow infinitely, especially as developing economies try to enter the consumer party
  • a growing gap between the richest and poorest causing social problems that affect everyone
  • climate change caused by industrialism which has to stop in order to prevent major catastrophe
  • material gain only makes us happier up to a point and there’s more to life than working really hard and acquiring more ‘stuff.’

But the move to a more humanistic perspective where organisational democracy fits in is not the final solution. It’s actually just a stepping stone towards further, more complex levels of consciousness.

What comes next is an integral worldview where we understand all of the levels of consciousness that we have already developed and maximise their positive potential whilst repairing and avoiding the problems that they can cause. It’s a mindset that embraces and understands complexity and lives life to the full.

There are movements emerging that embrace this post-democratic mindset like Conscious Capitalism and Integral Capitalism. This stuff is new and nobody has completely cracked the formula yet, but that’s actually the point. There is no final solution. As life becomes more complex on our planet, our consciousness will continue to evolve new levels of complexity with it, bringing ideas which can greatly enrich life and solve the dizzying problems we face.

The biggest truth about leadership that you didn’t know

Big thanks to my friend Charlie Davies who switched me on to the concept of The Source recently. One of the ever growing list of things I wish I’d understood years ago. An incredibly important dimension to leadership with huge implications for all organisations that I’ve never seen discussed so explicitly before in any business book.

These reflections are based on the work of Peter Koenig who has researched the role of “source” in organizations for many years.

Source

1. any thing or place from which something comes, arises, or is obtained.
2. the beginning or place of origin of a stream or river.
3. a book, statement, person, etc., supplying information.

The role of source

Any enterprise, project or event always goes back to a single source; the person who gave the spark of life to an idea and had a compelling vision that wanted to be realized.

In instances where one might feel that “we” had the idea together, closer investigation of the path of creation will always lead back to one particular person. The person who has the role of source has an energetic connection to the endeavour quite unlike any other member of the organization or team. The energetic connection is derived from the source-person being the first person in time to take a risk, i.e. make an investment in manifesting the idea. Often the first risk was taken in communicating the idea to a second person.

As a result, the source has an intuitive knowing about what the next steps are and will have strong reactions, often viscerally, if these insights are not honoured. For the source, the “Gestalt” of the idea can be sensed, even if others can at times have more accurate language to describe it. The effects of the importance of source can be observed, whether or not the source is acknowledged. However, acknowledgment of source will lead to an ease of flow in processes and decrease potential for conflict.

A metaphor for source

If an idea, a project or an organization was an individual we could attempt to trace back how this being first came into existence. At the beginning of the child’s life, there was the act of creation, which required a father and a mother.

Let’s assume there was a field or a dimension in which all ideas and all creations exist; the field of limitless potential. Let’s say this field is the “father” in this metaphor. The field chooses a carrier,the source, a “mother” that will bring the child into existence. This person is inseminated with the idea; the source might indeed feel as if “going pregnant” with the idea for a while prior to it’s birth.

Even after the baby (the idea, project) is born, the connection to its creators (the field and the source) is very strong. The field and the source are the genetic parents of this baby and regardless of who will help to raise the child to be an independent person – the birth parents will always remain the birth parents.

For the success or the child in life, it seems to be vital that this primary connection is recognized and honoured, even if other people do a bulk of the childrearing work or if the child is going to be adopted by another parent in the future.

The role of helpers

The role of others as supporters and helpers for the success of a project envisioned by the source is paramount. As in the metaphor of the child, a single parent would never be able to do as good a job raising the child as a whole community could. As they say: It takes a village…

The bigger the original vision the source brings into existence, the more likely the source relies on others for realization of this vision. The helpers can take on all kinds of different roles; from translating the idea into concepts or tasks, to taking on roles as “sub-sources” with full responsibility for a sub-project that feedsinto the larger source.

The more connected the helpers feel energetically to the idea/vision of the source – and this comes not just from liking the project content but from their relationship to the source and acknowledging the source’s source role – the more they are able torealize and exercise their own source within the project. This increases the momentum of the endeavour.

Each helper can form his or her special connection to the projectand become a central figure in the growth process – but the source as the point of origin must be recognized. If anyone unrightfully claims ownership of the idea, the balance in the system is disturbed and will suffer a multitude of consequences.

