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.

A pioneering new local economy for Brighton

This week sees the launch of my new project – a pioneering new vision for the local economy in Brighton. We’re calling it The Brightoneers – a hat-tip to the Rochdale Pioneers who founded the modern co-operative movement.

The Brightoneers isn’t just about co-operatives. It’s about the purpose of the local economy. It’s a project to use business to improve the wellbeing of all of society. That means giving us the opportunity to be happier, healthier, wiser, safer and have better relationships. Our intention is to build a highly collaborative and supportive network of local businesses that work both independently and together towards this aim. As we achieve this in Brighton, we want to create a model that other cities in the UK and the rest of the world can replicate, to increase the wellbeing of people everywhere.

You can check out the vision for The Brightoneers on the website and keep in touch through the meet-up group. We’re having a free launch party and networking event which you’re also invited to. Finally, if you’d like to get involved, please get in touch.

The state we’re in and the call for a new economy

I’m at the Imagine 2012 conference on cooperative economics in Quebec City. Here are some thoughts after the first full day. It’s a pretty frightening picture, folks. But there is hope.

The industrial age economy, and indeed the neoclassical model of economics underpinning it has reached the end of its useful life. Whilst it helped lift many millions out of poverty, we are now seeing greater inequality between rich and poor countries and even between rich and poor people within countries. A model of business based on maximising shareholder value in a world where only a tiny proportion of people are shareholders will only cause rising inequality. This is not just bad news for the poor. In unequal societies, the rich suffer from many more social problems than in more equal ones.

GDP growth brings about improvements to wellbeing, but only up to a point before tailing off and in many cases declining (for example, increasing obesity and mental illness in the United States.) Research by Manfred Max Neef suggests that this tailing off happened around the 1970’s or 80’s for most developed nations.

The economy is a sub-system of planet earth – an inherently closed, finite system, therefore the economy cannot keep growing indefinitely within it. This can be easily explained to young children. Yet this inconvenient truth is ignored by all large political parties who argue about whether growth needs investment or austerity, and we still have an economy based on ever-increasing, unsustainable consumption. There are about 1.8 hectares of workable land to support each human being on the planet. In rich countries like the US, the use is in excess of 4 hectares and growing. Not to mention the hundreds of millions of people in the newly developing middle classes in India, China, Brazil and others who are now joining the consumer party.

The key message is that we have to move away from a fixation on growth (getting bigger at any cost) and towards development – becoming happier, healthier, wiser, safer and with better relationships.

This is not a call for left-wing politics. Far from it. Socialism and industrial age capitalism have both failed. Capitalism, for all of its fundamental shortcomings is the best way humans have come up with to organise ourselves to produce the things we need. But we need a very different capitalism.

The cooperative movement – businesses based on ownership of members (be that customers, employees or other stakeholders in the community) offer an alternative to maximising shareholder value. Instead, they use capitalism to maximise social outcomes – in other words, the things that really matter to humans and the planet now and for future generations. This is the concept of development rather than growth in action.

This view of capitalism is remarkably well established. Cooperatives world-wide have 1BN members and the largest three manage assets in excess of 1.6TN (and guess what, they have been extremely resilient through the recent economic turmoil because they did not engage in the insane activities like shareholder-owned banks.) It’s extremely worrying that despite the size of the cooperative movement and the promise it holds in playing a part in a development rather than growth based new economy, there is no representation of the cooperative movement on the B20 – the business forum that advises the G20. Business as usual, the old model is there in abundance.

We have an economy and consumption that cannot grow indefinitely. We are close to irreversible climate change together with huge natural resource depletion and energy shortages. We have to act now to protect the planet for future generations, and we need to start by creating a new economy, and fast before it is too late.

