Today’s business organization is an oligarchy, and that needs to change
By: Stowe Boyd
Tags: Innovation, Organizational Culture, Strategy

Politically, the Western world has adopted the premise that governance should be democratic: that the legitimacy of any government — or political organization — relies on the adoption of democratic principles, and foremost among them voting equality (‘one person, one vote’) and the consent of the governed.

But the way that businesses operate is largely non-democratic. Businesses are private interests, owned by the shareholders or proprietors, and are only subject to the laws governing their behavior and their obligations to the city, region, or nation in which they operate. In this way, businesses resemble the monarchies that preceded the rise of the industrial era, or perhaps the earliest sorts of constitutional monarchies where the monarch played a powerful executive role, with powers limited by a constitution or conventions. Not an absolute monarchy in which the monarch is subject to no external power, but far short of the modern notions of democracy.

Over the centuries since the industrial revolution, increasingly democratic nations have created regulatory and legislative burdens on companies in the public interest, such as child labor laws, workplace safety requirements, the minimum wage, and union rights, to name only a few. These, and provisions related to the sale of stock for public companies, represent the checks on the conduct of business and the relationship of the executives of a business to the employees. In essence, we are living in modern democracies, but when passing through the door of our workplaces we step back into a constitutional monarchy much like those of the 1700s.

A monarchy is a form of oligarchy: a power structure where power rests in the hands of a small number of people. This is true of almost all companies. Long-established or very larger firms are run by an executive elite who are beholden only to the shareholders or owners of the business. Start-ups and younger companies — even those created in just the past few years — are run by their founders and owners, in a similar, but perhaps more measured way.

The social psychologist Karl Weick suggested that the way we think about organizations are an abstraction of reality, largely given life by management’s narrative. This is Weick’s theory of enactment: that an organization is a social construct, enabled by the ways in which all of the members relate to each other. And, returning to my argument, enabled by the way the structure of power is manifested through those relationships.

The narrative of business management often leads back to the mythos surrounding visionaries like Henry Ford, Steve Jobs, and Jeff Bezos, who created world-beating and hugely disruptive companies, and whose direct involvement in almost every aspect of their business is legend. However, the narrative often leaves out what happens when the visionary passes away, and lesser mortals find they can’t fill those shoes.

Nonetheless, the deeper narrative about business management today in general is not about visionaries, but about efficiencies. The established model makes as its starting point the claim that it is more efficient to run a business with an an elite making most of the decisions and the rest of the firm led by the elite, and — by consensus — adopting the principles, biases, and operational directions of the elite. This is the source of legitimacy in the narrative: it’s not democratic, but at least the trains run on time.

The problem is this: in the economic era we have slipped into in the past decade, this form of organization is too slow and tight to stay ahead of market disruption and accelerated competition. Today’s oligarchic business lacks speed, agility, and resilience

I have written a great deal about the 3C model, a psychodynamic model of organizations (see The future of work in a social world: part 1 and part 2, for example). Here’s the model:

The short version:

The oldest form of organizational psychology is Competitive . That’s the most feudal internally. Power is used coercively by the ‘king’ executive and his elite, and others do what they are told or else. The structure is top-down command-and-control: a strict hierarchy.

. That’s the most feudal internally. Power is used coercively by the ‘king’ executive and his elite, and others do what they are told or else. Today’s corporate model is the Collaborative: the executive elite drive strategy and operations, but engage in an on-going and extensive process of consensus building as a central part of the narrative of enactment. The structure is a flattened, matrixed hierarchy with a great deal of lateral interaction of the members, and increased level of involvement and power-sharing between formal and informal leaders. And some or all of the employees have the option to own shares in the company, although in most cases that ownership is more of a benefit rather than as having a ‘one person, one vote’ involvement in the company.

The structure is a flattened, matrixed hierarchy with a great deal of lateral interaction of the members, and increased level of involvement and power-sharing between formal and informal leaders. And some or all of the employees have the option to own shares in the company, although in most cases that ownership is more of a benefit rather than as having a ‘one person, one vote’ involvement in the company. The emerging corporate model is Cooperative: the company is a non-hierarchical network, where a constitution defines the rights and responsibilities in a relational model, and influence is social. All members are ‘owners’, in some degree, of the work being done, and this confers authority differentially, and not directly because of legal ownership. Most critically, each individual and team operates on the premise that they ‘own’ their own work, and that others have only indirect influence on the processes and practices applied. The power structure is decentralized, and a laissez-faire model prevails, since people work in voluntary associations, largely autonomously.

A useful characterization of the cooperative business is fast-and-loose: a cooperative business is more agile because the strongest ties of earlier organizational models — those between the supervised and the supervisor — are broken, and supervision is replaced by circumvision: the peer influence and review of work.

From another viewpoint, we might characterize this shift to the cooperative business as a stepwise transition from an early parliamentary democracy with the executive monarch acting at head of state, and where citizens were first-and-foremost subjects to the crown, and only secondarily members of the electorate.

The cooperative business is a direct democracy of a sort. Direct democracy is where those that are subject to political decisions directly vote on them, and ‘one person, one vote’ prevails.

It might be better to jump to the hyperdemocracy that is intimated by hyperlean organizational models (see The New Visionaries: Kris Gale), in which the people that do the work plan it, execute it, and then rate their performance.

Most importantly, hyperdemocracy is predicated on modern social tools as the foundation of effective application of direct democratic principles. Maximizing the influence of those closest to the issue on how the issue should be handled, subject to generally agreed-upon principles (as embodied in doctrine, and constitution, and other narrative objects that capture agreed-upon values and express a new deep culture for business).

We need to start the narrative about hyperdemocracy and the cooperative model of organization. It could not have happened before: we didn’t have the tools or the new narrative that is unfolding in the development organizations of the most technically advanced software teams, like Yammer, Asana, Medium, Valve, Amazon, and the like.

The narrative will pivot on a different ethos. There is still room for visionaries, as much as before. There will still be founders, and leaders, and owners. But in order to be fast-and-loose the notion of direct supervision — and the strong ties involved — must be diffused. Increasingly, high-performing staff will demand greater autonomy, and not for selfish reasons, but to get things done quickly. Companies will create, find, and retain top performers, and create the context for high performance. As before, the narrative will be legitimacy of the organizational structure by efficiency, but a much greater degree of democracy will be involved since all work participants will voluntarily select the work to be done and who to work with, rather than being told.

This is the cooperative way of work. The final transition away from our distant feudal past, and the explicit rejection of the executive monarchy that underlies today’s collaborative company credo. And it is driven by the same desire for greater productivity that has driven the various stages of the industrial era and right up to the present, post-industrial, postnormal era.

Since this change is happening so fast — within a decade or so — there is too much at stake for businesses that are moving in this direction to expect people to understand the new rules of engagement tacitly. Soaking this up osmotically is possible, but I think the example of Valve’s new hire handbook is a good one.

Today, all companies need a constitution. No company should operate on implicit cultural rules that are based in a shadowy way on oligarchic myths. Even if the elite continue to make all major decisions based on building ‘consensus’ — which at its worst is engineered groupthink, and at its best is inefficient and demotivating — the rights and responsibilities of all involved should be spelled out, and the few should garner the consent of the many to establish legitimacy, at the very least.

The best course might be to make a break with the past, and move to a new charter, based on the narrative of greater efficiency and productivity from all work participants, built on fast-and-loose operations in a cooperative organization. It won’t be easy, and it may involve a stepwise transition, but don’t take too long: there is a reason that the halflife of business has dropped 50% in the past 20 years.