The source of organizations

Every organization has a point of origin, the moment when the idea was conceived and someone gave shape to what was previously shapeless. This idea of source in organizations is especially observable in family owned businesses. However, it is important to note that identifying the source may not always be as obvious as it might appear at first sight. Often, the founding of the company is attributed to one person (for example the patriarch), but the driving force behind the endeavour was in fact another (for example the matriarch of the family). It is therefore essential to examine closely who was the original life force behind the organization before drawing premature conclusions about the source.

The source can be inherited or passed on from one person to another. The passing on of the source is not a legal but an energetic act. Even if due diligence has been done to ensure that all the right contracts are in place, the source can remain with the original founder and the transmission has not occurred. If this is the case, the new leader/CEO, and subsequently the organization, will be weakened. Succession can only occur if the person passing it over and the person receiving it are conscious and open to the process. Without full transmission of the source, a struggle for dominance and recognition ensues.

A few of the tell-tale signs for the source not having been transferred (or not transferred fully) can be that the newly appointed leader:

  • feels disconnected from the business,
  • is unsure about next steps, has no vision,
  • does not feel what his or her place or purpose in the endeavour is,
  • has no execution even though has all the legal power,
  • experiences power struggles with other people in the organization,
  • is not accepted by others in the organization as the new leader.

It is important to know that only one person can fulfil the role of source. The ownership structure of an organization or the distribution of profits are not tied to being source, but the final say about strategic decisions is.

In family run businesses, it is not unusual that the passing of the source skips one generation. If the source remained with a grandparent that has already passed, the transfer might be accomplished through a personal ritual of initiation that honours the vision and importance of the source, before the new CEO steps fully into his or her new responsibility as the new source of the organization. If the person fulfilling the role of source is still alive, this is a ritual that can and should be conducted in person.

The role of source in leadership

In any organization, there are numerous sources for numerous projects. The vital importance of accepting that the source will “sense” what has to be done should not be underestimated. If the leader is the source, this might be easier than if another employee is the source for a particular thought or project. Regardless of the position of the source in the hierarchy, the source needs to be recognized in order to function as the channel through which information flows into the organization. Furthermore, a lack of recognition of source is noted by members of the system and feels unfair or unjust; members of the organization/team will revert to “just doing their jobs”. Trust in the leaders and or the organizationas a whole is diminished. Acceptance of source creates harmony and trust and is also the key to all people being able to realize their own source potential. The recognition of source is thus key to innovation.

If the role of source is not acknowledged in leadership, this either results in a dictatorial approach to running the company (“I am the new boss now and you will do as I say!”) or in a spineless egalitarianism (“we are all the same and we all have equal say”). The first often leads to organizations with a high number of sick days and a work morale weakened by fear whereas latter leads to inefficiency and a culture that values comradeship over performance. Both will bleed the organization of talent since intelligent and self-responsible individuals will neither choose to work for an organization in which submission to an authoritarian leader is required, nor an organization in which every process is stalled because no one ever feels empowered to take a decision.

This short article on source was written by Nadjeschda Taranczewski and Peter Koenig in July 2012. Please feel free to copy onto your own letterhead by mentioning the authors.

Three free Brightoneers events and other updates from me

I’ve been very quiet on this blog lately, but there’s been loads going on so here’s an update from me.

The Brightoneers

The community of people working together to build a pioneering new economy in Brighton launched with a bang in January. 100 people came to the first event and we have the next three events lined up. All of them are free to attend and open to all. Just register using the links below.

12 Feb: Alternative currencies and smartcard pilot. Led by Good Money, we’ll be working together on moving towards a pilot of a smartcard system in Brighton that helps the local economy.

19 Feb: How can we use crowd funding to build a better economy? We have speakers covering the use of crowd funding for equity, rewards and lending, then time to break into groups to start making stuff happen.

5 March: The first Brightoneers film night: Shift Change - an awesome film about the power and potential of employee ownership – check out the trailer. I’m planning on making this a monthly event screening documentaries that will inspire us into action.

WorldBlu

I’ve been working as an ambassador for WorldBlu, speaking about democratic business at a number of events (like this) and talking to some awesome companies about them joining the movement. The WorldBlu List of Most Democratic Workplaces 2013 will be announced in April. I’m very excited to see Brighton growing as a hub of certified democratic workplaces following on from my previous company, NixonMcInnes being one of the first WorldBlu-certified companies in Europe. There’s also WorldBlu Live coming up in May in Denver. Get along to this if you can. My involvement in WorldBlu is now winding down and I’ll be focussing more on work locally here in Brighton. There may just about be time to get your organisation assessed by WorldBlu for this year’s WorldBlu List. If you’re interested, drop me a line and I’ll put you in touch with the right people.

