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MAVERICKThe Success Story Behind the

World’s Most Unusual Workplace

RICARDO SEMLER

MAIN IDEA

The heart of the Semco philosophy is:1. Every company should trust its destiny to its employees.2. Employees should be treated like responsible adults rather than like children who have to have everything spelled out for them.

In addition, Semco’s principles are:1. Throw away all rule books. They discourage flexibility and comfort the complacent. Encourage people to use their common sense.2. Employees work best and most productively in an environment in which they are self-governed and self-managed.3. Sharing information rather than making money is the reason for existence for a successful company.

Semco has managed to achieve two objectives that often conflict -- to make money and to improve the lives of the people who workfor it. And, significantly, Semco has developed a more humane, more trusting, more productive, more exhilarating and more rewardingplace to work.

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 2

1. COMPANY PHILOSOPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 3

1. Business Focus 2. The Use of Good Common Sense 3. Transparency

2. COMPANY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4

1. Corporate hierarchy2. Reduction of Support Staff3. Reverse Evaluations4. Optimum business unit size5. Management by wandering around

3. EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 5

1. Job security2. Job rotation3. Hepatitis leave4. Flextime5. Strikes

4. EMPLOYEE INCENTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6

1. Profit sharing2. Risk salary3. Salary surveys4. Self-set pay5. Training

5. DEMOCRACY IN THE WORKPLACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 7

1. Democratic system2. Factory committees3. Family silverware4. Manufacturing cells5. Satellite program6. Working at home

6. CONCEPTS AND IDEAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 8

1. Cleanout2. Corruption.3. Headline memo4. Lost in space5. Nucleus of technological innovation

Maverick - Page 1

INTRODUCTIONSEMCO and Ricardo Semler

Background

Semco (a contraction of Semler & Company) was formed inBrazil in 1952. The company’s founder was Antonio Curt Semler,an Austrian engineer drawn to Brazil by the commercialprospects such a vast, undeveloped country represented.

By the end of the 1960s, Semco employed 110 people and hadannual revenues of $2 million per year. With the birth of theshipbuilding industry in Brazil, Semco diversified into becominga major supplier of marine pumps.

The shipbuilding boom in Brazil, however, was over by 1980when Antonio Semler passed control of Semco over to his20-year old son, Ricardo. By this stage, Semco’s exposure tothe shipbuilding industry was very high, with more than90-percent of Semco’s business in marine products such aspumps, components for propellers and water-oil separators forship motors.

When Ricardo took over Semco, most of the first year was spenttrying to raise sufficient cash to keep the business afloat.Gradually, however, Ricardo started assembling a newmanagement team around him who were from outside theindustry and who were unafraid to try new ideas. To allow theseideas to take root, Ricardo Semler fired most of the managementthat had previously worked for Semco, and hit the road to try anddrum up some new business -- hoping to persuade somecompanies to let Semco manufacture pumps and mixers inBrazil under license.

In those days, the company competed aggressively forbusiness. When Alcoa built a vast aluminum mill in northernBrazil, Semco was ultimately able to land a contract to supplymixers for the manufacturing process.

By 1983, Semco had turned around and was starting to makemoney, and made its first acquisitions -- buying Flakt, theBrazilian subsidiary of the Asea Brown Boveri group andBaltimore Aircoil, a subsidiary of Merck Sharp and Dohme.

As Semco continued to grow through acquisitions, RicardoSemler started to develop a set of set of corporate principles thatimpacted on the corporate culture within the company. Hiscentral theme was that traditional companies were not organizedeffectively, and that the key to productivity was to create anatmosphere in which employees were treated like responsibleadults rather than like children where everything had to bespelled out. Ricardo Semler’s enthusiasm for this concept wasto launch him on a crusade that would eventually impact on everypart of Semco’s operations.

Before long, Semler launched a major campaign to rid Semcoof irrelevant rules and regulations. His philosophical basis wasthat rules:1. Diverted attention away from important matters.2. Provided a false sense of security for managers.3. Created unnecessary work for the bean counters.4. Taught men to stone dinosaurs and start fires with sticks.

