Cooperatives need bottom-up thinking

I’m at the early stages of working on an idea to see many more cooperative businesses in Brighton. I’m at the International Summit of Coops in Quebec to learn more and make some new connections in this area.

Coming from the traditional private ownership business world – even though I have long been a fan of democratic business – I’ve realised how I naturally gravitate towards top-down thinking. People smarter than me keep correcting me and getting me to think bottom-up. Here are two examples:

1) Thinking about how to go about building a network of cooperatives (like the enormously successful Mondragón in Spain) I thought I needed to put together a group of people to work on a constitution, then recruit or set up coops to join the group. Classic top-downness. I did have a nagging doubt about the approach – it felt like I was creating a bureaucracy. Actually, the best way to do it is to start with people: The needs of the people in the local community and with people in existing and potential new coops. Once you are fully engaged with the people involved you can start setting up a network from the bottom, with one coop, linking to the next one and so on, and eventually build whatever group structure might be needed.

2) Ownership & Finance. I’ve mused about innovating business ownership models before – how you can structure ownership of a business in a combination of employee, customer, community and private ownership. In top-down fashion, I’ve been trying to figure out the most optimal model which could then be applied to coops in Brighton. Again, the far better approach is to accept that there’s a lot of flexibility and many possibilities and to work with the people involved to find the best route as needed. For example, more capital intensive businesses like manufacturers may require more private investment; those in service sectors could be more employee-owned; and those selling to consumers may benefit from greater customer and community membership.

I’m sure there are many more examples of where bottom-up thinking will provide a better approach, and although cooperatives may formally delegate power for some centralised decision-making which at times may be more effective, I’m going to make it a rule to make bottom-up my default approach.

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.