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Ricardo Semler Won’t Take Control

The Brazilian CEO and best-selling author transformed his pump plant into a model of participative management, and launched his company on 14 straight years of double-digit growth.

Mr. Semler, 46, is the leading proponent and most tireless evangelist of what has variously been called participative management, corporate democracy, and “the company as village.” As proposed 45 years ago in a book called The Human Side of Enterprise, by Douglas McGregor, one of the founders of the field of organizational development, participative management says that organizations thrive best by trusting employees to apply their creativity and ingenuity in service of the whole enterprise, and to make important decisions close to the flow of work, conceivably including the selection and election of their bosses. Underneath this is a view of human nature that Professor McGregor called “Theory Y,” which holds that ordinary people don’t have to be managed with the “carrots and sticks” of incentives and controls. Instead, people are naturally capable of self-direction and self-control, even in a corporate or bureaucratic setting, if they’re committed to the organization’s goal and if they are treated as mature adults who can learn from their actions and errors. Participative management has inspired a fiercely dedicated following, and many managers find it appealing and compelling in principle, but it is often dismissed as utopian and naive in the real world of conventional workplaces.

Even among the true believers, though, Mr. Semler is in a class by himself. His credentials as a thinker are impressive: He has gained a worldwide following as both a guest lecturer at Harvard Business School and MIT’s Sloan School of Management, and an author with a long list of bestsellers to his name. But what makes Ricardo Semler all the more notable is the way he has put theory into practice. Many people have talked the talk of corporate democracy; his company walks the walk.

In the last two decades, Semco, a maker of industrial machinery like giant oil pumps and restaurant dishwashers, has operated as a real-world laboratory for Mr. Semler’s radical approach to leadership. For the most part, the Semco experiment has been a huge success. An investment of $100,000 made in Semco 20 years ago would be worth $5.4 million today — a rare record of profitability that by all accounts stems directly from the participative management approach that Mr. Semler champions.

“I just wish that more people believed him,” laments Charles Handy, the British management guru and social philosopher. “Admiring though many are, few have tried to copy him. The way he works — letting his employees choose what they do, where and when they do it, and even how they get paid — is too upside-down for most managers. But it certainly seems to work for Ricardo.”

Mr. Semler’s Planet
To see Semco’s approach in action, just visit the company’s pump plant on the outskirts of São Paulo. This operation bears about as much resemblance to a traditional factory as the rainbow hues of its walls — the choice of the employees — do to industrial gray. Forget about foremen barking out orders to passive proles. On any given day, a lathe operator may himself decide to run a grinder or drive a forklift, depending on what needs to be done. João Vendramin Neto, who oversees Semco’s manufacturing, explains that the workers know the organization’s objectives and they use common sense to decide for themselves what they should do to hit those goals. “There’s no covering your ass,” says Mr. Neto. “The intent is to get straight to specific targets.”

Semco’s 3,000 employees set their own work hours and pay levels. Subordinates hire and review their supervisors. Hammocks are scattered about the grounds for afternoon naps, and employees are encouraged to spend Monday morning at the beach if they spent Saturday afternoon at the office. There are no organization charts, no five-year plans, no corporate values statement, no dress code, and no written rules or policy statements beyond a brief “Survival Manual,” in comic-book form, that introduces new hires to Semco’s unusual ways. The employees elect the corporate leadership and initiate most of Semco’s moves into new businesses and out of old ones. Of the 3,000 votes at the company, Ricardo Semler has just one.

In Mr. Semler’s mind, such self-governance is not some softhearted form of altruism, but rather the best way to build an organization that is flexible and resilient enough to flourish in turbulent times. He argues that this model enabled Semco to survive not only his own near-death experience, but also the gyrations of Brazil’s tortured politics and twisted economy. During his 23-year tenure, the country’s leadership has swung from right-wing dictators to the current left-wing populists, and its economy has spun from rapid growth to deep recession. Brazilian banks have failed and countless companies have collapsed, but Semco lives on.

“If you look at Semco’s numbers, we’ve grown 27.5 percent a year for 14 years,” says Mr. Semler over a cappuccino at one of São Paulo’s sidewalk cafés on a lovely fall day. He conducts many work-related conversations here; the ultimate hands-off leader, Mr. Semler doesn’t even keep an office at Semco. “Here’s why: Our people have a lot of instruments at their disposal to change directions very quickly, to close things and open new things.” Flexibility is the key, he says. “If we said there’s only one way to do things around here and tried to indoctrinate people, would we be growing this steadily? I don’t think so.”

Those four words, “I don’t think so,” delivered with a Brazilian Portuguese lilt, represent Mr. Semler’s standard answer to corporate dogma, assertions that something he wants to do cannot be done, and even overly doctrinaire interpretations of the participative management concept. Mr. Semler is not a particularly self-effacing or humble advocate of human potential; his assurance in argument is legendary. In conversation, in teaching, and in his books Maverick (Warner Books, 1993) and The Seven-Day Weekend (Penguin/Portfolio, 2004), he puts forth participative management as not just a pragmatic path to business success, but also a healthy and enjoyable way of life. Mr. Semler has a law degree he has never used and no advanced business degree, but the success of his books and the entertainment value of his message have helped him become a frequent guest lecturer at Harvard Business School and MIT’s Sloan School. To executives and graduate students alike, Mr. Semler insists that his is not some quirky South American survival story, but a real-life lesson in making the work world work better.

To be sure, his message is not always well received, at home or abroad. “What planet are you from?” is one of the more polite questions Mr. Semler has fielded from Brazilian politicians. The Federation of Industries, representing Brazil’s corporate leaders, has publicly accused him of undermining managerial authority. The local business press has both lauded him with awards for progressive leadership and blasted him for letting Brazil’s powerful unions gain the upper hand. In response, he says that managerial authority is an illusion, and that since the influence of unions is a fact of life that isn’t going to go away, Semco is the stronger for engaging them rather than fighting.

Even in academic circles, usually more accepting of radical innovation, he’s met with some skepticism. “He has reified all these precepts from the early days of participative management, the ’40s,” says Warren Bennis, one of the most prominent scholars in the field of leadership and management, and an early protégé of Douglas McGregor. “Letting the employees elect officers to the company with periodic votes, almost like a true democracy — this is the most advanced, progressive, and, to my view, problematic way to practice participative management. There’s nobody else I can recall at the head of a company who has subjected himself so thoroughly to the most radical elements of that term.”

And while Mr. Semler is accustomed to commanding attention, he has no illusions about easily winning minds. “Semco is bucking not only the traditional business model, we’re resisting a code of behavior at the very core of Western culture,” he writes in The Seven-Day Weekend. “No wonder our ideals are hard for outsiders and other companies to embrace.”

 

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