Ricardo Semler : “The radical boss who proved that workplace democracy works”

Ricardo Semler
Case Study: Organizational Behaviour
“The radical boss who proved that
workplace democracy works”

Introduction
• 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.

Introduction
• 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),
provides readers with insights on how to get beyond
those who say that organizations are too large and/or
too bureaucratic to change.

Maverick: The Success Story Behind The
World’s Most Unusual Workplace (1993 )

Why My Employees Still Work For Me
(1994)

Introduction
• At the age of 24, Ricardo Semler took control of
Semler & Company, At that time, this Brazilian
company’s organizational structure, like many
historical Latin American enterprises, was a
paternalistic, pyramidal hierarchy led by an autocratic
leader with a rule for every contingency.
• Upon taking office, the younger Semler began
dramatic organizational restructuring.
• Among other things, he immediately renamed the
company SEMCO, eliminated all secretarial
positions, and implemented an aggressive product
diversification strategy.
• Most observers predicted that these actions would
destroy the company.

Introduction
• Semler’s changes, however, did not bring about
the demise of the struggling industrial equipment
manufacturer. Rather, they created a
remarkably flexible organization whose sales
grew from $35 million in 1990 to $100 million
in 1996.
• SEMCO became one of the most sought-after
employers in Brazil, manufacturing over two
thousand different products.
• Over 150 Fortune 500 companies visited
SEMCO in an attempt to discover the secret of
its success.

Over 150 Fortune 500 companies visited SEMCO in
an attempt to discover the secret of its success.

Introduction
• The SEMCO Era
• The key to management is to get rid of the managers.
• The key to getting work done on time is to stop
wearing a watch.
• The best way to invest corporate profits is to give
them to the employees.
• The purpose of work is not to make money. The
purpose of work is to make the workers,
• whether working stiffs or top executives, feel good
about life.
Ricardo Semler

The Beginning of the Revolution.…
• Semler firmly believed that all people desire
to achieve excellence.
• He felt that autocracy thwarted people’s
motivation and creativity.
• He thus decided that the authority to make
decisions at SEMCO should be more evenly
distributed.

Semler firmly believed that all
people desire to achieve excellence

• His first attempts took the form of a matrix structure similar
to that of Delaware-based W.L. Gore, a company Semler
had long admired.
• Under this system, SEMCO managers reported not only
to their plant manager but also to a director at
headquarters.
• This, Semler felt, would provide managers with multiple
perspectives on each problem.
• Initial reactions to the matrix were less than favourable.
• If. pleasing one boss was difficult, pleasing two
simultaneously was impossible.
• In order to avoid conflict, SEMCO managers became overly
cautious, took few risks, and learned little.
• The shortcomings of the matrix structure prompted Semler
to divide the company into autonomous business units, each
headed by a general manager.

Matrix Structure
Delaware- W.L. Gore

• Finally in the mid-1980s, SEMCO manager Jo Vendramin
convinced Semler to create a lattice organization.
• Under this program, self-managed groups of six to ten
manufacturing employees were placed in charge of all aspects of
production.
• To promote a sense of true ownership of the process, the groups
were charged with setting their own budgets and production
goals.
• Tying salaries to monthly budget and production performance
aligned employee and organizational goals. With the
implementation of the lattice, unit production costs fell
dramatically while employee productivity soared.

Profit Sharing
• Semler also resorted to more traditional means of
employee motivation, instituting a profit-sharing plan in
which employees receive roughly one-quarter of the net
profits of their Respective divisions. Given rapid growth,
these distributions could easily double or triple a worker’s
salary.
• The democratic nature of the process drastically reduces
employee complaints regarding the allocation of funds. It
also exemplifies Semler’s trust in his employees.
• abilities to make decisions, as well as his firm belief in the
democratic process.

A Satellite Business
• In the late 1980s, three engineers at
SEMCO submitted a proposal to take a
small group of employees raised in Semco’s
culture and set them free.
• The stated aim of the group was to invent
and reinvent new products, refine
marketing strategies, expose production
inefficiencies, and dream up new lines of
business. They would work without titles,
bosses, or subordinates.

• They would choose their areas of activity, set their own
agendas, shift assets as they pleased, And they would
do all this with Semco’s equipment and facilities.
• Twice a year, they were expected to report to senior
management, at which time their mandate would be
extended for another six months or be revoked.
• Given the risk of the venture for the firm, they
agreed to accept as compensation a percentage of
the sales, savings, or royalties resulting from their
efforts. Semler, true to his belief in democratic
autonomous teams, approved the proposal.

