Aaargh, Captain Ye Best Take Care of the Crew
Earlier, back when we were focused on what makes a company tick rather than all these sidetrips into understanding the economic environment, we took at look at the heretical notion of treating people as strategic assets (People & Performance:Assets or Fungible Commodities ? ). There we made the following argument and asked the key question:
Have you ever stopped to wonder why everyone who works for an effective startup is excited and works long hours at 120% efforts levels. Sure, some of it is the wealth prospects and some of it's the challenge. But a lot of it's the fundamental satisfaction we all get from doing good work that is worth doing and makes a difference.
The real question is why don't we manage our organizations to maximize total performance by managing people as assets ?
We came to that critical concern by looking at Home Depot's performance under Bob Nardelli and the continuing challenges they face in improving morale and customer service - which are critical to maintaining and improving performance for them. Particularly in view of the rolling and roiling housing market and their earnings performance (more later - I promise). The critical challenge, or question, is this: how should you run a company to get the best long-term performance and value ? And then how should you treat your employees ?
All organizations and social groups need to work thru these challenges - and they all do one way or another. One of the most interesting historical answers to that challenge was found by 17th century pirates (hat tip EconomistsView ).
But before sailing away let's take that up a level - how should you organize any social group to maximize it's long-term performance and find the best balance between group goals, cohesion and individual requirements and desires ? And how do you structure the governance or management system ? Stop and think about that for a minute. The Boy Scouts have an answer, so does your local beer-league softball team and LA street gangs appear to have evolved a highly successful recruiting, training and leadership development capability, judging by their mere survival and prosperity. Let alone their sustained prosperity. They even appear to have solved one of the most difficult problems for autocratic governments - finding a way to ensure the transfer of power and successions without destroying the 'society'. Unfortunately. Of course their turnover is pretty high at all levels.
The "Pirates Code" iscussed by James Surowiecki in a New Yorker article on "The Pirates Code" , reporting in turn on a paper by Peter Leeson, an economist at George Mason University, and “The Republic of Pirates,” a new book by Colin Woodard. To borrow from the column:
...pirate ships limited the power of captains and guaranteed crew members a say in the ship’s affairs. The surprising thing is that, even with this untraditional power structure, pirates were, in Leeson’s words, among “the most sophisticated and successful criminal organizations in history.”
...Nor were they held together primarily by violence; while pirates did conscript some crew members, many volunteered. More strikingly, pirate ships were governed by what amounted to simple constitutions that, in greater or lesser detail, laid out the rights and duties of crewmen, rules for the handling of disputes, and incentive and insurance payments to insure that crewmen would act bravely in battle.
But rules alone did not suffice. Pirates also needed to limit the risk that their leaders would put individual interests ahead of the interests of the ship. Most economists today would call this problem “self-dealing”; Leeson uses the term “captain predation.” Some pirates had turned to buccaneering after fleeing naval and merchant vessels, where the captain was essentially a dictator—“his Authority is over all that are in his Possession,” as one contemporary account had it. Royal Navy and merchant captains guaranteed themselves full rations while their men went hungry, beat crew members at their whim, and treated dissent as mutinous. So pirates were familiar with the perils of autocracy.
As a result, Leeson argues, pirate ships developed models that in many ways anticipated those of later Western democracies. First, pirates adopted a system of divided and limited power. Captains had total authority during battle, when debate and disagreement were likely to be both inefficient and dangerous. Outside of battle, the quartermaster, not the captain, was in charge—responsible for food rations, discipline, and the allocation of plunder. On most ships, the distribution of booty was set down in writing, and it was relatively equal; pirate captains often received only twice as many shares as crewmen. (Woodward writes that Privateer captains typically received fourteen times as much loot as crewmen.) The most powerful check on captains and quartermasters was that they did not hold their positions by natural right or blood or success in combat; the crew elected them and could depose them. And when questions arose about the rules that governed behavior on board, interpretation was left not to the captain but to a jury of crewmen.
Let's pause for a minute or so and think about what we've just read.....the official ships were organized as strict hierarchies, backed by the police power of the state, and captains and officers putting the interests of themselves ahead of the welfare of the crew, and flagrant abuses, were not unusual. In fact if you skim the paper they were fairly common and a major reason for naval and commercial crew to become pirates. By putting their own interests ahead of the welfare of the crew, preying as it were on them, the captain and officers were damaging the long-run welfare of the ship and it's owners.
Now, that's not necessarily an argument for a democratic organization nor even a lack of hierarchy. It IS an argument for every member of that hierarchy to act with an appropriate balance between their own interests and the interests of the organization. And similarly instead of "they pretend to pay us and we pretend to work" (a historical quote describing accurately the characteristics of the Soviet incentive system) we need for employees to give us a fair day's work for a fair day's pay.
The only way for that to happen is if, first, what they are asked to do is felt to be fair in terms of effort vs. reward, if they similarly see others being rewarded appropriately to their contributions and if the "officers" aren't treating the organization predatorily. In other words if employees feel that the system is legitimate in two senses. First rewards are fair and justified. And second the distribution of authority and rewards is fair in the sense of going to people who earn them. The more legitimate an organization the more efficient it will be in the short-run and the more effective and resilient it will be in the long-run.
Let's take this into the real world a bit. Whether you're an employee, a manager or executive, an investor or an owner which type of organization do you think will do better over the long run ? If, for example you're one of the LBO firms looking to buyout an under-performing firm how much of an asset or liability is the relative performance of their human systems ?
If someone had translated the deteroriation in observable employee morale at Home Depot into the perceptible deteroriation in service two years prior to Nardelli's departure then....well I'll leave the rest of the question to you to frame. But think about this - how's the place you work ? Shop ? Invest in ? Hmmm....