[Off-Topic] Mea Culpa: Democratic Organizations Don't Work

Anyone who has followed me for about four years in the discussions about how companies are managed and organized will remember that I often flirted with and tried to defend a kind of “democratic” organization. That concept was always incomplete, and I imagined that sooner or later the equation would close.

Instead, I’m going back to zero and redefining everything. The first thing I need to correct is the use of the word “Democracy.” It doesn’t describe the kind of organization I have in mind.

My line of thought always started from Darwinian Evolutionism. It’s the only way in which Chaos tends toward a certain Order, through self-organization. This process involves several mechanisms, and it’s about them that I’ve already given talks: Scale-Free Networks, Complex Adaptive Systems, and how all of that leads to processes and methodologies, including the much-discussed Scrum.

This line of study, which you can follow in my blogs and talks of the last three years, brushes past biology, sociology, psychology, philosophy, physics, and mathematics. In the end, the most coherent path seemed to lead to what today is called Democratic Organizations, mainly because of famous cases like Semco, of Ricardo Semler, plus democratic aspects observed in companies like Southwest Airlines, Dreamhost, Groupon, and Zappos.

Except I fell into exactly what I always criticize: a handful of positive evidence about a model, however good it may be, never proves the model. Concluding from positive evidence alone is the same as cargo cult. So I need to correct course: the kind of organization I describe and defend has nothing to do with “Democracy.” In my conception, the term “Democratic Organizations” is a mistake.

Democracy vs Republic

Thank goodness our country is called “Federative Republic of Brazil.” These days I don’t know anyone who speaks ill of the word “democracy.” I won’t give a politics lesson, since I’ve studied almost no political science. Without going into all the ramifications, I want to go down first to the minimal definitions of the term and the original ideas.

I don’t defend the owner of the site I’m about to quote, nor all of his ideas, but the text serves my purpose, so I decided to translate it directly. The original is this article by Gary McLeod. If you search Google for “democracy vs republic,” you’ll find hundreds of articles detailing the differences. For now, this one serves. Here’s the translation:

Rule by Law vs Rule by Majority

Just after the completion and signing of the Constitution, in reply to a woman’s inquiry as to the type of government the Founders had created, Benjamin Franklin said, “A Republic, if you can keep it.”

Not only have we failed to keep it, most don’t even know what it is.

A Republic is representative government ruled by law (the Constitution). A democracy is direct government (Akita’s note: yes, there is representative democracy, but as I said I won’t go down all the ramifications) ruled by the majority (mob rule). A Republic recognizes the inalienable rights of individuals while democracies are only concerned with group wants or needs (the public good). Lawmaking is a slow, deliberate process in our Constitutional Republic requiring approval from the three branches of government, the Supreme Court and individual jurors (jury-nullification). Lawmaking in our unlawful democracy occurs rapidly requiring approval from the whim of the majority as determined by polls and/or voter referendums. A good example of democracy in action is a lynch mob.

Democracies always self-destruct when the non-productive majority realizes that it can vote itself handouts from the productive minority by electing the candidate promising the most benefits from the public treasury. To maintain their power, these candidates must adopt an ever-increasing tax and spend policy to satisfy the ever-increasing desires of the majority. As taxes increase, incentive to produce decreases, causing many of the once productive to drop out and join the non-productive. When there are no longer enough producers to fund the legitimate functions of government and the socialist programs, the democracy will collapse, always to be followed by a Dictatorship.

Even though nearly every politician, teacher, journalist and citizen believes that our Founders created a democracy, it is absolutely not true. The Founders knew full well the differences between a Republic and a Democracy and they repeatedly and emphatically said that they had founded a republic.

Article IV Section 4, of the Constitution “guarantees to every state in this union a Republican form of government”…. Conversely, the word Democracy is not mentioned even once in the Constitution. Madison warned us of the dangers of democracies with these words,

“Democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths…”,

“We may define a republic to be … a government which derives all its powers directly or indirectly from the great body of the people, and is administered by persons holding their offices during pleasure for a limited period, or during good behavior. It is essential to such a government that it be derived from the great body of the society, not from an inconsiderable proportion or a favored class of it; otherwise a handful of tyrannical nobles, exercising their oppressions by a delegation of their powers, might aspire to the rank of republicans and claim for their government the honorable title of republic.” James Madison, Federalist No. 10, (1787)

“A wise man will not leave the right to the mercy of chance, nor wish it to prevail through the power of the majority. There is but little virtue in the action of masses of men.” Henry David Thoreau (1817-1862)

Our military training manuals used to contain the correct definitions of Democracy and Republic. The following comes from Training Manual No. 2000-25 published by the War Department, November 30, 1928.