• At the end of the first six months, the Nucleus of
Technological Innovation (NTI) team had eighteen
projects in progress. It quickly became a fast-moving
and successful model for change at SEMCO. In 1990,
Semler and his senior managers decided to encourage the
creation of more satellites like NTI throughout the
organization. SEMCO management recognized the
enormous potential that such satellites possessed in helping
release the creative, entrepreneurial spirit of other
employees.
• As an added incentive to foster growth of the satellites,
management guaranteed initial contract work for the
new satellites and deferred lease payments on all
equipment and office space for two years. Satellite
businesses turned out to be among the most innovative
and agile divisions within SEMCO.

The New SEMCO
The New SEMCO
• SEMCO has no receptionists, secretaries, or personal
assistants. All employees, Semler included, receive their
own guests, make their own copies, and draft and send
their own correspondence.
• There are no private offices, workers set their own hours, and
office attire is at the discretion of each employee.
• Job titles carry little formal status since all workers are
actively encouraged to question and constructively criticize
their peers and managers. To illustrate Semler’s hands-off
management style, he states, I don’t sign a single check, I
don’t approve investments. I don’t run the company in
that sense at all. What I do is spend a lot of time being
called into meetings about strategy, about pricing, I visit
customer

The New SEMCO
• Semco’s standard policy is not to have one.
Semco’s policy manual is a twenty-page
booklet filled with cartoons and brief
declarations outlining the culture of the
organization.

The New SEMCO
• Since 1982, Semco’s corporate staff has been reduced by 75%.
What was once twelve layers of management bureaucracy was
reduced to three concentric circles.
• The small innermost circle consisted of six Counsellors who
determined general policy and strategy, and attempted to
catalyze the actions of those in the second circle. Each of the
Counsellors, Including Semler, took a six-month turn as CEO.
• The second circle, known as the Partners, included seven to ten
leaders of each SEMCO division.
• All remaining employees, or Associates as they were known at
SEMCO, comprised the outermost circle.
• Scattered within this circle were triangles representing permanent
and temporary team leaders. Marketing, sales and production
managers, engineers and foremen all fell within this classification.
Semler eloquently contrasted the new organizational structure as
resembling a bottom-heavy bottle of Portuguese ros rather than the
taller (old hierarchical model) bottle of Bordeaux.

The New SEMCO
• Over the thirteen years from 1985 to 1998, employees were
gradually expected to assume greater responsibility over
everything from cafeteria menus to new product designs
to plant relocations.
• Employees were always free to become cross-functional
in any areas of the business they chose and to transfer to
different units or participate however they saw fit.
• A true indication of Semco’s adoption of a democratic,
participatory management style is that all Associates
were encouraged to openly oppose and reject proposals
by upper management, and were comfortable doing so.
• In effect, Ricardo Semler no longer owned SEMCO; he
merely owned the capital.

Eliminate Organization Charts
• SEMCO does not use a formal
organizational chart. When it is absolutely
necessary to sketch the structure of the
company they always do it in pencil and
dispense with it as soon as possible. (“The
SEMCO Survival Manual”)

Free Flow of Information
• SEMCO made all of its financial data available to all
employees.
• In fact, SEMCO developed a course to train employees
in the interpretation of balance sheets and statements of
cash flow. Profits and losses for each division were
common knowledge, and everyone knew the salaries of
upper managers (incidentally, their salaries were capped at
ten times the average entry level salary).
• All meetings, including those of the Counsellors, were
open to all employees who wished to attend. Naturally,
all who attended could command equal voting power.
• This free flow of information served two purposes. It
gave associates the information

Free Flow of Information
• necessary to make informed decisions, and
reinforced the democratic nature of the
decision-making process.

Strategy
• By 1998 SEMCO maintained only a limited number of functions
totally in-house. This included top management, applications,
engineering, some research and development, and a few other
high tech, capital intensive functions considered to be within
Semco’s range of core competencies.
• The firm had moved all other functions to its satellite companies or
had completely outsourced to other firms.
• SEMCO and its satellites meant that most competitive data
effectively remained within the organization.
• Because of Semco’s ever-changing nature, Semler felt that a
corporate mission statement was unnecessary.
• In his words, an articulation of company values or vision is just
a photograph of the company as it is, or wants to be, at one
given moment...no one can impose corporate consciousness from
above. It moves and shifts every day and with every worker.
• Like planning, vision at its best is dynamic and dispersed.