Capitalism AND socialism are failures but we can do better

Capitalism is a failure. Politicians obsess over the need for ‘growth,’ yet continual growth of debt-fuelled consumption on a finite plant is unsustainable, and having more money doesn’t make us happier after a while anyway. Ordinary people will be paying back the debt created by the bank bailouts for decades, while the rich who caused the mess keep their fat bonuses, yet continue to behave disgracefully. Inequality is on the increase in capitalist countries which is bad for everyone, even the rich.

It’s no wonder that Marxism is making a come-back. But as far as I’m aware, despite The Communist Manifesto being the second most-sold book of all time after the bible, there are exactly zero examples of Marxism being successfully implemented. If it hasn’t happened in 164 years then I can’t see it happening in the future.

We need an end to the capitalism Vs. socialism debate and face the fact that both have some good ideas but neither has worked over the long-term to deliver the thing that really matters: The long-term wellbeing and happiness of all humans on the planet.

My suggestion is that we need to take the best of capitalism and socialism and add a healthy dose of radicalism to build a better system. I’m not talking about a pathetic half-baked compromise of slightly left-leaning politics, but a reinvented system.

The starting point of socialism is sound: Creating fair societies with more equality and more power to people who go to work and create value for the rest of society. But that’s as far as I’d go with it. Giant, controlling states with monolithic nationalised industries aren’t the only way to achieve this goal.

Capitalism and markets seem to be the most efficient and dynamic way to organise people to make things happen, and the freedom to start your own ventures outside of the state I believe is a basic right. But we need to fix the fundamental flaws in the system. We need to recognise that money is just one form of capital and that human, social and environmental capital also need to be grown in balance with this. And we also need to fix the status quo of ownership, changing the norm so that employees are the owners of democratic businesses.

Now is the time for us to leave the old, failed concepts of capitalism AND socialism behind and rebuild.

Innovating business ownership models

Something I like doing for fun is sketching pie charts of ownership models for businesses. Yes, I am a business geek!

In the standard model today, the ownership of a business is something separate from its operations. The role of investor/owner doesn’t necessitate any involvement in actually running a company or delivering any value for its stakeholders. Owners have a right to appoint the directors and have the right to all of its profits. As I’ve written about before, this doesn’t do much to create fair and happy societies but as an entrepreneur, I am excited about how we can evolve new business ownership models. The goal is to engage more stakeholders to create better businesses that innovate more; provide better service and more value to customers; create better jobs; deliver more value to society as well as outperform traditional businesses in financial terms. I think we can do much better than today’s status quo.

Most of the pie charts I’ve been sketching are for new start-up businesses and combine three types of owners:

1. Private investors: This group is fairly traditional, but there’s no doubt that private investors can provide the capital necessary to get new ventures off the ground, especially in today’s market where lending to start-ups is difficult. However I see two key changes to the norm. Firstly, a commitment from investors to ALL of the outcomes of the enterprise (in terms of human, social and environmental capital, as well as financial returns.) And secondly, a commitment to eventually sell their stakes to the following two groups of owners, once they have accumulated a fair return for their investment and risk. On the surface this may look like sacrifices compared to investment purely for capital gain, but I believe that businesses with these more innovative ownership models will outperform traditional businesses, more than making up for the restrictions places on private investors.

2. Employee-owned trusts: Giving the employees a meaningful stake in the business from day one sends a powerful message that they are not working for someone else’s benefit, but they are true owners, partners and stakeholders in the venture. This changes the mindset of an employee who will see it as their business. This increases motivation and productivity. I reckon 30% is about right, to leave enough room for other investors.

3. Crowdfunding: There is a huge amount of innovation going on right now around sourcing finance in small chunks from large groups of people. Popular platforms like Kickstarter are helping new ventures to raise anything from hundreds to millions of dollars from future customers, friends, family and supporters. I think there’s something particularly powerful about having customers as part owners in a business. Imagine a customer in a restaurant who has bought a very small stake in the business. Perhaps they don’t have a great experience there one day, but instead of feeling like an annoyed customer, they feel like a disappointed owner. Very different mindset that wants to focus on making sure the problem is fixed for next time.