In fact, Semler considered a desire for rules and the need forinnovation to be diametricly incompatible, and before long helaunched a major company initiative to completely reengineerSemco.

By 1988, Semco was the fastest growing company in Brazil.Sales had increased from $4 million in 1980 to $35 million in1988, while the company grew from 100 to 830 employees.

Semco was now number 1 or number 2 in every market in whichit competed. Even more impressive, the company is debt free.

In fact, the company has continued to grow almost as quickly asit’s corporate culture has continued to attract attention. By 1993:

Semco’s revenues had risen 600%, despite the fact Brazil wasin the middle of a sustained recession.

Worker productivity has risen 700%.

Profits have increased by 500%.

The company has a back-log of 2,000 people who would liketo become employees.

Executives from some of the biggest and best knowncompanies in the world make regular inspection tours toSemco’s head office to see what the company is doing.

Key Thoughts

‘‘No, Semco isn’t a model, with programs to be followed withprecision, so many recipes for participation, productivity andprofits. Semco is an invitation. I hope our story will cause othercompanies to reconsider themselves, and their employees. Toforget socialism, capitalism, just-in-time deliveries, salarysurveys and the rest of it, and to concentrate on buildingorganizations that accomplish that most difficult of all challenges:to make people look forward to coming to work in the morning.’’

-- Ricardo Semler

‘‘People often assume that at Semco we have strict selectionprocedures to ensure those who come to work for us arephilosophically attuned with our system. In fact, it’s the other wayaround. We look for competence, and ignore all else. Many ofour employees regularly question our concepts. There are evenpockets at Semco that are autocratic, and people who like towork in that kind of environment have slowly migrated there. Buthow can we lock out people who don’t think the same way wedo without becoming like people who say things like, "This is notthe way we do things around here".’’

-- Ricardo Semler

‘‘When I took over Semco from my father 12 years ago, it was atraditional company in every respect, with a pyramidal structureand a rule for every contingency. But today, our factory workerssometimes set their own production quotas and even come inon their own time to meet them, without prodding frommanagement or overtime pay. They help redesign the productsthey make and formulate the marketing plans. Their bosses, fortheir part, can run our business units with extraordinary freedom,determining business strategy without interference from the topbrass. They even set their own salaries, with no strings. Thenagain, everyone will know what they are, since all financialinformation at Semco is openly discussed. Indeed, our workershave unlimited access to our books (and we only keep one set).To show we are serious about this, Semco, with the labor unionsthat represent our workers, developed a course to teacheveryone, even messengers and cleaning people, to readbalance sheets and cash-flow statements. For truly bigdecisions, everyone at Semco gets a vote.’’

-- Ricardo Semler

Maverick - Page 2

1.COMPANY PHILOSOPHY

Main Idea

1. Business FocusAt Semco, everything focuses on the four business activitiesthat make the company money:1. Manufacturing2. Selling3. Billing4. CollectingAnything that isn’t directly associated with these fouractivities is deemed a distraction and is eliminated if at allpossible.

2. The Use of Good Common SenseThe abiding corporate principle at Semco is that employeesand management are expected to use their common sense.Therefore, there are no dress codes, no regulations on travel,no internal departments to check if employees are obeyingthe rules, etc.

3. TransparencySemco makes public all corporate information -- fromsalaries to strategies to productivity statistics and profitmargins. Employees are taught how to read financialstatements. Employees are free to question managers onany aspect of the business at any time. Employees can talkto the media whenever and wherever they like.

Supporting Ideas

1. Business Focus

Many companies seem to be shrines to managerial egosrather than narrowly focused on the sole reason for forminga company in the first place -- to make more money byworking together than the employees could make by workingindividually.

To avoid the tendency to award unnecessary perks andprivileges to the chosen few, Semco has no executive diningrooms, fancy office furniture or even designated parkingspaces. The company has also completely eliminated:- Secretaries- Receptionists- Personal assistantsas these are dead end jobs that don’t train employees withthe skills required to be able to provide more value to thecompany -- thereby earning a higher salary.