Flex-Time Scheduling
• “SEMCO has flexile working hours and the responsibility for setting
and keeping track of them rests with each employee. People work at
different speeds and differ in their performance depending on the time of
day.
• SEMCO said it’s best to adapt to each person’s desires and needs”
• Each employee can decide when he or she comes to work, usually
between the hours of 7 AM and 9AM.
• While each is expected to be at or near their work site for 8 hours a
day, there is no expectation that all energy will be applied to work for that
period including occasional breaks.
• Instead, since it is the team members that set the production
requirements, if your work can be completed in a few hours, then your
continued presence is really in support of the rest of your team. You are, in
effect, a back-up resource. If personal matters call you away, there is no
guilt associated with leaving the site. Also, since each division is
allowed to set its own salary structure, any short fall in your
contribution to your team and to the company as a whole can be taken
into account during reviews by the worker’s peers.

Flex-Time Scheduling
• Flex-time in scheduling individual and team work
has been tried successfully in over 25% of U.S.
companies responding to surveys.
• In Europe, the flexible approach has a higher
percentage of participation.

The Workweek
• How many workers dread Sunday evening knowing that
Monday morning brings more of the same old thing.
Semler’s attitude toward the traditional workweek is
basically to put people into jobs they want to do instead of
leaving them in jobs that they have grown tired of.
• “Here’s a counterintuitive idea for you: For a company
to excel, employees must be reassured that self-interest,
not the company’s, is their foremost priority”. In other
words, doing a job you are passionate about doing and not
just doing it because it’s your job. Semler lets his
employees find a job they like and lets them do it. It
might not even be in their area of expertise. He feels it
doesn’t have to be.

The Work Environment
• We want all our people to feel free to change and adapt their working areas
as they please.
• At SEMCO there is no dress code. With no dress code there is no
stereotyping. The point here is that if there is no dress code there can
be no stereotyping and without stereotyping people look toward others
in the organization primarily for the contributions they make.
• It doesn’t matter what the employees wear to work. Employees
required to wear uniforms are able to select, for themselves, the style
and color of their uniforms. From Semler’s perspective it is all a bout
breaking down the stereotype.
• It is the person that is important. Even those who may come to work
unmotivated are looked upon as valuable for what even they bring to
the organization

At SEMCO there is no dress code

• Employees design and redesign their work
environments and in keeping with that
atmosphere, they can choose what to wear
to work. Choice of attire is subject only to
the moral pressure of public opinion.
Pressure to “conform” comes from co-
workers’ concerns about safety and being
distracted from tasks.

• SEMCO, employees are encouraged to do the job they
were hired to do in any way they see fit, not encumbered
by company policy or HR job descriptions and
organizational charts.
• There are no job descriptions. In addition, employees
are encouraged to move from job to job within the
organization as their interests may dictate.
• Programs have been put into place encouraging employees
to manage their pay, plan their retirement around the quality
of their health while understanding that “the peak of
physical capability is in one’s twenties and thirties.
• The downturn is usually steepest and deepest after the
age of sixty. Financial independence usually occurs
between ages fifty and sixty and idle time naturally
peaks after seventy”

Salaries
• Associates at SEMCO set their own salaries. What
prevented associates from overpaying themselves
First, all salaries were publicly posted.
• Those who paid themselves exorbitant salaries must
work with resentful colleagues.
• Second, associates set budgets and decided the fate
of their colleagues. If an employee overpaid himself
in one six-month period, he might find himself
unemployed in the following six. Because Brazilian
law prohibited salary reductions, temporarily
pricing oneself out of the market was always a risk.

Hiring, Firing, and Evaluations
• At SEMCO, the associates who would actually
work with a new recruit decided whom to hire,
regardless of whether the new associate would be
a co-worker or boss.
• However, because no one individual had the
power to fire another, associates never had to
worry about winning the favour of any one
individual.
• Indeed, associates would not hesitate to
challenge even Ricardo Semler’s opinion.

• Every six months when new budgets were drafted, employees bid
for positions.
• Bids were accepted or rejected based on an associates talents and
skills, requested salary, and their colleagues willingness to re-hire
them.
• In addition, associates evaluated their managers and the
company as a whole. Semler expected all bbosses to be relaxed,
secure, fair, friendly, participative, innovative, trustworthy, and
highly competent. Managers were rated on a one-hundred-point
scale and the results publicly posted. Managers who did not
consistently score above seventy-five were eventually voted out
of the company.
• Even Ricardo himself was not exempt from evaluation in this
manner.
• To ensure that due process was given to each case, very careful
consideration was given to those associates with a minimum of
three years experience and/or over the age of fifty.