Putting it all together

Say a new company is founded with an initial £50,000 of capital from private investors. These shareholders own 50% of the company, valuing it at £100,000.

Next, an employee-owned trust is set up. This is a separate legal entity from the company and it owns 30% of the shares, including all voting and other shareholder rights. Employees can elect board members, giving them real power and influence right from the start. A very powerful way to attract and motivate employees.

A second trust is set up (I call this a Community Trust) which owns the remaining 20% of the shares. These shares are purchased by way of a loan from the company, so the Community Trust initially owes the company £20,000. The Community Trust then sells a limited number of memberships, say 500 at £40. This may take a few years, or it could use a platform like Kickstarter to sell the memberships before the company launches. This repays the loan and adds capital to the business as well as building a loyal base of fans. Once the memberships are sold out, the members can elect their own board member and receive ‘dividends’ – a share of the company’s profits in the form of vouchers that can be spent there.

From the outset, the private investors agree that they can only sell their shares to either the employees or the Community Trust. This aligns their interests with those of the other stakeholders.

The obvious objection to a model like this is that the traditional investors on the face of it appear to be giving up a lot of equity and control. Yes, they hold a smaller slice of the pie, but the pie could grow much larger with an engaged base of fans and motivated employees. Plus they have a new route to liquidity for their own investment, by selling their shares over time to the Community Trust (which creates new memberships at a higher valuation) or the employee-owned trust (which pays for the shares out of future profits.) I believe that it will also form a much stronger base of power in the company, with representation from employees and customers, sharing the ups and downs with everyone involved. Finally, for entrepreneurs and investors who want to do something more special for the world than just make some money it creates an opportunity to build a legacy that lasts beyond their personal involvement.

Building a better economy with more employee ownership

Iain Hasdell, Chief Executive of the Employee Ownership Association has written an excellent call to action for government to facilitate building a better economy with more employee ownership.

In the UK and most of the rest of the advanced world economies we are dominated by publicly traded companies which don’t lead to a fair distribution of wealth. Hasdell writes that 50% of the people in the UK own 1% of the wealth, with the wealthiest 20% owning a huge 84% of the wealth. This isn’t just bad news for people outside of the wealthiest brackets. Other studies have indicated that more equal societies have a higher quality of living for everyone, including the richest. So this isn’t about taking from the rich and giving to the poor – all of society would benefit.

The disconnect between ownership and doing the actual work also creates unhelpful and distracting tensions such as pressure to please analysts and deliver quarterly results rather than building an environment for the long-term that brings the best out in employees and delivers value to customers and society. Employee owned companies are free to do the opposite.

Not only would an economy based on more employee ownership be fairer for the masses who actually do the work, but based on the evidence from employee owned companies today, they are likely to outperform traditionally owned rivals though higher employee engagement, motivation and innovation. This presents a new opportunity for growth at a time when our current capitalist system is failing miserably.

So what can we do about this?

Hasdell wants government to remove red tape and tax disincentives that currently hamper wider employee ownership and also take an active role in educating the business community about the potential of employee ownership. This really rings true for me as someone who has started a business. At various times we considered selling the business, but never even considered selling it to the employees as an option purely through our own ignorance of this being an option, and when we eventually did look into it, the process was off-putting (although not impossible, and I still hope the business will eventually become employee-owned.)

I know that there are many entrepreneurs and other business owners who want to realise some value for their investment, risk and hard work in building their businesses. I also know that many of these people fear the implications of ‘selling out’ – the impact on the employees and fear of the fate of their ‘baby’ falling into the hands of new owners who care only about financial return on investment. I urge these people to consider selling the company to the employees instead. There’s help available from consultants like Baxi Partnership to explore this option and help you through the process.