Everyone at Semco takes a turn working at the receptiondesk. Employees fetch their own guests from the receptionarea. In addition, every employee sends their own faxes,makes their own phone calls, does their own filing andphotocopying. The result? Less paperwork, less filing, lessbusy work and more direct communication betweenmanagers within the company.

2. The Use of Good Common Sense

Most rules in the work place are totally arbitrary -- they wereeither developed by insecure managers who liked the ideaof specifying how employees should act as it made them feelpowerful or by unions who were trying to gain control oversome aspect of their workers’ lives.

Companies that are unencumbered by traditional thinkingare looking for ways to make peace with employees andprovide opportunities for employees to interact with the

company. The solution? Do away with arbitrary rules andreplace them with committees of workers that decide what isand is not reasonable behavior in the work place.

Let the committees look after the interests of the workers.Reinforce the role of the committee members by giving thempaid time off work duties to serve on the committee. It’samazing how many good idea people will come up with whenthey finally start to realize they’re in charge and they canmake a meaningful contribution that is actually followedthrough on.

3. Transparency

If everyone in the company is to contribute meaningfully, theyhave to understand the financial aspects thoroughly andaccurately. The only way to do that is by sharing everythingwith them.

Most companies feel full disclosure will give competitors vitalinformation and cause trade secrets to become diluted ineffectiveness. In practice, however, the advantages ofopenness and accuracy far outweigh the potentialdisadvantages.

In addition to making the information available, employeeshave to be trained on how to interpret it. That will meanseminars, training courses and other forums at which theiranalytical skills can be developed. The result? Employeeswill be much better equipped to take an active role in makingmanagement decisions -- even the hard ones that impactdirectly on their own employment conditions.

Key Thoughts

‘‘We found that in an office without secretaries it paid to reflectbefore adding to the paperwork. We still make extra copies ifthere is a chance someone will feel left out. (By the way, whenwe distribute a memo, we always list everyone getting it inalphabetical order, to avoid silly guessing games aboutprestige). But generally, the fewer copies the better. And we thinkthree times before filing anything. Read it, understand it, act onit and throw it away -- that’s our motto now.’’

-- Ricardo Semler

‘‘We simply do not believe our employees have an interest incoming in late, leaving early and doing as little as possible for asmuch money as their union can wheedle out of us. After all, thesesame people raise their children, join the PTA, elect mayors,governors, senators and presidents. They are adults. At Semco,we treat them as adults. We trust them. We don’t make ouremployees ask permission to go to the bathroom, or havesecurity guards search them as they leave for the day. We getout of their way and let them do their jobs.’’

-- Ricardo Semler

‘‘The origins of corporate secrecy can be traced to the insecurityof executives who possessed the technical skills to scale thecorporate pyramid but weren’t mature enough to handle theheight. They wanted to be seen to be different from those whohad not attained their perch. By keeping their salaries secret,they felt they would keep themselves apart from others. Theproblem with secrets is that people just assume the worst,whether it’s about profit or salaries. The truth may not always bepretty, or easily explained, but it is always better out in the open.’’

-- Ricardo Semler

Maverick - Page 3

2.COMPANY MANAGEMENT

Main Idea

1. Corporate hierarchySemco’s management has been slashed from 12 layers tojust three. All employees have one of just four titles:Counselors -- who coordinate general policy and directionPartners -- who run business unitsCo-ordinators -- the first level of managementAssociates -- everyone else.

2. Reduction of Support StaffSemco has reduced its corporate staff by 75-percent,eliminating entire departments.

3. Reverse EvaluationsEvery 6-months, all Semco managers are evaluated by thepeople they manage using an anonymous multiple choicequestionnaire. And, before they are hired, managers mustbe approved by everyone who will work for them.

4. Optimum business unit sizeLarge organizations are inefficient. Whenever a Semcobusiness grows to more than 150 workers, it is split.

