How To Run a Business with Almost No Rules

This article is fueled mostly by the experience of Ricardo Semler, who successfully saved Semco, his father’s Brazilian pump manufacturing business, that had become too dependent on Brazil’s declining shipbuilding industry. In doing so, he found that by ruthlessly applying normal business principles he successfully diversified and turned losses into profits, but the stress of doing so nearly killed him, and the result was frustrating as, despite success, he still couldn’t make his team perform as he wanted or, indeed, be happy in their work.

He felt passionately that there must be a better way to run a business that would be effective and create happy workers that didn’t alienate the staff.

Some 35 years ago he envisioned a company that would devolve the day-to-day management of work to the staff themselves, one which would take away all the boring school aspects of work. In Ricardo’s own words, “you don’t tell people what time to arrive at work, this is how you dress, this is how you go to meetings, this is what you say, this is what you don’t say… strip all that away and let’s see what’s left.”

In his mind, he could not understand why we plan leisure time for retirement when we are too old to enjoy it. One of the first initiatives he created was to offer to buy back (for 10% salary) a day a week to do the things you really wanted to do. His view was that no one’s dying words were ever, “I wish I could have spent more time at the office.” so there is always something we would rather be doing. Why not enable people to do it? Interestingly, the average age of the first people to adopt the scheme was 29; not the older workers, as he had expected.

The next initiative was to see if he could exchange prescribed working hours for a contract delivering service to the company. He really didn’t care what time people came to work or left provided the achieved their objective.

Then there was the office. Sao Paulo is a busy city. Insisting people commute 2 hours a day just to get to the office seemed like a waste of time.

He turned his attention to recruitment. “Rather than the usual process of 2 or 3 interviews then you are married to us for life, come along and meet us; anyone who wants to interview you will show up, and then we will see what happens out of the intuition that arises from that. Then come back, spend an afternoon, spend the whole day, talk to anyone you want. Make sure we are the bride you thought we were and not all the nonsense we put in our own ads.”

In his new world, he had an interesting view on leadership. He viewed leadership as situational or transitional, meaning that the leader is a leader of a group for a specific project, but once that is fulfilled, another type of leader may be more suitable. He didn’t want anyone being a leader in his company unless they had been interviewed and approved by their future subordinates. Every six months, each leader is evaluated anonymously for that role, and that review determines whether he or she should continue as a leader of that group at that time.

Next on his radar was salaries. He wondered why people couldn’t set their own salaries. He felt you only need to know three things to set someone’s salary; how much people earn inside the company; how much people make somewhere else (in a similar business) and how much we make, in general, to show what can we afford. He put a computer in the cafeteria where staff could look-up this information. The result? Salaries didn’t change that much, but staff felt much more empowered!

Expenses and benefits were next under scrutiny. Ricardo wasn’t interested in seeing people’s expense reports or seeing how much holiday people were taking or where they were working. He wanted highly motivated people feeling they were trusted, but also feeling they were responsible for their output and hitting their targets.

As such, he isn’t a fan of traditional HR, and with a staff of 5000, the HR department employed just 2 people, “and one of them had, thankfully, just retired.”

Regarding sales, he wants people to hit their targets, obviously, but he has a different view of over-performance: “Let’s agree that you are going to sell 57 widgets a week. If you sell them by Wednesday, please go to the beach. Don’t create a problem for us in manufacturing. If you over-sell, we will have to buy new companies, buy the competitors, we have to do all kinds of things because you sold too many widgets, so go to the beach and start again on Monday.”

The process was looking for wisdom. He wanted people to be well informed and he wanted to be truly democratic about the way the business operated. Ricardo’s board had two seats open, with full voting rights, for the first two members of staff who turned up. “So, we had cleaning ladies voting on a board meeting with a lot of other very important people in suits and ties. That kept us honest.”

Under this unusual management style, Semco was, and is, a great success, but Ricardo didn’t stop there.

He felt that if he was looking for people who were self-motivated, fully responsible, and self-accounting, he should start training people before they came for interview. Indeed, he felt this type of thinking should start in kindergarten. So, he started a foundation that has now been running for 16 years and has three schools, where they started asking the same question, “how do you redesign a school for wisdom.”

Ricardo takes up the story, “the fact is that what we do with education is entirely obsolete. The teacher’s role is entirely obsolete. Going from a math class to biology to 14th century France is very silly. So, we sat down and created a school from scratch called Lumiar.”

As we are focusing on business organization, we will leave Lumiar as a topic for another day, although as with everything to do with this remarkable man, this, too, is unusual, unexpected and very successful.

For more information about this remarkable man, and what he has achieved, Google, as always, has the answer.

Andy Makeham has enjoyed a lifetime in software business development, as a programmer, implementor and entrepreneur. He has grown, bought and sold many business software companies and floated one on the public markets. He has worked with private and private equity owners. Today Andy acts as a business development advisor to the software sector. In that capacity he is working with SOS Inventory.