Profit and Loss Responsibility
• SEMCO's adherence to the principles of democratic
worker management brought both a sense of individual
freedom and a necessary commitment to financial
accountability.
• At SEMCO, the two were inseparable. In return for the
autonomy that it grants to each manufacturing cell,
SEMCO demanded accountability.
• To achieve accountability, there had to be some way for the
firm to objectively measure the success or failure of each
cell. In the midst of SEMCO's Productive chaos, the
bottom line was arguably the only way to fairly measure
performance.
• SEMCO's profit-sharing plan reinforced this criterion
and gave each associate a strong incentive to improve
the company’s profitability.

• Every SEMCO associate was measured according to
his or her contribution to the bottom line. Those
who didn’t measure up were ultimately pushed out, like
it or not. According to Semler:
• There’s not much compassion. There’s no place for it
really when you’ve exchanged the bottom line for
compassion, because the bottom line is what gave you
that freedom.
• So when you screw with the bottom line, you screw
with the freedom, and that’s why the compassion
goes away.

Conclusion
• Semco’s transformation from an autocracy
to an entrepreneurial democracy took
fifteen eventful years.
• In the words of Semler, the change proves
that worker involvement doesn’t mean that
bosses lose power; it merely strips away the
blind irrational authoritarianism that
diminishes productivity.

Conclusion
• Semler felt that the organizational change process at SEMCO
was only about thirty percent complete by 1998:
• Still the rewards have already been substantial, wave taken a
company that was moribund and made it thrive, chiefly by
refusing to squander our greatest resource: our people. SEMCO
has grown six-fold despite withering recession, staggering
inflation, and chaotic national policy. Productivity has
increased nearly seven-fold. Profits have risen five-fold. And
we have had periods of up to fourteen months in which not
one worker has left us. We have a backlog of more than 2,000
job applications, hundreds of people who say they would take
any job just to be at SEMCO. As a matter of fact, our last
help-wanted newspaper generated more than 1,400 responses
in the first week.

Conclusion
• Semler liked to recount the following anecdote:
• Not long ago, the wife of one of our workers came to
see a member of our human resources staff. She was
puzzled about her husband’s behaviour.
• He no longer yelled at the kids, she said, and asked
everyone what they wanted to do on the weekends.
He wasn’t his usual grumpy, autocratic self.
• The woman was worried. What, she wondered, were
we doing to her husband? We realized that as
SEMCO had changed for the better, he had too.

SEMCO had changed for the better

Conclusions
• First: We strongly suggest managers who have
a high degree of confidence in their workers’
abilities and in their own talents at macro-
managing try these three empowerment tactics:
• 1) elimination of hierarchal organization charts,
• 2) Flex-time scheduling and
• 3) Redesign of the work environment.
• All have support in the literature, but Ricardo
Semler’s application of these and other tactics
at SEMCO in Brazil provide real-life models
and exciting anecdotes.

Conclusion
• Second: A managers
• who elect to try these empowerment tactics
should lay the groundwork for success by
investing in a serious team building and conflict
resolution exercise.
• Third: An important part of Semco’s success
appears to be the investment of employee energy
in the R&D process.
• This probably provides a significant motivation to
do well at current tasks in order to be able to
participate in future projects.

The SEMCO Survival Manual
Organization Chart
• SEMCO doesn’t use a formal organization chart. When it is
absolutely necessary to sketch the structure of the company they
always do it in pencil and dispense with it as soon as possible.
Hiring
• When people are hired or promoted others in that unit have the
opportunity to interview and evaluate the candidates be fore any
decision is made.
Working Hours
• SEMCO has flexible working hours and the responsibility for
setting and keeping track of them rests with each employee.
People work at different speeds and differ in their performance
depending on the time of day. SEMCO does its best to adapt to each
person’s desires and needs.

Working Environment
• We want all our people to feel free to change and adapt their working
areas as they please. Painting walls or machines, adding plants or
decorating the space around you is up to you. The company has no rules
about this and doesn’t want to have any. Change the area around you
according to your tastes and desires and of the people who work with you.
Unions
• Unions are an important form of worker protection. At SEMCO
workers are free to unionize and the persecution of those connected
with unions is absolutely forbidden.
• Unions and the company don’t always agree or even get along but we insist
that there is always respect and dialogue.
Strikes
• Strikes are considered normal. They are part and parcel of democracy.
No one is persecuted for participating in strikes as long as they represent
what the people of the company think and feel. The workers’ assemblies
are sovereign in this respect.

