· 10 min read · Features

Chief destruction officer


Slayer of shibboleths and destroyer of corporate myths, Ricardo Semler, Semcos majority owner, has given HR the thumbs down. Morice Mendoza discovers whether Brazils Semco is the prototype heralding changes ahead

Picture this. Your business leaders have to put themselves up for re-hiring every six months based in part on anonymous assessments by you (their ratings are posted publicly), you can pitch your latest business idea to an executive board at meetings where all employees can attend (two seats on the board are reserved for the first two employees who turn up); you do not know what your company is and you dont care; you are driven only by what interests you and your ability to perform well. If the majority owner turns up at one of these meetings he has only one vote. If you think your unit should move from manufacturing into a service or dotcom company, you stand a good chance of getting your way, provided that it makes business sense.

Sounds good so far? There is a downside. If you do not perform well, or your face no longer fits, you may well be sacked in the regular, six-monthly vote on who is going to be re-hired or fired. In this process every unit takes a hard look at itself and decides democratically who to retain and whether to carry on in the same way. In short, you will be working in a freer, but tougher and more individualistic environment with greater control over your destiny.

Ricardo Semler, the majority owner, who has made the above picture come true in the Brazilian company, Semco, writes about it in the September/October edition of the Harvard Business Review (HBR) ...since they have to be rehired every six months, they know their jobs are always at risk. Ultimately, all we care about is performance. An employee who spends two days a week at the beach but still produces real value for customers and co-workers is a better employee than one who works 10-hour days but creates little value.

Semler acknowledges that the system can be unforgiving but believes that it works because it tends to judge people by their performance and allows the local businesses to influence the way the company moves forward.

Semler has made sure that its impossible to go back to the bad old ways of command and control. Anyone that needs an office and at least one dotcom CEO within the company works from his fathers basement can book (through the web) a space, a desk, a sofa or a chair by the cappuccino machine in various airport-lounge-type offices that Semler has built, dotted around the city of So Paulo. The only thing that defines you are the things that you keep in a locker. When you turn up at your nearest office (which Semler hopes is within walking distance) you carry the contents of your locker pictures of your kids and so on in a cube that you drag behind you to the space you have taken. No one, therefore, knows if you have turned up for work or if you have left to go fishing. If you perform well, then frankly who cares?

But surely people have territorial and tribal instincts that need to be satisfied? Semlers answer (and he has a Harvard anthropologist to advise him) is that people can satisfy these instincts outside work (football clubs, social events). Besides, he adds, if people want to arrange something more permanent, they can do so. Nothing is stopping them. So what is the point of this apparently Quixotic corporate experiment in So Paulo? At its heart is Semlers belief that the business organism will last longest if its capable of transformation. And he thinks that the best way to make this happen is to push decisions downwards and inject real democracy. He believes anything that defines what the company is and who works in it is likely to place employees in a mental straitjacket - a point he made recently in the HBR.

There is little doubt that Semler is ahead of his time. One enthusiastic reviewer of Semlers first book, Maverick, describes a common reaction on Amazon.com: It was quite difficult for me to assimilate the final purpose of this book. Not because it is badly written or confusing, not at all, but because after reading this book I found out that everything I believed was proper in business turned out to be illogical. The reviewer goes on to say that an MBA professor had told him, We do not incorporate Semcos experience into our courses because its approaches are 60 years ahead of modern management. Semler admits that many people reacted this way after reading Maverick. Semco, they said, was unique and was in any case only a manufacturing company.

Today, with a second book on the horizon, Semler feels that reactions will be different. For one thing, his model has been completely vindicated. Semco is now also a services and dotcom business based in some cases on joint-venture partnerships with large global corporations. It has quadrupled its revenue in the past 10 years to $160 million and grown from 450 to 1,300 people. Originally a manufacturing business, 75% of Semcos business is now in the service sector. And in the HBR article Semler explains how they are stretching into e-business.