5. Management by wandering aroundSemco is designed to encourage people to mingle. Officesdon’t have walls, and every possible barrier to opencommunication is eliminated.

Supporting Ideas

1. Corporate hierarchy

Almost every corporation uses a pyramid structure. Semco,instead, uses this corporate structure:

2. Reduction of support staff

At Semco, employees take more responsibility for their ownactions. Therefore, there is no need to have legal,accounting, data processing, training, quality control ormarketing expertise available at head office. Thesecorporate positions can be eliminated entirely. Individualbusiness units then acquire whatever specialist services theyneed in these areas at a much lower cost.

The key lies in the fact that as workers exercise more controlover their jobs, there is a reduced need for supervisors. The

increases in efficiency far outweighs the loss in corporatemanpower.

3. Reverse Evaluations

Twice a year, Semco managers are evaluated through amultiple choice form which the employees fill outanonymously. The form has questions on technical ability,competence, leadership and other aspects of being a goodboss.

Before any new boss is appointed at Semco, the employees(as a group) get to interview all the candidates and make theirdecision on whom they want to follow. That way, they havenobody but themselves to blame if they fail to support theirbusiness unit leader effectively and consistently.

4. Optimum business unit size

At Semco, no business unit has more than 150 employees.Building a larger, centralized organization breeds abureaucracy and alienation. In a small business unit, everyassociate knows what everyone else is doing -- and how theycontribute.

Therefore, Semco splits business units that grow larger than150 into smaller units all the time. That way, business unitsstay at their optimum size.

5. Management by wandering around

Semco is consistent in removing barriers between workersand encouraging them to interact with each other, in order tolet new ideas and new initiatives come to the surfaceunhindered. Towards that end, the company takesextraordinary lengths -- there are no walls in the offices,people are only separated by plants. Managers areencouraged to be out of their offices as frequently aspossible. Departments are mixed together in the samebuilding.

Key Thoughts

‘‘The pyramid, the chief organizational principal of the moderncorporation, turns a business into a traffic jam. A company startsout like an 8-lane superhighway -- the bottom of the pyramid --drops to six lanes, then four, then two, then becomes a countryroad and eventually a dirt path, before abruptly coming to a stop.Thousands of drivers start out on the highway, but as it narrowsmore and more are forced to slow and stop. There aresmash-ups and cars are pushed off onto the shoulder. Somedrivers give up and take side roads to other destinations. A few-- the most aggressive -- keep charging ahead, swerving andaccelerating and bending fenders all about them. Remember,objects in the mirror are closer than they appear.’’

-- Ricardo Semler

‘‘A manager imposed from on high starts with the count againsthim. Why not let the people elect their own boss? In a plant whereeveryone has a financial stake in success, the idea of askingfuture subordinates to choose bosses seems an utterly sensibleway to stop accidents before they are promoted. It’s a wonder itisn’t done more often.’’

-- Ricardo Semler

Partners (7 - 10)Business unit leaders

Associates (100’s)All other employees ofthe company

Co-ordinators(6 - 10 for each unit)First line of management- foremen, supervisors,

SEMCOCounselors (about 6)Develop policies andset strategies

Maverick - Page 4

3.EMPLOYEES

Main Idea

1. Job security

Semco never offers employees a guaranteed lifetime job.People know they have to deliver or move on.

2. Job rotation

Employees are encouraged to move on to another job withinSemco every two to five years. It stops them becomingtrapped in a job and encourages the development of newskills.

3. Hepatitis leave

Semco employees are encouraged to take a 2-monthsabbatical every couple of years to learn new skills, redesigntheir job or to rest. They are told to imagine they havehepatitis and have to take 2 months off to recover.

4. Flextime

Factory workers and office workers set their own hours ofwork, using just a group schedule to keep everythingorganized efficiently.

5. Strikes

Semco still has strikes, but the striking workers are stilltreated like adults and workers who strike are never fired inretaliation -- their right to strike is respected.

Supporting Ideas

1. Job security

For many years, Japanese companies and some U.S.companies offered guaranteed employment for a person’sentire working career. Yet, when hard times came, thesesame companies were ultimately forced to break their wordand lay off employees.