If you are an employee working for owner-managers, then why not plant the seed about employee ownership? There’s a good chance that they will have never even considered it, but it could open their eyes to a way to realise some value for themselves whilst leaving a real legacy for the employees who helped them to build the company.

The 4 most important things I have learnt about the future of business

Here are the big lessons I have learnt from the four books that have been most influential to me in my career in business.

1. Being nice is the best approach to business.

I began my business career with a hang-up that business is a selfish game and that success has to be at the expense or failure of someone else. I believed that people who had succeeded in business had all done so by trampling on others on their way up. I don’t know where this belief came from and I feel kinda embarrassed about it now, but it wasn’t until I read Stephen Covey’s 7 Habits of Highly Effective People back in 2002 that I finally got it. Being nice pays. This book spawned so many business clichés like ‘WIN/WIN‘ and ‘Synergize‘ but a cliché is only a cliché when it has been so over-used that it loses its original meaning, and this book looks deeply at what it means to be a good and principled person. It’s as relevant today as it was when it was first published in 1989. Sounds quaint? Perhaps when a company like Google has a guiding principle of ‘You can make money without being evil’ then perhaps this is still a lesson that many in business still need to learn.

2. Giving power to the people is the ultimate business strategy.

In 2003 when Will left a print-out of this article from Inc magazine on my desk with the words ‘Fucking amazing – READ THIS’ emblazoned on it, I was about to discover the concept of organisational democracy – giving power and freedom to the people in a company instead of controlling them from the top-down. It wasn’t long before we both read Ricardo Semler’s book Maverick – a story about changing Semco, a medium-sized command-and-control company into a large, democratic powerhouse. We implemented many ideas from Semco as we built NixonMcInnes like having open seats for ordinary employees to attend board meetings, voting on company decisions and open book accounting so there are no secrets around anything money-related. Fast forward a decade and organisational democracy is still generally seen as quite extreme, yet more companies are finding democracy is the key to unlocking the potential of their people to drive the entire business forward.

3. The current capitalist system is fundamentally unfit for purpose and doomed. But there is a better way.

In the mid-naughties, I began following economist Umair Haque’s blog. What I will always remember from this time were his posts about the coming economic crisis. He called it the Macropalypse – the collapse of the global macroeconomic system. This was way before mainstream media and most politicians picked up on the crisis and in fact many didn’t see what was inevitable until it actually happened in late 2008. Haque still argues today that the crisis was systemic, not just cyclical and that we have not fixed the underlying causes of failure, merely propped up our failing institutions and systems through enormous debt provided by ordinary people. His thinking is laid out in his book The New Capitalist Manifesto which not only explains the causes of the problem, but sets out a wonderful and optimistic future of a better and sustainable capitalist system, using examples from large companies today like Walmart and Nike who have a very long way to go, but are starting to work towards this future in exciting new ways.

4. Employee ownership is the logical conclusion of democratic business.

When I read David Erdal’s Beyond the Corporation recently I had a sudden realisation that most democratic companies, whilst giving a lot of freedom and power to their people, are actually benevolent dictatorships. This is because the people’s freedom and power is not enshrined as enduring, inalienable rights, as they might be in a country with a democratic constitution. This means that the owners of a business still hold all of the ultimate power and can change the rules of the game on a whim, or sell out to new owners who can revoke their rights. The current situation is deeply engrained in our current economic system where there are business owners who have all of the rights and control, and then employees who are merely rented like machinery in return for a salary, with very few rights. Most of us accept this as ‘the way things are’ but there is no reason why the current system must endure forever, and with employee-owned businesses like John Lewis, Arup, Carl Zeiss and the Mondragon Network offering evidence of the power and success of employee-ownership I believe that this is the future of mainstream business. In fact I have a hunch that it could be a sweetspot between the socialist ideals of a very fair society with workers ‘controlling the means of production’ and capitalism’s promise of innovative, free trade without the need for a large clunky state.

So that’s my list. What are the books that have given you your big lessons in business?