Participants: 882 Materials: 798 Discussions: 52
Archive

Semco SA: Brazilian Miracle Where Employees Set Their Salaries and Sleep in Hammocks

08.08.2007

Semco SA: Brazilian Miracle Where Employees Set Their Salaries and Sleep in HammocksBrief

Semco was founded in 1953 in Sao Paolo (Brazil) by Antonio Curt Semler, an Austrian-born engineer. It was rigidly hierarchical company with rules and policies for everything. The company made several products, but was mostly known for its marine pumps. 90% of the sales were to the Brasilian shipbuilding industry.

Antonio’s son Ricardo joined the company when he was 19 and clashed with his father’s traditional autocratic style of management. The younger Semler thought the company got too much business from one industry, was too rigid, and needed better financial practices. His father refused to allow changes. Ricardo threatened to leave the company. Then Antonio Semler resigned as CEO and vested majority ownership in his 21-year-old son in 1980. One of Ricardo’s first official acts was to fire 60% of the executives, many of whom were his father's friends, and all the secretaries. New CEO began implementing a diversification strategy and changing the way business was done. A fainting spell when he was 25 made him think about a better work-life balance for himself and his employees.

After strong restrictions on liquidity set by Brazilian president Fernando Collor de Mello in 1990, many companies were forced to declare bankruptcy. Semco’s workers proposed to take a pay cut, but with three conditions: the profit-sharing percentage would be increased until salaries could be restored; management would take a 40% cut in salary; and the workers would get the right to approve all the expenditures. Semler agreed. As the business climate improved, Semco's revenues and profitability improved dramatically.

Today, Semco is a multibillion-dollar company that offers a broad range of products and services from air-conditioning components to inventory management and environmental planning. Annual revenues from the Semco group total more than $240 ml. The company employs more than 3000 workers.

Culture

Semco is often called one of the most interesting companies in the world. And it is actually so. There are no job titles, no written policies, no HR department, or even, the present time, no headquarters. There is still a CEO, but half a dozen senior executives pass the title every six months. All other employees are Associates. People set their own salaries and working hours. Everybody shares in the profits. Everyone in the company knows what everyone else does. Every employee receives the company's financial statements and can take classes on how to read them. Subordinates choose their managers by vote and evaluate them with the publicly posted results. Meetings are voluntary, and two seats at board are open to the first employees who turn up.

Let us go back to the company’s history. In 1985, one of Semler’s managers suggested creating self-managed teams of 6 to 8 workers who would be entirely in charge of all aspects of production. They set their own budgets and goals. Compensation was tied to budget and productivity. Costs went down; and profits - up. Semler liked that. Many workers liked that as well. It was the middle managers who did not like a new idea. They thought they were losing their power and rights. During a year, one third of them left.

In the late 1980s, three engineers at Semco proposed setting up so-called Nucleus of Technological Innovation to develop new businesses and product lines. At the end of the first 6 months, NTI had identified 18 such opportunities. Satellite units were encouraged throughout Semco. By the late 1980s, these units accounted for two-thirds of its new products and two-thirds of its employees.

One more thing has to be mentioned to draw the picture of Semco we see today - autonomous teams. During the crisis the company cut costs in just about every area until there was no alternative to either layoffs or salary cuts. So in the plants, workers started handling job duties and using their knowledge of how the factory worked to come up with new procedures that saved time and money. At one factory they divided themselves into three manufacturing units of about 150 people each with complete responsibility for manufacturing, sales, and financial management.

The idea of autonomous team was adopted throughout the company. As it developed the teams began hiring and firing both workers and supervisors by voting. Policy manuals were replaced by a policy of common sense. The only actual manual runs about 20 pages and is filled with cartoons.

At present time, at the centre of the Semco’s organizational model there are six Counselors, including Ricardo Semler. A different one becomes CEO every six months. They deal with general policy and strategy, overall financial results, and inspire the Partners who are 6 or 7 leaders from each Semco division. But all meetings of Counselors and Partners are open to any employee who wishes to attend.

It is very likely that all above sounds like a recipe for making a real chaos, but Semco has grown consistently for the last 20 years though being located in one of the most unsteady economies on the planet.

Leadership

Ricardo Semler once said: "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." He believes that by letting go of control, people learn to control themselves and work in a more creative and productive manner: "The only thing they are obliged to do is to meet their own commitments to themselves and their fellow workers. If they want to have a sleep in one of the hammocks we provide in the workplace so they can continue working feeling refreshed, they can do so."

The younger Semler started to run his company along revolutionary lines, employing some of the latest ideas in participative management. He was strongly influenced by Bill Gore leadership example (the founder of W.L. Gore & Associates), because Gore was one of the first leaders who experimented with freedom in the workplace. So Semler did not hesitate to allow his staff to set their own targets and take responsibility for reviewing themselves.

Under Semler’s ownership, the company’s revenue has grown from $4 million in 1982 to $212 million in 2003. But still the major stockholder of Semco, he does not have a current title. The company recently brightly celebrated the 10th anniversary of the last time he made any decision. Ricardo is more worried that the company's uniqueness will be diluted if it grows too fast or makes too much money.

Semler's Rules for Management Without Control:

  • Forget about the top line.
  • Never stop being a start-up.
  • Don't be a nanny.
  • Let talent find its place.
  • Make decisions quickly and openly.
  • Partner promiscuously.

Background Links:

Ricardo Semler, Maverick!

Lessons from Semco on Structure, Growth and Change, Monday Memo,

Who's in charge here? No one, The Observer

 

 

COMMENTS: (No messages)
Participant
Ekaterina Zakomurnaya Ekaterina Zakomurnaya
Good2Work, Alumni
Actions & Options