Business development help for consulting companies

Having spent 10 years building a consulting company myself, I’m keen to share my experience in marketing and selling consulting work with other consulting companies in Brighton. If you’re a freelance consultant or running a small consulting company and would like to bring in more business, I might be able to help. I’m also launching a little project around this over the next few days. If you’d like to be kept in the loop then please get in touch.

And the rest of life

I’m mid-way through an 8-week course on Mindfulness and meditation with Mindfulness Sussex. I’m loving the combination of ancient wisdom dating back 2500 years backed by modern scientific studies that have shown many benefits to mind and body.

It’s the Brighton Half Marathon this Sunday. I’ve been gradually getting back to pre-travelling levels of fitness. I still have a long way to go and a horrible bout of ‘man flu‘ set me back these past couple of weeks, but the Half is a bit of a milestone anyway.

OK that’s about it. If we’re overdue to catch up for a chat then give me a shout.

Free event: Using freedom and democracy to build an incredible company

Monday 10 Dec, 7pm – 9pm, NixonMcInnes Offices, Brighton. FREE.

How do famously successful companies like Zappos and Valve Software create such damn amazing places to work that innovate, delight customers and generate big profits? The key to success is abandoning the dominant mindset of fear in business and instead embracing freedom, possibility, and trust. With this mindset, great companies use democratic principles like decentralisation, transparency and dialogue to set their people free to do amazing things, and reap enormous rewards.

Tom Nixon (me!) ambassador for WorldBlu and co-founder of NixonMcInnes – certified as one of the Most Democratic Workplaces in the World every year since 2009 – will reveal how to adopt the right mindset for business success, and explain the 10 principles of organisational democracy, with lots of ideas that you can immediately take back into your company. And as it’s nearly Christmas there will be mince pies.

Thank you to Wired Sussex for supporting this event.

Sign up here:

Why W.L. Gore are afraid to have open salaries

W.L. Gore is one of the most famous democratic companies in the world. They are 100% owned by employees; there’s very little hierarchy, with leadership occurring organically by people voluntarily choosing who to follow; and a high level of personal freedom for employees to innovate and be autonomous in their roles. It works spectacularly well. They are massively profitable and market leaders in several product areas.

So I was surprised to learn recently that at Gore, salaries are kept secret, which is contrary to the transparency around financial information in most democratic companies.

For most traditional companies where salaries and other financial details are kept under wraps, it’s usually fear driving the behaviour: Fear of the consequences of unfair salaries being discovered or fear of letting go of control of important information. Gore doesn’t seem to have these fears. Colleagues are evaluated by their peers to ensure salaries are set fairly and they have demonstrated in many areas that they are not afraid to give up control. So what’s going on? Why would they not want the benefits of higher trust and scrutiny that fully open books bring about?

Gore say that they have a different fear: They want leadership to be merit-based above all else and they fear that if colleagues know what everyone else earns then they may show a bias towards following the higher earners rather than the best person in a particular context. I can understand the logic behind this, but to me it’s still a practice rooted in fear rather than freedom, possibility and trust (the mindset of the best democratic leaders) so I wonder if they could do better.

Humans are not purely rational creatures and we are naturally biased in many different ways. Even with closed salaries, it’s possible that people may be biased towards following leaders based on age, gender, personality, physical characteristics and many other traits which are even further removed from true merit than salaries. I wonder if having closed salaries is fighting a symptom of bias, when perhaps a better approach would be to educate and increase awareness of bias among all colleagues to help them make more conscious decisions. If they did this then they could enjoy the benefits of greater transparency, and make better decisions about choosing leaders and more.

Organisational democracy and wellbeing

Last week I presented at RobertsonCooper‘s Good Day at Work conference. I had a really great time – thanks to the organisers and everyone who stayed right until the end to see me. Here are links to the things I covered:

My slides are on Slideshare.

WorldBlu: helping organisations globally to be more democratic using their 10 principles of organisational democracy and publishing the list of Most Democratic Workplaces in the World (together with lots more inspiring ideas)

NixonMcInnes: my previous company

Happy Buckets: measuring happiness in the workplace daily

Analysis of happiness and profit

Celebrating failure at the Church of Fail

The amazing story of the cardboard box factory becoming a democracy that kicked off this whole journey for me which my friend and business partner Will McInnes left of my desk with the words ‘Fucking amazing – read this’ emblazoned on it.