At Semco, a sense of business reality reigns. Companypersonnel are kept fully informed about the company’strading prospects, profitability and so on. The company hasan incentive not to lay off workers who have valuableexperience, but no guarantees can be given. This is, inreality, a more powerful position for workers to be in thanblindly believing the company will continue to employ themunder all market conditions.

2. Job rotation

The advantages of having people rotate areas ofresponsibility within Semco are:1. People get to learn new skills2. The tendency to engage in empire building is reduced3. Employees get a broader view of the company4. Management are forced to train more people for each job5. Opportunities to advance are created for employees

In practice, Semco has found that between two- to five-yearsis a good cycle for everyone to change responsibilities. Anylonger than that and employees are in danger of becomingcomplacent or stagnant.

3. Hepatitis leave

Professionals within the company -- defined as anyone witha mid-level job or higher -- are actively encouraged to take afew weeks or even a few months away from their regularduties every year or two. It’s designed as a period where

people can stop the day-to-day rush and think through theirworking lives and their own personal objectives.

Most people resist this idea initially, so to stimulate theirthinking, they’re asked to consider what would they do if theycontracted a serious disease like Hepatitis and were forcedto spend two or three months recuperating. Once theyanswer that question, they’re then told to go ahead and do it-- but not to forget to come back once their period ofrecuperation is completed.

4. Flextime

Many companies allow office workers to decide what hoursthey work. Relatively few extend this same courtesy tofactory workers. Semco does, however. Every factory workerstill works 8-hours per day, but can arrive at any timebetween 7 and 9 am, and leave accordingly.

Again, it comes back to the concept of treating workers likeadults. In situations in which a plant’s operation depends ongroups of employees working together simultaneously,employees are left to organize themselves along any linesthey choose. In most cases, Semco factory workers tend toprefer a 6:30 am start and a 3:00 pm finish so that travel toand from the plant can be more comfortable and lesscrowded.

5. Strikes

At Semco, strikes, while not encouraged, are considered tobe part of the democratic process at work. During strikes:1. Employees are treated like adults2. No one is punished for striking3. No records are kept of who went on strike and who did not4. The police are never called to break up a picket line5. Benefits continue to be paid, as if the worker was absent6. Workers and union leaders are allowed access7. The rights of those who choose to work are respected8. No employees are fired for organizing a strike

Key Thoughts

‘‘Almost all businessmen think their employees are involved inthe firm and are its greatest asset. Almost all employees thinkthey are given too little attention and respect, and cannot saywhat they really think.How is it possible to reconcile these two positions? The sad truthis that employees of modern corporations have little reason tofeel satisfied, much less fulfilled. Companies do not have thetime or interest to listen to them, and lack the resources or theinclination to train them for advancement. These companiesmake a series of demands, for which they compensateemployees with salaries that often are considered inadequate.Moreover, companies tend to be implacable in dismissingworkers when they start to age or go through a temporary dropin performance, and send people into retirement earlier than theywant, leaving them with the feeling that they could havecontributed much more had someone asked.The era of using people as production tools is coming to an end.Participation is infinitely more complex to practice thanconventional corporate unilateralism, just as democracy is muchmore cumbersome than dictatorship. But there will be fewcompanies that can afford to ignore either of them.’’

-- Ricardo Semler

Maverick - Page 5

4.EMPLOYEE INCENTIVES

Main Idea

1. Profit sharing

At Semco, the company negotiates with the workers whatpercentage of corporate profits will be available for profitsharing bonuses. The workers then decide how to apportionthose funds amongst themselves.

2. Risk salary

About 1/3 of Semco employees have the option to risk25-percent of their salary. If the company does poorly, theymay get nothing for the risk portion of their salary. If thecompany does well, they might double that 25-percentproportion. It allows employees to take whatever degree ofrisk they feel comfortable with from year to year.

3. Salary surveys

Semco employees visit comparable companies and analyzetheir salary scales. That way, everyone trusts the data thatis gathered.

