Networks and employee ownership: The future of the corporation

I believe that the draw towards democracy in organisations will prove to be just as irresistible as the draw to freedom and democracy in dictator-led countries. Like an Arab Spring at work. Why? Because I believe that humans have a fundamental desire to be set free. Freedom unlocks our potential making individuals happier and organisations perform better.

On the Worldblu list every year there are examples of how leading companies implement democracy, and I have shared a few crazy town ideas for taking it even further. But aside from the individual democratic systems and processes, what will the organisations themselves look like?

I think that the evolution of organisational democracy will lead to two super-species which will dominate the business world.

The first type of organisation, which I touched on previously, doesn’t even have a single entity. It will be a loose connection of individuals – a network – that creates connections and works together on projects. In a network there is no hierarchy, but you still have very clear roles, responsibilities and accountability in order to get a job done. These networks will make heavy use of technology. For example LinkedIn to find new connections and keep your network of collaborators alive; Etsy.com to organise the means of production; group collaboration tools like podio.com to communicate and manage the work; and telepresence to help alleviate the need for physical proximity.

The advantages of networks are enormous. You can put together the very best team for each project, instead of being forced to use the team that you happen to employ – a dream team for each and every assignment. They can also be highly efficient too because you don’t have a huge amount of company overhead – both financial and bureaucratic getting in the way of the actual work.

For individuals, they can have the ultimate personal freedom of deciding what they work on and taking breaks between projects whenever they like. Rewards are much more directly shared, with everyone on the team benefiting directly from their work. Performance is reviewed by peers not by a boss and success will speak for itself: Do a good job and you will be more sought after for future projects. You will be able to pick and choose the most interesting projects to work on, and your rewards will increase. No political struggles for a promotion or a pay rise. The ultimate meritocracy.

In the future I think we will be surprised at the size and scope of what informal networks, outside of traditional corporate structures are able to achieve.

But what about businesses that require more capital investment such as expensive machinery, and where the work is more ongoing rather than project based? Networks my not be ideally suited in these cases (although I wouldn’t rule out what a smart group of networked individuals might be able to pull off.) I do think though that networks won’t completely replace larger corporations altogether, but these corporations might look radically different to the ones we see today.

I believe that the future of the corporation is employee ownership. It’s not a new idea, and it’s one that has already proven to be a more productive, innovative, faster moving vehicle for long-term success. For example, see John Lewis (most successful retailer in the UK), consultants Arup (leading engineers of projects like the Bird’s Nest stadium in Beijing) or supermarket chain Publix (winner of the best customer service award in the US every year since 1995.)

Despite their undoubted success, when it comes to large companies, the employee owned variety are still a very small minority in an economy dominated by large publicly listed companies. I believe it’s inevitable that this will change – the free market will force the issue.

Employee-owned companies perform better because unlike listed companies there is no pressure for short-term financial results from the markets at the expense of building long-term value. Shareholder interests are not put before employees because they’re one and the same. It’s hard to have a more engaged workforce than one that actually owns the business, and that leads to high productivity, faster innovation, better products and services and happy customers. All of this leads to better performance in traditional terms like profit and capital gain.

Employee ownership is rarely considered as an exit option for entrepreneurs starting businesses who usually opt for a trade sale or IPO but I believe this will change over time. Many economists and business advisors still shun employee ownership based on incorrect assertions in the face of the evidence. It’s hard, although not impossible right now to fund employee buy-outs (we looked into it at NixonMcInnes.) I believe that this will change as faith in public companies and the stock market declines and employee-owned companies continue to thrive.

Within employee-owned companies, the structure will look very different to traditional corporations. Power is completely subverted with the most senior executives accountable to the employees instead of external shareholders and analysts who pass power down via the directors and managers.

We may also see organisations that internally look and function more like the loose networked model. They have all of the freedoms to self organise, but the resources of a larger corporation to call upon. Just look at software company Valve who already work in this way and are enjoying enormous success.

I believe that we are set to see a bright future as the short-term profit dominated world is gradually replaced by work with people at its centre.

More on employee ownership in my next post.