Employees First, Customers Second: Vineet Nayer’s book about transitioning a large business, HCL Technology to a democracy

Beyond the Corporation: David Erdal looks at how employee ownership is the future of business, including research into what makes humans cooperate and the benefits to the whole of society of employee-owned, democratic businesses.

Erik Weihenmayer: The first blind person to reach the summit of Everest. I really recommend buying the DVD of this. Watch it with your family over Christmas.

Going beyond the inverted org chart

The traditional org chart has the CEO and directors at the top, with power cascading downwards through managers and eventually to the people at the bottom who actually do the work and create all of the value.

A popular idea in the design of democratic companies is to turn the org chart upside-down. In an inverted org chart, it’s the people who do the work, deal with customers, make the product and deliver services who are the VIPs at the top, and the org chart has the layers of management beneath them to support them to be happier and more productive. The CEO is right at the bottom, since they’re furthest from directly delivering value to customers, but have to provide the foundation to the support structure for employees.

An inverted org chart isn’t just a piece of fakery to make the employees feel important. Viewing the organisation structure in this way can lead to innovations that get new levels of performance from more engaged employees. For example, at HCL Technologies (Multi billion dollar IT outsourcing giant,) when they inverted the org chart, they came up with the idea of creating something similar to a customer support ticketing system, but with the regular employees as the customers, and the managers as the support agents. Any employee can open a ticket on the system about anything from a problem with their pay, to a faulty chair or a complaint that their boss smells. The issue is then routed to managers who have to resolve the issue and only the original employee can close the ticket. This system has helped HCL employees to be happier, more productive and therefore provide better service to customers and generate profit.

However, there is another group of people who hold more power than anyone else in the org chart, yet are rarely featured on it. Shareholders. Even in an inverted org chart, the only people who have deep, permanent rights and power are the shareholders, because they alone can remove the CEO, board and in effect do whatever they like to the org chart as is suits their interests, short- or long-term. They alone are the people with rights to the profit made, and they can sell their rights wholesale to anyone they choose without needing any kind of consent from anyone working in the business.

Even in very progressive and democratic companies (even those with innovative, networked org charts) it’s often just taken as ‘the way things are’ that there are shareholders who have all of the power, rights, and entitlement to profit. Even high-performing employees accept that they are ‘hired’ by the company, and effectively rented just like a piece of machinery.

But employee-ownership offers a real alternative to the status quo. Employees who are also owners hold the real power in the company and they have the rights to hold the CEO and board to account and to the profit that they make. This is why employee owned companies like John Lewis in the UK and the Mondragón network in Spain are so successful, because rights, power and profit are tied to the people who deliver the value.

So is this a threat to traditionally owned businesses? Yes and no. Employee ownership (like John Lewis rivals Marks & Spencer and Debenhams know) can create fierce competition. However, there’s a route for founders and other owners of traditional businesses to transition their companies to employee-ownership. This is not altruism and they don’t have to give their shares away. It’s possible to finance all-employee buy-outs which create a fair and exciting legacy to be enjoyed by all future generations of employees, and it gives the old shareholders a fair return for what they have put in.

Check out this short video that gives a flavour for what life is like inside employee-owned companies. It’s hard to fail to see why this model gets the best out of people.

SHIFT CHANGE – preview from Mark Dworkin on Vimeo.

The business case for democratic business

I’m using this post to collect links and quotes from articles and research that support the business case for democratic business. If you know of anything that should be added here, please submit a comment. I’m also interested in seeing any counter-examples to avoid confirmation bias.

One out of every four working Americans (25%) describes their workplace as a dictatorship, while just 34% of bosses react well to valid criticism.
Workplace Democracy Association/Zogby Interactive poll, 2008

Gallup: Globally, 73-91% of people
are disengaged at work with physical
and psychological ramifications.

Engagement and physical health

Engagement and psychological well-being

In 1987, when the Conference Board first surveyed fulfillment, 61% of people were satisfied with their jobs. By 2011, it had dropped to 45%. More.

According to the consultancy BlessingWhite, only 20% of people are engaged with their jobs.

From David Erdal’s book ‘Beyond the corporation‘: ‘There is overwhelming support from well-designed and rigorous academic studies showing that companies become more productive in employee ownership’

Between June 2007 and December 2008 the proportion of U.S. employees who professed loyalty to their employers slumped from 95% to 39%; the number voicing trust in them fell from 79% to 22%.
Centre for Work-Life Policy (more)

Twenty years ago the salary difference between a US CEO and a factory worker was 40:1. A few years ago it was more than 400:1.
J. Micklethwait and A Wooldridge, writers on globalisation, 2000

We studied 50 companies across the globe, looking at both their employee engagement scores and their financial data. Our analysis focussed on the impact of employee engagement on operating income, net profit and earnings per share (EPS). Over the 12 months studied, organisations with high levels of employee engagement outperformed those with below average levels of employee engagement on all three financial measures.