Semco has a good track record of creating new businesses. The people involved in the traditional manufacturing business set up a cooling systems services business that led to a joint venture property services business with Cushman and Wakefield worth $30 million; and it was an employee push towards e-business that helped to establish, for example, a joint-venture South American building industry portal called Edify. Semler says, The last year or so has scared people into realising that you cannot predict sustainability anymore. You dont know whether old-economy businesses are going to disappear overnight or whether the dotcoms are all going to go bust.

Semlers forthcoming book provisionally called The End of the Weekend (Random House) is intended to reveal, through Semcos experiences, the architecture of a company that can survive these changing times wherever they are. He explains it is about what happens when e-mail invades your life. You may be perfectly accustomed to working on Sundays but do you know how to go to the movies on Monday afternoon? It will address some of the new dilemmas. When you have dotcom people who want to come back to the old-economy part of the business, does that mean they will accept the old ways or are they in fact going to generate change?

For instance, Ubirajar Espessotto, CEO (South America) of Semcos real-estate joint-venture with Cushman and Wakefield, found it very hard (as most newcomers do) to adjust to the Semco way. Semler says that during the first couple of weeks Espessotto was completely lost because he lacked all the trappings he was accustomed to. He decided to hire his own driver because we dont have parking spaces. He was finding old-style solutions to new situations and at the same time we could not communicate with him. Instead of using a cell phone, Semler told him that he would have to use a powerbook and communicate via e-mail. To Semlers surprise he owned up to the fact that he did not know how to type. Semler adds, Hed always had two to three secretaries and was used to barking messages to them over the phone and theyd type it up for him. So he stopped communicating because he couldnt type. If Semler had said even five years ago, Im looking for a CEO with 20 years experience who is able to type, it would have been a ridiculous comment. It is no longer ridiculous.

Semler knocks down many shibboleths. For instance, most people talk about the need to maximise talent. Semler thinks this is wrong. When you put the best people together in one unit you end up creating an amoeba that splits itself. If you need surgery, he says, youll never be able to get the three best surgeons in the world to work together. Or, if you put the five best advertising creative directors in one room you end up creating five different bus-inesses. Instead Semler thinks companies should aim to have a cut of society in their business: You need your quota of bored people, people who will do some drudge work, people who do the work as a secondary thing. But nobody ever fishes for these types of people. If you want to create a sustainable company Semco-style you have to do this. Following the maximise your talent mantra, Semler says, is like putting a Lamborghini engine into a Ferrari.

Take another piece of accepted wisdom the idea of creating a homogenised culture with shared values. Semler thinks this approach is extremely damaging. He wants everyone to be different but to co-exist within the same company. And most of all he does not want anyone, including himself, to try to define absolutely what the company is. Its the fact that everyone sees a different Semco that makes it sustainable. Some people see Semco as a dotcom business whereas others continue to see it as an old-style manufacturing company. The worst thing would be to try to merge these different types of people.

If I were to say, How do we define Semco? that is the day we would have to merge dotcom kids with 60-year-old manu-facturing experts and look for a common denominator. What are the chances that would work? He prefers to let the dotcom kids (in their early 20s and getting far more money than their manufacturing counterparts did at their age) see Semco in whatever way they wish. This creates an unusual scenario for Semler. It means that even when he sees leaders in the business whom he doesnt like he wont intervene. How many CEOs would say, as he does, I have a long list of people in power that I dont like and I dont understand why they work there. But my opinion is irrelevant.

In Semlers ideal world all decisions would be made by the people in their own businesses. Indeed, he says he recently held a party to celebrate 10 years in which he had made no decisions. He spends much of his time deleting e-mails sent to him when he believes the issues could and should be dealt with locally. He recalls a meeting in the early days of the business, when his way of doing things was less well known, when he was asked to preside over a disagreement in the engineering business after a product had not worked for a large Anglo-American client. There were files, internal memos and executive summaries the latter were neatly held together by butterfly paper clips. He told the anxious executives that they had to solve the problem themselves. Then he took the clip, threw the papers in the bin and said, Ive got a lot out of this meeting, thank you for the paper clip. From that day, he says, he has never had to be a catalyst for anyone.

