Ricardo Semler: Creating Organizational Change Through Employee Empowered Leadership

by Eveline Hadewegg Scheffer

January 1, 2005

Through his unique leadership style, Ricardo Semler, President & CEO of Semco S.A., a Brazilian manufacturing company, has literally redefined the concept of employee empowered leadership. At 20, the youngest graduate of the Harvard Business School, Semler is known around the world for championing his employee-friendly management style. Researched from primary sources including his best selling books, Maverick: The Success Story Behind The World’s Most Unusual Workplace (1993 ) first published in 1988 as Turning the Tables, and THE SEVEN-DAY WEEKEND: Changing the Way Work Works (2004), as well as two articles he authored in the Harvard Business Review, Managing Without Managers, (1989) and Why My Employees Still Work For Me (1994), this paper provides readers with insights on how to get beyond those who say that organizations are too large and/or too bureaucratic to change. In addition, it provides concrete examples of how his company routinely ignores the rules while at the same time creating a new paradigm for creative leadership and organizational effectiveness.

Semco S.A., founded by Antonio Semler in 1912, was a traditionally managed industrial equipment company, located in Sao Paulo, Brazil. Today Semco S.A. manufactures pumps used to empty oil tankers, high volume industrial dish washers, cooling units for air conditioners and various types of industrial mixers for the food industry. Upon retirement in 1980 control of the company was transferred to his son, Ricardo Semler, who subsequently instituted an employee-friendly and employee empowered management system that has come to represent a model of worker empowerment free of the left wing political rhetoric having philosophical roots reaching back in history and that flowered episodically during the 19th and 20th centuries. As noted by many scholars, the management of any enterprise requires that someone exercise control over the plan, the process, and the factors of production in order for an economically viable product or service to emerge. In the 20 years since he assumed the role of president and CEO, sales have grown at a 24 percent annual rate. Since 1996 alone, profits have tripled and employment has gone from 350 to 2,500. The annual turnover of employees averages less than one percent against an industry average closer to 20 percent.

Based on examples drawn primarily from Semler’s self-reported experience, this paper suggests that managers should consider removing some levels of company imposed hierarchical control from the workforce so that the workers own self-ordering behavior can intervene in the process and in the allocation of the factors of production. Planning and monitoring adherence to the plan, however, would remain the provinces of management.Semler set forth his views in a Harvard Business Review article.

“I believe in responsibility but not in pyramidal hierarchy. I think that strategic planning and vision are often barriers to success. I dispute the value of growth. I don’t think a company’s success can be measured in numbers, since the numbers ignore what the end user really thinks of the product and what the people who produce it really think of the company. I question the supremacy of talent, too much of which is as bad as too little. I’m not sure I believe that control is either expedient or desirable.” … “I did try to reconstruct the company so that Semco could govern itself on the basis of three values: employee participation, profit sharing, and open information systems.” “Participation gives people control of their work, profit sharing gives them a reason to do it better, information tells them what’s working and what isn’t” (HBR, p.4).

Some of the more interesting experiments regarding workers’ self-management are those that have taken place in post-colonial societies, especially those societies seeking to put into place a distinctive political and economic model. This process of “modernization on our own terms” can best be seen in some of Australia’s Aboriginal farms as well as the eco-tourist cooperatives being rum by Indians in Peru and Ecuador.

With regard to organizations found in the West, empowerment has been defined in a number of various ways. Some have claimed it is “a fundamentally different way of working together” and “quite different from the traditional notion of control”. Empowerment is still seen by those in management as a way as giving people more opportunity or “power” to exercise control over, and have more responsibility for their work. It is intended to encourage individuals to use their abilities by enabling them to take responsibility for their decisions “ (www.thirdway.org/files/articles/empwrkpl.htmk).

The Semco experience in particular deserves a wider audience among American managers at all levels. This article will stimulate thinking and discussion among managers willing to risk relinquishing degrees of control over the workforce with an expectation of increases in productivity and reduced costs.

The authors suggest a road map for those managers willing to take reasonable risks, specifically in three areas regarding the production of goods and services: (1) eliminate the hierarchical organizational charts; (2) maximize employee opportunity to use flex-time work schedules, and (3) eliminate all rules (other than those involving health and safety) impacting the employee work environment. Clearly, these are baby steps on the way toward employee empowerment. They do, however, significantly reduce three important elements of management control and, after an initial shakedown period, will demonstrate measurable changes up-or-down in the organization’s metrics. They do not require understanding management theory nor are they appropriate in all situations. But if the reader feels a modicum of comfort with the risk involved, action along these three paths may lead to real improvements.

At Semco, S.A., workers set their own production quotas. Employees decide among themselves the best time to come to work. Employees redesign products they make, their work environments, and even formulate their own marketing plans. Managers run their units with unheard of freedom and determine business strategies without interference from top management. Each division in the company is allowed to set their own salary structure. All financial information is discussed openly and freely. If employees need assistance in making sense of the financials classes are held to assist them in understanding the meaning of the numbers. There are reception desks but no receptionists. There are no secretaries or personal assistants. There are no executive dining rooms and no personalized parking spaces.

Semco managers and workers together make decisions; not just the chairman. One of Ricardo Semler’s first undertakings was to throw out all the rules. He reduced the layers of management from 12 to 3 and reduced the “corporate” staff by more than 75%. At Semco the standard policy is to have no policy. For those whose job requires travel there are no travel restrictions other than using your head. There are no departments, no rules, and no audits. The entire budget system has been simplified. What Semler did was to strip away the blind authoritarianism that diminishes productivity. Workers are selfgoverning and self managing. In fact, workers have, in most cases, mastered several jobs.

“According to his reasoning, medieval cathedral builders produced magnificent works of art virtually without supervision. Why couldn’t the men and women of his workforce – adults who made complex and far-reaching decisions in their daily lives – be trusted to choose the colors of their uniforms and decide when to start their workdays? Come to think of it, why couldn’t they organize their pay scales and approve their bosses? Why couldn’t they decide what new ventures Semco could invest in and veto plans proposed by the CEO? No reason at all” (Shinn, 2004, p. 16).


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