  • Operating income. Companies with highly engaged employees collectively saw operating incomes rise by $389.95 million or 19.2%, but companies with below average levels of engagement collectively saw it fall by $664.14 million or 32.7%.
  • Net income growth. The group of companies with highly engaged employees saw net income grow by 13.7% or $121.38 million but it fell by 3.8% or £33.67 million among companies with low levels of employee engagement.
  • Earnings per share. Organisations with highly engaged employees collectively saw earnings per share increase by 27.8% compared to companies with low levels of engagement which saw a fall of 11.2%.”

“Recruitment and retention of top talent (80% of top talent wants
more freedom at work)” - Zogby International/Workplace Democracy Association 2008

“We firmly believe that happy employees make for a better business. We believe democracy is important to keeping our employees happy, engaged, and passionate about what they do everyday. We are a service company that just happens to sell shoes, clothing, handbags, etc. In order to be about the best customer service you have to start by providing that to your employees. Democracy is one way we go about making our environment a great place to work.” – Tony Hsieh, founder, Zappos (sold to Amazon.com for close to $1BN)

“HCL recognizes that its greatest asset is its employees – the
79,000 “HCLites” deliver value and directly interface with HCL’s
customers every day. The job of the CEO is to enable, enthuse
and encourage employees and to transfer the onus of change at
HCL from executive management to the employees. Creating a
democratic workplace within HCL has enabled the company to
achieve this goal.” - Vineet Nayar, CEO HCL Technologies, India

“At Great Harvest we believe an organization is only as good as the sum of its parts. Great Harvest is made up of smart, capable individuals whose ideas are crucial to our long-term success. Listening and aggregating ideas is non-linear and time consuming, but well worth it. Nothing we do is “mechanical,” right down to daily milling whole grains and handcrafting bread. It requires more time and attention, but the end product is amazing. We’re into our third decade in business and truly believe the democratic principles we follow have kept Great Harvest relevant and agile.” - Mike Ferretti, CEO, Great Harvest Bread Co.

A week to learn how to supercharge your business

Are you looking for ways to unlock new levels of engagement, performance and profit in your business? Who isn’t?

Next month I’ll be spending a week at BluCamp – a retreat for leaders of democratic companies and those who want to learn how they can become democratic in order to supercharge their business. I’m expecting to learn a ton and get inspired and energised as I plan my next business venture.

It would be great if you could join us too – it could be the the most valuable week you’ve ever invested in developing yourself in order to build a better business.

How to protect a great democratic company from destruction

WorldBlu’s list of the 10 principles that come together to make a democratic workplace is one of the pages I link to the most from this blog. It served as a guide in making my previous company more democratic and it’s a very easy way to explain what organisational democracy actually means. However, I believe that there is something incredibly important missing. Not an 11th principle, but a wrapper for the full set of existing principles.

This wrapper is constitution. It means that the other 10 principles are protected and enduring. Like a democratic nation state, a truly democratic organisation will be one forever.

This isn’t just an academic point. We already know that buy-in from senior leadership is key to building a democratic company. So what happens if a democratic company is sold to new owners and the founders who built the democracy eventually leave? Take Zappos for example which was started by (a business hero of mine and awesome dude) Tony Hsieh. Clearly Tony has been a driving force for their culture of happy employees who create happy customers, and how they use democracy to help them achieve that. It’s worked spectacularly well, so much so that Amazon.com bought them for close to $1BN.

Of course, when the company was sold all parties said the right things: Amazon wouldn’t want to change Zappos because their way of doing things works. Tony said he had no immediate plans to leave, that they are as committed as ever to doing things the Zappos way, and even hopes that the culture rubs off on Amazon a little. So far so good. But things can and do change.

I want to be clear that I have heard nothing to date about Zappos heading off-track. It’s the future I worry about. Tony Hsieh will not be there forever. Management at Amazon will change over time. New competitors may disrupt their business and put enormous pressure on them in the same way that Amazon and Zappos disrupted the retail industry. Who knows what the future looks like? As a democratic (and brilliant) company, Zappos is far better placed than most to be resilient through tough times. But the company is only ultimately accountable to one master: Amazon’s shareholders. They, not the employees hold the ultimate power.