Semler feels very strongly that no one, and especially not someone in HR, should try to act as a catalyst. His argument is that the people themselves, who are responsible collectively for their unit, should be allowed to work through difficult situations. If you interfere and pre-empt a crisis, for instance, you prevent the organism regenerating itself. Its a bit like marriage, says Semler. You have a big bust-up now and then and that leads to a better situation or divorce. But it is a process that should be allowed to happen. To take one example at one of Semcos units the 20-year-olds, who objected to the style of leadership, produced a newsletter and started a rebel movement. They were left to get on with it and the result is something much better.

Semler does have to smooth the troubled brows of joint-venture partners, however, in cases like these. They come from traditional companies some of them Fortune 500 corporations and Semler has to try to convince them to let things work their course. In one such case an environment business the whole floor downed tools after a worker had been fired. The next day Semler went there with an American from the partner company who was aghast at what he regarded as a mutiny. Dont call it that, Semler told him, let it go. The result was that the sacked worker was reinstated and a bad leader was exposed. Semler says, Every time we try to abort the conflict we are aborting the chance to solve it.

So if Semler does not control anything, what does he do? He says that he can lobby as much as everyone else when he wants something. However, he is amazingly modest about his own contribution. He admits that recently he has spent far more time attending meetings in the dotcom businesses because he is more nervous about them. Yet, he does not think his attendance makes much difference one way or the other. On the other hand, a manager in his cooling systems business recently complained that Semler had not attended one of their meetings for two years. His main role, he says, is to remove obstacles to keep smashing down anything that reverts to the old ways. Removing obstacles is what I do most. If you add up where I was right and where I was wrong the net difference isnt very important. Net forward improvement is important and we backtrack a lot.

Is Semler happy with the way things are? Not at all. He does not find it easy to take a hands-off approach but recognises the system wont work if he doesnt. I have to live with the fact that we would not have gone to $160 million revenue if I had had anything to do with it. Its common for me to receive e-mails, get very upset and then delete them. If I answer them the system would not work. If I go into a meeting and Im outvoted and I do anything afterwards that sabotages the decision, I am undoing the system.

And what of HR? Semlers answer is quick and clear. He does not want anything that prevents staff having a say in their own destiny and the progress of the business. And he believes that any function that exists outside the line cannot possibly be of help. Already, for instance, employees (and ex-employees) at Semco choose how they are to be paid based on 11 different options with every possible permutation. These range from fixed salary to royalties on profits to stock options to IPO/sales warrants. And in an amazing move to transparency Semler gives all employees access to the payroll system and thus to information about anyones salary. He says, everyone can look up salaries, unless the person does not want to be listed. But this is never an issue, and people do know what almost everyone makes.

As far as HR is concerned Semler asserts that the assumption that we do products and services here and deal with people over there does not make sense. There are really no important issues which are not people issues. At its peak Semcos HR department numbered around 90 people. Now there are two. The logic of Semlers system is that it is better to have people in the line who have good HR instincts and maybe some technical knowledge than it is to have an HR department at all.

So is the Semco way the future? Since Maverick was published Semler thinks companies have started to catch up. On a scale of 1 to 7 they are at about 2.5, he says. He also thinks (perhaps to mollify HRs readers) that traditional HR still has 10 to 20 years to run. It is possible, though, that in the future there may be two roads to travel by: the old way or the new way (which would include the Semco model). It would be perfectly possible for CEOs to dismiss Semlers model and carry on as they always have done. But if I were betting on which type of company would last longest I would put my money on Semco. And if I were in HR today I might well be considering how to help my company become a Semco as soon as possible and then transform my own job into a line one. What do you think? (morice.mendoza@haynet.com).