4. Self-set pay

About 1/4 of Semco’s employees set their own annualsalaries. In the future, the company hopes to extend this ideato factory workers as well.

5. Training

Semco has no compulsory training programs. Employeesare asked to consider where they’d like to be in 5-years andwhat skills they require to get there. They then request thetraining they require, with approval to come from thebusiness unit.

Supporting Ideas

1. Profit sharing

Before a profit sharing program can work, people needinformation about how the company derives its profits. Thecompany then decided that its profits would be allocated:-- 40-percent for taxes-- 25-percent for dividends to shareholders-- 12-percent for reinvestment-- 23-percent for profit sharing with the employees

Each business unit then decides how to allocate the profitshare amongst its employees -- which in practice alwaysends up being an even split, which makes profit sharing morevaluable to those on lower salaries than on higher salaries.

2. Risk salary

By making up to 25-percent of salary a risk component,employees can tailor their salary package to suit their ownindividual requirements. For example, those with largefamilies tend to be risk averse, and would place nocomponent of their salary at risk. Those with lower fixedcosts, however, will view this as an excellent way to makemore money as the company prospers.

It also helps the company as the cost of labor fluctuates withthe profitability of the company. When business is good,everyone makes more money. When business is slow, laborexpenses are lowered.

3. Salary surveys

When most companies are re negotiating the employmentpackages for their workers, they use government sponsored

surveys to determine what comparable businesses arepaying their workers. The only problem is that these surveyslack credibility.

To offset this, at Semco, salary surveys are compiled bymanagement and the factory workers. As a result, everyoneparticipates in the data gathering exercise, and thereforeeveryone trusts the survey results.

4. Self set pay

At Semco, some employees set their own salaries taking intoaccount four factors:1. What they could make working somewhere else2. What their friends with similar backgrounds were making3. What others in Semco with similar responsibilities made4. How much money they needed to live

This was successful at Semco because:1. Everyone knows how much everyone else is making2. Top managers are paid only 10-times an entry level salary3. People realize someone with a high salary will be the firstto be eliminated should the business enter a difficult tradingperiod.

To date, everyone down to coordinator level sets their ownsalaries. Semco hopes that all employees will be able to settheir own salaries in the near future.

5. Training

In some companies, training is doled out paternalistically --with the company dictating what training courses should beattended and so on.

At Semco, employees take the initiative to develop new skills.They identify training programs they would like to participatein, and apply to their business unit for funding. Theexpenditure item is then discussed openly and reasonablyby the unit. Upon approval, the company then pays for thetraining, and allows the employee time off work to attend.

As a result, the process is more open, less susceptible tomanipulation and accessible by all.

Key Thoughts

‘‘As principal shareholder of Semco, I have to admit I initiallythought 23-percent was awfully high. At other companies, it runsbetween 8- and 12-percent. But I kept telling myself I stood tomake at least as much money in partnership with a motivatedworkforce as I would as the sole beneficiary of the fruits of lessinspired workers. What would you rather have, the tail of anelephant or an entire ant?’’

-- Ricardo Semler

‘‘In good times and bad, self-set salaries have encouraged ourworkers to take that rarest of corporate perspectives, a long-termview. And they have the added virtue of eliminating complaintsabout pay, which is always among a company’s mostcontentious issues.’’

-- Ricardo Semler

‘‘If you haven’t guessed by now, Semco’s standard policy is nopolicy. Most companies have entire departments that generatemountains of paperwork trying to control their employees. Wehave absolute trust in our employees. In fact, we are partnerswith them.’’

-- Ricardo Semler

Maverick - Page 6

5.DEMOCRACY IN THE WORKPLACE

Main Idea

1. Democratic system

Representative democracy is at the heart of Semco’scorporate culture. No major decisions are made withoutevery interested party getting a vote in the decision.Subordinates vote on their bosses through regular surveys.There are no executive perks -- not even dining rooms orreserved parking spaces.