Shareholders of public companies like Amazon – mostly hedge funds and pension funds – buy-in to a company culture only when it supports their goal of financial value creation. The big tension is that a democratic workplace is a long-term game. But the stock market in comparison is too often driven by next quarter’s results, and it’s easy for investors to jump ship at a moment’s notice if the share price is going in the wrong direction. They don’t have to be invested for the long-term. In tough times, or simply with enough short-termist shareholder pressure, changes can be made to drive profit now at the expense of democracy and financial performance in the future.

We’ve seen what can happen when a great company ‘sells out’ in both senses of the expression. When hyper-ethical clothing brand Howies was bought by Timberland, the founders were told at the time: ‘Keep doing things your way. Become even more Howies.’ Exactly what Amazon told Zappos. Howies now had the cash of a larger parent to drive the business forward and a green light to stay true to themselves. All good. Until it went wrong. Founder David Hieatt later wrote:

A year or so after selling to the ‘current owners’ I was in a meeting in Boulder, Colorado. I was told that I had to move ‘this bit’ of the business to this country and ‘this bit’ of the business to this country, or they would ‘spin us off’. I had to ask what ‘spin you off’ meant. (It means to sell you.) Those kind of meetings are called ‘Dream Breakers’ for good reason. I emotionally left the company at that meeting.

Eventually he left the company for real. Apparently selling out really did mean selling out. Timberland was later bought out by investment group VF so Howies changed hands again. Since they’d already ‘sold out’ there was nothing they could do about this. And now the latest news is that the Howies management put in place by Timberland have bought out the firm to take it back into private hands. What a huge waste of time, effort and emotion. And the employees – you know, those people who actually do all of the work and generate 100% of the value – were merely powerless pawns in the whole story.

The enormously successful, democratic company SAIC with revenues in the billions of dollars was owned by its employees and enormously profitable. In employee ownership, its share price had doubled every five years. But its achilles heel was a lack of a constitution that protected its ownership. Under a new CEO, the employees were persuaded to take the company public. Once it did so, growth tailed off, and employees came to deeply regret the decision. Current and future generations of employees lost ownership of their company forever.

Just because Howies and SAIC ‘went bad’ that doesn’t mean the same will happen to Zappos. But the point is that Zappos is a wholly owned subsidiary of Amazon, so the employees have no rights to prevent dramatic changes to their workplace or the destruction of the democracy that they enjoy there. While things are going well I’m sure they’ll be left alone, but if in the future Amazon feel like the interests of the shareholders (which may be short-term) point to a change of direction, then make no mistake – it will happen. Remember, shareholders are the only people who have the power to remove and appoint the board of directors.

I feel like I’ve picked on Zappos in this post. Sorry Tony! It’s not really about them – they are just one example of a fantastic democratic company that has the potential to go bad. I hope it never happens. The point is that truly democratic companies need to have their principles enshrined in a constitution that cannot be easily overturned by new masters, especially those seeking to generate short-term results over long-term value creation and the wellbeing of the employees.

There are a number of ways that a constitution can be made real. For example, you can do something similar to B Corporations who have clauses in their Articles of Association stating that the primary purpose of the company is to deliver social or environmental benefit and not just make money. The online social network Couchsurfing became a B Corp before taking venture capital to protect its higher purpose.

However the most powerful way of protecting a business against short-term-driven new masters with the potential to wreck a democracy is to remove the possibility of having new masters entirely. This is done by making the business employee-owned. It doesn’t mean that entrepreneurs like Tony Hsieh have to give away their baby. The company can raise finance to buy out the founders and the shares are held in a trust for the employees using a mechanism similar to a leveraged buy-out. Or the founders can simply be paid off over time out of future profits. When it becomes employee-owned, a constitution is drawn up that protects the shares, and therefore the ultimate power of the employees, forever.

The UK retailer John Lewis is one of the most successful democratic, employee-owned companies in the world. When John Spedan Lewis sold the company to its employees he had the foresight to create a solid constitution. Not only does this protect ownership of the business for future generations of employees, it also sets out how the directors are accountable to the employees as well as other principles such as an internal ‘free press’ (the company newsletter is obliged to print all letters from employees with a response from a director.) The company cannot be taken public, protecting its successful model, and the rights of employees now and for all future generations.

Employee ownership is the only sure-fire way that selling out doesn’t lead to a sell-out of the rest of an organisation’s principles further down the line, and that founders can leave a legacy to be proud of. I hope that more founders will choose this route.