DEMOCRACY:

• A government of the masses.
• Authority derived through mass meeting or any other form of “direct” expression.
• Results in mobocracy.
• Attitude toward property is communistic, negating property rights.
• Attitude toward law is that the will of the majority shall regulate, whether it be based upon deliberation or governed by passion, prejudice, and impulse, without restraint or regard to consequences.
• Results in demagogism, license, agitation, discontent, anarchy.

REPUBLIC:

• Authority is derived through the election by the people of public officials best fitted to represent them.
• Attitude toward law is the administration of justice in accord with fixed principles and established evidence, with a strict regard to consequences.
• A greater number of citizens and extent of territory may be brought within its compass.
• Avoids the dangerous extreme of either tyranny or mobocracy.
• Results in statesmanship, liberty, reason, justice, contentment, and progress.
• Is the “standard form” of government throughout the world.

The manuals containing these definitions were ordered destroyed without explanation about the same time that President Franklin D. Roosevelt (F.D.R.) made private ownership of our lawful money (US Minted Gold Coins) illegal. Shortly after the people turned in their $20 gold coins, the price was increased from $20 per ounce to $35 per ounce. Almost overnight, F.D.R., the most popular president this century (elected 4 times), looted almost half of this nation’s wealth, while convincing the people that it was for their own good. Many of F.D.R.’s policies were suggested by his right hand man, Harry Hopkins, who said,

“Tax and Tax, Spend and Spend, Elect and Elect, because the people are too damn dumb to know the difference.”

It Can’t Be Democracy

If you research at least the Wikipedia articles on Democracy and Republic, you’ll see that the subject is much more complex than this.

What I most admire about the Founding Fathers of the United States is the philosophical and political clarity that led them to describe a Republic based on inalienable Individual Rights. Out of that came solid foundations like the Declaration of Independence and the Bill of Rights. I’m not saying they were perfect people, they all had a thousand flaws, but that’s not where we should get stuck (that would be the Straw Man Fallacy).

The so-called Democratic Organizations fail precisely at this point, in the foundation. It simply doesn’t exist. And worse, from a philosophical point of view, it’s incompatible with the Constitution.

There’s no “official” document with these principles, so I’ll borrow the list from WorldBlu, an organization that tries to spread the idea of Democratic Organizations around the world. For the details, it’s worth reading their page. In summary, the principles are these:

1. Purpose and Vision: normal, any company needs this clear, what its core business is, and what it exists for.
2. Transparency: there are controversies, not everything can be open, including some things that are actually legally protected.
3. Dialogue + Listening: I agree, the concept is valid, and against top-down authoritarianism.
4. Equality + Dignity: hard to define, some differences in treatment are more cultural than mandatory.
5. “Accountability”: hard to translate into Portuguese, but it’s something like “Responsibility”; in this concept it’s more about better defining who is responsible for what.
6. Individual + Collective: this is where the whole concept starts to fall apart.
7. Choice: implementable, but within limits.
8. Integrity: mentions “morally” and “ethically” correct, and that’s a problem.
9. Decentralization: instead of centralization, I’m always in favor of this, but within limits.
10. Reflection + Evaluation: a “touch” of Toyota’s Hansei+Kaizen model.

The last two points, Decentralization and Reflection + Self-Evaluation, are the only ones I would call “principles.” If you read the articles I linked in the introduction, you’ll understand why.

My problem with these principles is that they are rhetorical, and so they don’t work as principles. Saying “it has to be transparent” is pure rhetoric. I can claim I never told a lie, and who’s going to disprove me?

The same goes for “dialogue” and “dignity”: they’re good rhetoric, but they describe conduct. They’re process, not foundation. They don’t answer the real principle: “Why should I act this way?”