2. Factory committees

Each business unit has a committee onto which groups ofworkers representatives are elected. These committeesmeet with management and can declare strikes, audit therecords and question all management decisions.

3. Family silverware

Employees are given preferential treatment for newpositions. An employee that meets 70-percent of the criteriahas preference over an outsider that meets 100-percent ofthe requirements.

4. Manufacturing cells

There are no assembly lines at Semco. Productionmachinery is clustered into cells, so workers can see thefinished product. That provides autonomy, responsibility andgreater job satisfaction.

5. Satellite program

Wherever possible, workers are encouraged to set up theirown businesses supplying to Semco and other companies.That transforms them from employees to business owners.

6. Working at home

Everyone who can work effectively and productively fromhome is encouraged to do so. That provides flexibility andenhances productivity.

Supporting Ideas

1. Democratic system

Semco carries the concept of democracy throughout theentire corporate structure. Company employees are givennumerous opportunities to influence the direction thecompany takes, and their role in that direction.

Again, this is an extension of the concept employees areactually responsible grown-ups, who don’t need to besupervised in arbitrary and meaningless ways.

2. Factory committees

Each business unit has various logical groups of workers --machinists, office personnel, maintenance workers,stockroom personnel, draftsmen, etc. To represent thevaried interests of all these groups, each business unit formsa committee onto which representatives of each group areelected.

The committee members are encouraged to speak freely --being guaranteed they can’t be fired while on a committee orfor a year afterwards. Committees can then get involved inwhatever aspect of the company’s operation they choose --and the management are required to answer any questionsthey pose and to meet with them regularly.

The only restriction -- a committee can’t recommend the firingof anyone who has been with Semco longer than 3-years or

is older than 50-years old. Other than that, they can doanything they like to improve the performance of thebusiness unit.

3. Family silverware

Employees are actively encouraged to apply for jobs withgreater responsibilities they can grow into. To encouragethis, Semco even gives them preferential treatment overmore qualified outsiders. It’s part of the company culture.

4. Manufacturing cells

Workers who have more autonomy and more responsibilitytend to be happier and more productive. The manufacturingcell structure achieves those objectives, as workers can seethe results of their labors rather than seeing them disappeardown the line.

In addition, manufacturing cells enable people to cross-train-- to master more than one production job in the overallprocess. Manufacturing cells can also take responsibility forproduction quotas, for developing product improvementsand other practical matters. In all these areas, the workersrather than the managers are the most directly concerned,and are, therefore, given the most power to influenceproceedings.

5. Satellite program

People act differently when they are their own bosses. Theirpriorities are aligned in completely different directions fromthose of employees. To encourage this, the satellite programencourages workers to buy their production machinery andbecome a supplier to Semco (and other companies).

To assist, Semco offers:1. Favorable finance arrangements on equipment2. Training courses on business planning and other topics3. Contracts to buy products and services

In addition to helping employees build businesses of theirown, the satellite program also helps Semco by providingflexibility in forward planning and an opportunity to focus ondesign rather than manufacturing. It also positions thecompany favorably to be able to ride out market upturns anddownturns.

6. Working at home

Semco actively encourages workers to work from home. Insome cases, employees work part of their week at home andpart at the office. As long as suitable conditions forconcentrating on business issues exist, the company is allfor telecommuting or working at home.

Key Thoughts

‘‘Workers in our manufacturing cells have a way of managingmore and more of the manufacturing process. Workers alsorecruit and expel new members of their teams. Today, anyonewho applies for a job as a machinist at Semco will be interviewedby a group of machinists, not an executive, which is the worstthing that can happen to him, because he might be able to talkhis way past a manager but not past people who know all aboutmachinists and may one day be his coworkers. If they say yes,the person has the job. I’ve not heard of a case in which theshop-floor workers have opposed someone and a manager hasgone ahead and hired him. Nor do I know of a case in whichsomeone is approved by everybody on the shop floor butrejected by the manager. In our system, it just isn’t possible.’’

