Democratic management at Semco

Semco is a Brazilian conglomerate that specializes in complex technologies and services like manufacturing liquids, powders and pastes for a variety of industries; refrigeration; logistics, and information processing systems; real estate, inventory and asset management; and biofuels. Semco’s revenues are around $200 million a year.

Semco is a self-managed company. There is no HR department. Workers at Semco choose what they do as well as where and when they do it. They even choose their own salaries. Subordinates review their supervisors and elect corporate leadership. They also initiate moves into new businesses and out of old ones. The company is run like a democracy.

Says CEO Ricardo Semler: “I’m often asked: How do you control a system like this? Answer: I don’t. I let the system work for itself.”

Semco is organized around the belief that employees who can participate in a company’s important decisions will be more motivated and make better choices than people receiving orders from bosses. Workers in each business unit are represented by an elected committee that meets with top managers regularly to discuss any and all workplace issues, and on important decisions, such as plant relocations, every employee gets a vote.

An important management principle is transparency and trust.

“The only source of power in an organization is information, and withholding, filtering, or retaining information only serves those who want to accumulate power through hoarding,” says Semler.

Once a month Semco holds open meetings for the employees of each unit, where all the numbers in the business are presented for open examination and debate. The company also offers courses to help employees better understand financial reports such as balance sheets, Profit-and-loss reports, and cash flow statements.

What about profits?

Nearly a quarter of the company’s profits go to employees, but the company doesn’t decide how to distribute it. Each quarter, the profit contribution of each unit is calculated, and 23% of profits go to that units employees, who can distribute it however they wish. So far, they have always decided to distribute that money evenly to everyone.

Employees who are particularly confident can choose to put up to 25% of their pay “at risk.” If the company does well, they get a bonus raising their compensation to 150% of normal; if the company does poorly, they are stuck with 75% of their pay.
Does it work? Semco's growth from $4 million in 1980 to more than $200 million today seems to point in that direction.
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