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Traci Fenton, founder of WorldBlu.com, is giving a Berkman lunchtime talk about organizational democracy. Excellent turnout, especially for the most beautiful day of the year. I'm especially glad to see that Traci has drawn first-timers, from union reps to workplace managers, in addition to the usual Berkpeople. [I'm paraphrasing throughout this post. As always.]

She says: In a democratic workplace, people get to decide which projects they work on and have access to the financial info about the company. This is the case at the GE Durham plant —150 employees and one manager. They make jet engines. All future GE plants will also use a democratic working style.

Organizational democracy = "democratic principles applied to a business context." She cites Drucker, Wheatley, Senge, Hock, Semler, Collins, Fairtlough and Bower as sources of the idea. It's not about everyone voting but everyone having a voice. It's about operating out of freedom, not fear. Peer-to-peer, not paternalism. Humility and resolve vs. ego. Transparency vs. secrecy. Fluid networks, not hierarchy. It can become the norm, she says.

David Isenberg points out that the managers at GE (for example) get paid disproportionately high. How does this growing gap fit with the idea of democratic organization?

Traci says that people are rebelling against this. Whole Foods, for example, caps the disparity. Fairness is one of the characteristics of organizational democracy. GE overall suffers from the disproportion, but GE Durham does not. She points to other companies, too fast for me to keep up, except for Southwest Airlines...

Why should any one care? Context, cash and change.

The business context is changing because of technology: Employees have a voice on the Net and want one in business. Also, there's been a reaction to Enron. And more of the world lives in democracy. And Gen X and Y have different expectations about work. And there's a search for meaning going on (embracing our humanity). She says we're going from the industrial age, to the information age, to the democratic age — networks, engagement, individuals...

Semco in Brazil flattened its hierarchy, gave employees a say in decisions, started job rotation, let people choose their boss, and let people choose how to be paid (e.g., hourly, by goals, royalties, etc.). As a result, their sales doubled, they launched 8 new products, and revenues went up 35%. Traci says that within this freedom, there is a tremendous sense of discipline. This happened because Ricardo Semler, the owner (his father founded it), at 25 was killing himself with stress.

Organizational democracy leads to more cash because it increases engagement. A Gallup poll showed that 73% of US workforce is not engaged by their work. Five years ago, that was 54%. This drives down revenues. Organizational democracy increases retention, increases efficiency, increases competitive advantage...

Organizational democracies have a positive ripple effect on their communities, decreasing corruption and increasing peace and stability.

WorldBlu wants to build 1,000 organizational democracies by 2020.

Q: People have been saying this for a long time. What's the resistance?
A: People don't understand how. Business leaders freak out because they think they have less control. I tell them they're just giving up the illusion of control.

Q: People running the companies would have to give up a substantial amount of money personally.
A: At organizational democracies I don't hear people complaining about the money piece.

Q: Does this work for low-skill or only for high-skill?
A: Atlas Container makes boxes. The average worker hasn't finished high school. But they're run democratically. Everyone knows what it feels like to be disengaged.

Q: (me) Is this a cultural change or can it be done incrementally?
A: It usually starts at the top, although I've blogged about how a junior employee can get involved. It can be rolled out at various paces.

Q: At GE Durham, people divide into teams and are given quotas. The team decides how many hours they're going to work, they cover for each other, and suddenly they're peer-accountable. I got the religion when I heard that.

Q: What's the role for labor unions?
A: [Union organizer in the audience] This kind of model can work with the union. It seems like a natural pairing.

Q: Is this equally appropriate in rising and falling industries? And how does this play out with globalization and outsourcing?
A: I don't know. How do the ethics of capitalism and the ethics of organizational democracy work together?

A: [audience member] Outsourcing can increase the knowledge work done by the people in the home plant.
Q: Are the outsourcers part of the organizational democracy? [Ouch!]

Q: Are these principles transferrable to very fluid industries where the parameters are changing rapidly?
A: Pandora is a startup using organizational democracy. It allows a company to adapt very rapidly.

Q: What's your advice to new companies that want to start out right?
A: It's not a matter of having standard processes that can be put in place but in adhering to a set of principles. At Gore, they use a lattice structure where everyone is related to everyone else. They share knowledge. "You have to find an answer that works on the scale you're at."

Q: What are the most common problems democratic organizations face?
A: At Pandora, the make-your-own-radio-station, people feel so engaged that they can be over-confident about the value of their participation.

Q: There are parallels between organizational democracy and the organic movement. The organic movement got coopted by the FDA. How are you working with large organizations so that the concept of org democ isn't diluted?
A: You are in my head. We're working on some proprietary tools that we hope will create a standard.

Q: Seal of approval?
A: There can be a backlash to that.

Q; Saturn seems to have gone from democratic to undemocratic.
A: At one company, they axed the CEO after the company missed one quarter, and the board brought in someone with a command and control background. I asked the old CEO if the employees had the strength to go forward. He said that there aren't other job oppportunities. It's unresolved still.

A: I love the idea of org democ, but it seems like it only works so long as the guys at the top say it's ok.
Q: Yes and no. The movie The Take is about workers in 200 companies in Argentina demanding organizational democracy. Southwest Airlines also survived the replacement of the CEO.

Q: Why would the board care so long as the company is generally delivering? I something else going on?
A: Probably.

Q: Is one of your 12 qualifications having a certain percentage of staff on the board?
A: We don't have set policies or processes. We recommend the adoption of principles. The Orpheus orchestra in NYC has no conductor. But their board doesn't get it.

Q: (me) To what extent does the lack of democracy have to do with the fact that most companies are run by men?
A: Male CEOs who can run their companies democratically have this wonderful balance of the masculine and the feminine. They don't have anything to prove, which is an important characteristic of leaders and workers in democratic organizations. Democratic organizations need a blend of compassion and discipline.

Q: What happens if the workers don't accept change? Suppose they just want to follow rules?
A: A democratic company is not for everyone. Employees need a high degree of self-knowledge and confidence. Sometimes people have to leave companies that make the transition.

Q: I think this would work better in America than in some other countries. For one thing, when you're responsible, you have to manage stress.
A: I don't believe it has to do with culture. I think it has to do with the type of person you are.

Q: Does this work better for particular sized companies?
A: Smaller companies frequently are democratic just naturally.