Participation
• Our philosophy is built on participation and involvement. Don’t settle
down. Give opinions, seek opportunities and advancement, and always
say what you think. Don’t just become one more person in the company.
Your opinion is always interesting, even if no one asked you for it. Get in
touch with the factory committee and participate in elections.
Make your voice count.
Evaluation By Subordinates
• Twice a year you will receive a questionnaire to fill out that enables you
to say what you think of your boss. Be frank and honest and not just on
the form but also in the discussion that follows.
Factory Committees
• Employees at SEMCO are guaranteed representation through the
Factory committee of each business unit. Read the charter, participate,
and make sure your committee effectively defends your interests, which at
times will not coincide with Semco’s interests. We see this conflict as
healthy and necessary.

Authority
• Many positions at SEMCO carry with them hierarchical authority. But efforts
to pressure subordinates or cause them to work out of fear or insecurity, or
that show any type of disrespect, are considered unacceptable use of authority
and will not be tolerated.
Job Security
• Anyone who has been with us for three years, or has reached the age of fifty,
has special protection and can only be dismissed after a long series of
approvals. This does not mean that SEMCO has no layoff policy but it helps to
increase the security of our people.
Change
• SEMCO is a place where there are big change s from time to time. Don’t worry
about them. We consider them healthy and positive. Watch the changes without
fear. They are characteristic of our company and its culture.
Clothing and Appearance
• Neither has any importance at SEMCO. A person’ s appearance is not a factor
in hiring or promotion. Everyone knows what he or she likes or needs to wear.
Feel at ease – wear only your common sense.

Private Life
• SEMCO has no business interfering with what people do when they
are away from work as long as it does not interfere with work. Of
course, our human relations department is at your service for any help or
support you may need.
Company Loans
• The company loans money to its people in unforeseen situations. Thus,
loans to cover the purchase of homes, cars, or other predictable
expenses are not included. But the company wants you to know that the
day you run into difficult and unexpected financial problems that it will be
here for you.
Pride
• It’s only worth working in a place in which you can be proud. Create
this pride by insuring the quality of everything you do. Create pride by
insuring the quality of everything you do. Don’t let a product leave the
company if it’s not up to the highest standards. Don’t write a letter or
memo that is not absolutely honest. Don’t let the level of dignity drop

Communication
• SEMCO and its people must strive to communicate with
frankness and honesty. You must be able to believe fully in what is
said to you by your co-workers. Demand this transparency when
you are in doubt.
Informality
• Promoting a birthday party at the end of the workday, barging
into a meeting where you are not invited, or using nicknames are
all part of our culture. Don’t be shy or stick to formalities.
Suggestions
• SEMCO does not believe in giving prizes for suggestions. We
want everyone to speak out, and all opinions are welcome but we
don’t think that it is healthy to reward them with prizes of money.

SEMCO Women
• Women in Brazil have fewer employment, promotion, and
financial opportunities than men. At SEMCO, women have
various programs, run by women that seek to reduce this
discrimination. They are known as:
• SEMCO women.
• 1. If you are a woman, participate.
• 2. If you aren’t don’t feel threatened and don’t fight against this
effort.
Vacations
• SEMCO is not one of those companies that believe anyone is
irreplaceable; everyone should take their 30 days of vacation
every year. It is vital for your health and the company’s welfare. No
excuse is good enough for accumulating vacation days for “later”
(Semler, 1993, Pg 299).

• The rules created with regard to union relations are totally humanistic and
takes seriously the position that the decisions of unions
• are also to be respected. For instance:
• 1. Treat everyone as an adult.
• 2. Tell the strikers that no one will be punished when they return to
work. Then don’t punish anyone.
• 3. Don’t keep records of who came to work and who led the walkout.
• 4. Never call the police or try to break up a picket line.
• 5. Maintain all benefits.
• 6. Don’t block workers access to the factory or the access of the union
representatives to the workers. Insist that the union leaders respect the
decision of those that want to work, just as the company respects the
decision of those who don’t.
• 7. Don’t fire anyone during the strike, but make sure everyone sees
that a walkout is an act of aggressiveness. (Semler, 1993, p. 103).

References
•Ricardo Semler: Creating Organizational Change Through Employee Empowered Leadership
•Motivation in Work Organizations. Cole Publishing.
•Managing Without Managers. Harvard Business Review
•Maverick: The Success Story Behind The World’s Most Unusual Workplace. New York: Warner
Books.
Ricardo Semler: Creating Organizational Change Through Employee Empowered Leadership
•Why My Former Employees Still Work for Me Harvard Business Review,
•The Seven-Day Weekend: Changing The Way Work Works .New York: Warner Books.
A “Seven-Day Weekend.” Their Results Will Make You Jealous.
•http://agilelifestyle.net/seven-day-weekend

Ricardo Semler, CEO SEMCO
Partners

Ricardo Semler : “The radical boss who proved that workplace democracy works”

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