-- Ricardo Semler

Maverick - Page 7

6.CONCEPTS AND IDEAS

Main Idea

1. Cleanout

Twice a year, Semco shuts down for an afternoon andeveryone throws away every piece of obsolete equipment orunnecessary paperwork.

2. Corruption

Semco refuses to accept work place corruption in any way,shape or form.

3. Headline memo

All Semco memos are limited to 1-page and have a headlineat the top that gets right to the point -- like a newspaper.

4. Lost in space

Every good year, several promising new employees arerecruited for a think tank -- no responsibilities, no boss, nojob descriptions -- as long as they work in 12 departments intheir first year.

5. Nucleus of technological innovation

A small group of technical employees who are free ofday-to-day responsibilities and are expected to think. Theyare even paid according to what they deliver.

Supporting Ideas

1. Cleanout

Most employees have a compulsion to collect whatever maybe useful in the future. To offset this, have a twice annual dayon which everyone stops to unclutter themselves. Semcodoes this, and finds it sharpens the thinking, clears the clutterand refocuses the business.

2. Corruption

Semco has zero tolerance for corruption, and has turnedofficials who have attempted to extract bribes over to theauthorities. In return, the company has generated a vastamount of attention from other government inspectors. Itcauses delays and additional headaches, but also sends asignal the company operates above boards and ethically atall times.

3. Headline memo

Every written document in Semco is 1-page long, with aheadline at the top that gets right to the point. It eliminatesunnecessary paperwork, avoids ambiguity, stops meetingsdragging on too long and focuses attention on critical issuesrather than writing skills.

4. Lost in space

Each year, some entry level employees are given anopportunity to work for the company unrestricted by jobdescriptions and bosses. They are expected to come up withsome business idea that will generate enough revenue tocover their salary. They are also required to work in a broadrange of departments -- 12 over the course of the year. If theysee a position they like, they are then free to negotiate a morepermanent arrangement with that department.

The program lets Semco unearth some exceptional people,and exposes the company to some new and original thinking.

5. Nucleus of technological innovation

This business unit has no boss and no employees. Theengineers in the team are free to look at any aspect ofSemco’s business and suggest changes. Twice a year, theyreport progress to the Partners, who then decide whether ornot the unit should continue.

To encourage innovation, the engineers are given anincentive -- in addition to their salary, they got royalties onthe new products developed, a percentage of the costsavings they achieved or a share of the profits earned by newproducts. They can also sell consulting services to anyonethat is interested.

Key Thoughts

‘‘Corporations have notoriously short life spans. Even in thestable and relatively prosperous United States, a company hasa less than 5-percent chance of being in a better position 50years from now. These cautionary tales illustrate what I believeis the biggest challenge any business faces: change. Semco hassucceeded despite some of the harshest economic conditionsimaginable because we have learned to see the need for changeand have been smart enough to seek our employees’ help inimplementing it.To survive in modern times, a company must have anorganizational structure that accepts change as its basicpremise, lets tribal customs thrive and fosters a power that isderived from respect, not rules. In other words, the successfulcompanies will be the ones that put quality of life first. Do thisand the rest -- quality of product, productivity of workers, profitsfor all -- will follow.At Semco, we did away with strictures that dictate the flows andcreated fertile soil for differences. We gave people anopportunity to test, question and disagree. We let themdetermine their own training and their own futures. We let themcome and go as they wanted, work at home if they wished, settheir own salaries, choose their own bosses. We let them changetheir minds and ours, prove us wrong when we were wrong,make us humbler. Such a system relishes change, which is theonly antidote to the corporate brainwashing that has consignedgiant businesses with brilliant pasts into uncertain futures.Semco is more than novel programs or procedures. What isimportant is our open-mindedness, our trust in our employeesand distrust of dogma. We are neither socialist nor purelycapitalist, but take the best of these failed systems and others toreorganize work so that collective thinking does not overpowerindividualistic flights of grandeur; that leadership does not getlost in an endless search for consensus, that people are free towork as they like, when they like; that bosses don’t have to beparents and workers don’t act like children.’’

-- Ricardo Semler

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