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Kevin & Jackie Freiberg

Semco—Insanity That Works

Gutsy leaders know that inspiring employees to assume ownership and responsibility is a way of saying, “I trust you, I believe in you, and you are an integral part of this company’s success.” When you walk into organizations where employees don’t have a sense of ownership, you find a psychological wall between those individuals and the company. This atmosphere is precisely what Dilbert represents — the soulless world of corporate cubicles in which people show up, do the minimum, assume no responsibility, avoid the landmines, and collect a paycheck. It’s a waste for the individual, who is locked in an unfulfilling cycle of mediocrity, and it’s a waste for the organization, which fails to capitalize on the gifts and talents of people who are capable of far more than they are achieving.

A Corporate Rebel

ricardoLet us introduce you to Ricardo Semler, a Brazilian who redefines “business as usual” by encouraging people to stretch beyond their self-imposed limits. Surrounding himself with great talent and staying out of their way, this corporate rebel is doing what mild mannered, conforming types say can’t be done. His Brazilian company, Semco, has become world famous for real-world business practices that many observers find “insane” until they see that they work.

Ask someone at Semco “who’s in charge?” and the most likely response will be “no one.” Semler promotes ownership by radically giving up control.

The company was founded in 1952 by Semler’s father, Antonio, and specialized in manufacturing marine pumps. Ricardo took over in 1980 at the age of 21, his head brimming with radical ideas about how businesses should operate. Within a few days, he dismissed 75 percent of the senior executives and began putting his ideas into practice.

Go With Your Gut

A man after our own hearts, Semler urges employees to “go with your guts” in their decision-making. That has led to a company with a bewildering number of disparate elements. Among other things, it makes industrial machinery such as mixers for pharmaceutical and candy companies, builds cooling towers, runs office buildings’ data centers, provides consulting services on environmental issues, creates software for Internet applications, and manages human-resources activities for major companies.

According to Semler, his various operations have three things in common. They’re complex enough to discourage new competitors from jumping in; their quality and price are on the high end; and they occupy a unique niche in their markets.

They have done well for Semler, racking up an annual growth rate of 24 percent over the last decade and 2002 revenues of $160 million, up from $4 million when he took over, all this despite Brazil’s rough economy (four currency devaluations, record unemployment, and hyperinflation). An investment of $100,000 in this convention-busting company 20 years ago would have an approximate value of $5 million today.

It’s All About Performance and Accountability

Semco has no job titles, no organizational charts, and no headquarters. If you need an office, you go online and reserve space at one of the few satellite offices scattered around Sao Paulo. Semler said, “If you don’t even know where your people are, you can’t possibly keep an eye on them. All that’s left to judge is performance.” What’s gets judged at your company, visibility or performance?

Many workers, including factory workers, set their own schedules and their own salaries. They can also choose their own form of compensation based on 11 different options. What prevents associates from taking advantage of this freedom? First, all of the company’s financial information is public, so everyone knows what everyone else makes. People who pay themselves too much have to work with resentful colleagues. Not long ago union members argued that their pay increase was too high and would hurt profitability. Second, associates must reapply for their jobs every six months. Pay yourself unfairly, and you could soon be looking for a new job. Finally, employee compensation is tied directly to the company’s profits — there is enormous peer pressure to keep budgets in line.

Employees are encouraged to regularly take off half a day in the middle of the week. They lose 10 percent of their salary, but Semler believes that they should use that time for active pursuits when their bodies can handle it. He also feels that it is stupid to force people into retirement at their intellectual peak.

Workers choose their managers and evaluate them twice a year. The results are publicly posted. Meetings are voluntary; if no one shows up, it means that the topic to be discussed must be untimely or unimportant. At every board meeting, two seats are reserved for employees on a first-come, first-served basis.

Semco has no receptionists, secretaries, or personal assistants. All employees, including Semler, greet their own guests, get their own coffee, write and send their own correspondence, and make their own copies.

Semler, who, of course, has no title, has built a reputation for encouraging people to fearlessly ask “why.” Why do we have job titles? Why do we need a headquarters? (According to Semler, “It’s a source of control, discrimination, and power-mongering.”) Why shouldn’t employees have access to detailed financial information? Semler believes that challenging assumptions, rather than conforming to them, is the key to building an adaptive, creative organization.

The company has a policy of no policies. Instead, Semco offers employees a 21-page “Survival Manual” filled with cartoons and brief declarations designed to help assimilate people into its culture. Here are a few examples:

Organization Chart

“Semco doesn’t use a formal organization chart. Only the respect of the led creates a leader. When it is absolutely necessary to sketch the structure of some part of the company, we always do it in pencil, and dispense with it as soon as possible.”

Clothing and Appearance

“Neither has any importance at Semco. A person’s appearance is not a factor in hiring or promotion. Everyone knows what he or she likes or needs to wear. Feel at ease — wear only your common sense.”

Participation

“Our philosophy is built on participation and involvement. Don’t settle down. Give opinions, seek opportunities and advancement, always say what you think. Don’t just be one more person in the company.”

If all this sounds like a recipe for chaos and anarchy, consider this—Semco’s products are so good and its customer service so efficient that 80 percent of its yearly revenues come from repeat customers. Over the last decade, the company’s sales increased by 600 percent and profitability by 500 percent. Equally impressive, with a current backlog of more than 2,000 job applications, Semco has had less than 1 percent turnover among its 3,000 employees in the last 6 years.

As with Whole Foods (Whole Foods — A Disciplined Democracy), employees at Semco can’t help but think and act like owners of the company. When no one’s in charge, everyone is responsible — for acting in the team’s best interest, for providing the kind of product and service experience customers demand, and for growing the business. And everyone is accountable for the results.