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.

5 thoughts on “The business case for democratic business

  1. When HCL began its journey in 2005 to radically transform the company (as outlined in Nayar’s recent book, “Employees First, Customers Second – Turning Conventional Management Upside Down” ) , HCL was rapidly losing ground and critical employees to both Indian and multinational competitors.

    Since 2005, HCL is now one of the fastest growing IT services firms in the world and it has:
    • Increased its customer base 4x (and quadrupled customers in the $5million category)
    • Increased revenue and income 3x
    • Increased its Market Cap 2x (to more than $5 billion)
    • Aggressively pursued acquisitions (acquiring SAP consultancy AXON Group for $685 million in 2008 in the largest tech services M&A deal ever)
    • Increased customer satisfaction by 50% and become #1 in Employee Satisfaction by Hewitt Associates
    • Been named by Fortune as having the, “World’s Most Modern Management,” and BusinessWeek and as “one of five emerging Co’s to watch out for”

    Additionally, HCL is one among only five companies in the overall global technology sector (alongside Apple, Google, Lenovo and Cognizant) to achieve 5-year revenue compound annual growth rate (CAGR) of more than 30% and revenues exceeded $2 billion in the last financial year. During the recession (2008-2009), HCL grew 21% YoY and most of its competitors saw revenues shrink or de-grew.

  2. From BVC
    Through new and deeper dialogue, we involved everyone in a new way to work and connect throughout the whole company. Silos were replaced with teamwork & transparency. The minutes of weekly management meetings and the figures from the monthly finance meetings are published for everyone to see and staff members are often invited to be full participants in the meetings.

    At our summer retreat in 2010, we asked all employees to spend three days in a scenario based workshop to co-create our new strategy. We hired a world leader in scenario-based strategy development and everyone had a voice. It was engaging, challenging and fun. There was laughter, tears, breakdowns and breakthroughs. What emerged was a clear strategy for the next 20 years. A strategy that flowed from the vision and mission, a strategy that every single employee had brought to life. This was a turning point for the company. All aspects of product development, customer care, investment strategy and internal culture are open for input by all.

    Numbers
    Cultural Entropy (an indicator we use to show the perceived dysfunction in a culture)
    2010 9%, 2011 14%, 2012 3%.
    Average order value 2009 $3400 2011 $9300
    Number of trained consultants 2007-1368 2011 – 3500

    Our revenues and profits have increased but that is not the full story. We see money as a means to an end rather than the end itself. From a financial standpoint, we have been practicing the economics of enough. That means we want to earn enough money to pay fair wages and continually reinvest in the development of our people, products and services and at the same time keep our prices low so that this work is made available to as many organisations as possible.

  3. From Dyn:

    In a democratic workplace, everyone cares about the bottom line because everyone has a stake in the game. In government, you care because you have to pay. At Dyn, you care because you get to share in the success. When people share in governing what the company brings in and what it spends on, all the incentives get better aligned. When everyone feels invested in the success of the company, people think twice before upgrading their ticket or being careless with money. Employees are motivated to figure out how to do more with less.

    The fruits of this policy are evident in our recent success. In the last year, we have increased yearly revenue from $10 million to $17 million, opened offices on the West Coast and in Europe, moved into a new 25,000 square foot corporate headquarters and increased employees from 50 to more than 125.

  4. From DreamHost
    The internet industry can be a tough place. On average, employees will stay with a company for 2 years. At DreamHost we have a number of employees who have been with us for a decade, and still more who’ve been here for at least five years. Our company culture has resulted in very little turn-over. Even though we provide vacation, sick and emergency hours for employees, the flexibility of our workplace results in less than 10% utilization of these hours company wide. We don’t necessarily measure the bottom-line numbers per se, but we do know that our environment leads to productive employees who take ownership in their workplace and job responsibilities.

  5. Tickled Media in Singapore:
    Tickled Media’s democratic practices have made its employees happier; they want to come to work and they take ownership for what they do. This has boosted our productivity tremendously. We noticed that in the past, a few employees had taken to calling in sick because coming to work was a drag. However, Tickled Media’s new, democratic style of doing things has made this a thing of the past.

    Tickled Media also believes in being transparent in everything it does, e.g the amount of sales it makes. Financial records and sales figures are accessible to all employees, including interns. From day one, Tickled Media has been a profitable company. Upon moving to a democratic system in our second year, revenues spiked by 800%. Now into our third year, the company continues to expand by an astounding rate. These numbers reflect stellar improvements in both our top and bottom lines and all relevant performance numbers have been made completely transparent to the team. We feel this is an ideal way to empower each individual in the team with ownership. There is a psychological element at play – a happy and productive team member is likely to contribute positively and in turn, upon seeing the fruits of labor through favourable revenue numbers, he or she will be encouraged to do even better.

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