And this lands on “Integrity,” on doing what is morally and ethically right. But who defines what is morally and ethically right? Without a philosophy behind it, everything stays undefined and open to interpretation, because there’s no objective, unambiguous principle holding the idea up.

Private Property

I finally get to the points “Individual + Collective” and “Choice,” which deal directly with “Democracy.” These two knock down all the others. Democracy and Collective are bad principles. Any system where the majority can crush the minority, and the minority has no objective, defined property rights, doesn’t work by definition.

And “right,” to be clear, isn’t just anything. Things like “right to bonuses” or “right to more rest hours per week” run into the fundamental problem of any organization: “And who pays the bill?” If, for one individual to have a right, another has to work for free, that’s slavery and, by definition, cannot be a right. Read my article on Rights of Man to understand it better.

More than that: “Transparency” as unrestricted access to all company data, and “Choice” over every relevant matter, should never be automatic rights of employees.

Let’s get to the foundation of all this: every company and organization is private property of its owner, partners, or shareholders. It does not belong to the employees, unless they are also shareholders, for example via a stock options program or something of the sort.

Employees are individuals who trade their capability and their work hours, in a voluntary negotiation with the company, for a value called “salary.” It’s a fair, voluntary exchange, for mutual benefit. The employee’s right ends where what is written in the signed work contract ends. There’s nothing to “claim.”

Want more access to confidential information and more say in strategic decisions? Earn it. Make yourself deserve it, don’t expect it to fall into your lap automatically. Show good work, deliver results, and demonstrate the capacity to decide; only then earn the merit of being part of it. From the employees’ point of view, the principle of an organization should always be meritocracy.

But what about the various companies that are positive “evidence” that “democratic organizations” work?

Here’s the key point of this whole article: these cases of Democratic Organizations are not necessarily Democratic. At least not as people imagine it should be.

Actually, if you read my articles on animal groups, chaos leading to order, and self-organization, it makes full sense within limits. No organization needs to control even the color of the sock each employee wears. That’s not efficient or productive. How the team works, what hours, with what tools and codes of conduct, is something the team itself can decide.

Except that, to get to that point, the company’s goals were already defined: where it wants to go, what it wants to produce, how it wants to enter the market, and all the rest.

What the teams will decide “democratically” is how that strategy gets implemented. The “upper echelon” still exists, the company still belongs to its owners, and the strategy arrives ready. What’s left to the employees is the tactics, the implementation.

This is the natural path of organizations. If you want to call that “democratic,” fine. I prefer to slap no label on it and treat it as one more evolutionary step of “Organizations.”

Leaving “the way of implementing the strategy” in the hands of the people who will implement it is just another way that seems efficient to run a business. It doesn’t necessarily work for all of them. And in the companies treated as cases, I believe we find more evidence that they adopted more efficient means of production. The “democratic” label runs too big for what actually happens in them.

It’s like the Toyota Production System (TPS, or Lean for us) at Toyota. It doesn’t show up on the popular “democratic organization” lists and probably doesn’t even fit WorldBlu’s principles, but it does employ “democratic,” or “participatory,” tactics in the implementation of production. That’s the real goal.

And no, I also don’t think the right term would be “Republican Organizations,” just because I talked so much about Republic at the start. It’s neither one. Organizations are Private Properties that need to be managed. In its foundation, the whole organization cannot be “democratic” to employees who aren’t shareholders, by definition.

A publicly traded company can even have an almost “republican” structure. But the point where we want to study and intervene is the day-to-day management of teams, and there we have a “silo” with “participatory” implementations inside a wrapper that isn’t democratic.

The reason for this long explanation is simple: if you think too long about the colloquial definition of “Democracy,” it quickly slides into “Collectivism,” “Populism,” “Communism,” and “Socialism.” I’m absolutely against this line of evolution, it’s philosophically unhealthy. In the political realm, it should stop at “Republic.” In the business realm, it’s simply “Capitalism,” nothing added or taken away.

And the title “Democratic Organizations Don’t Work” is, of course, a provocation. It points to the fact that I’m correcting myself on the wrong use of “Democracy,” when in reality we’re talking about “Organizations with Efficient Processes,” especially the ones that grow organically with an evolutionary-Darwinist logic, like Lean/TPS.