Leading Wisely

Listen to Ricardo Semler's Podcast

Frederic Laloux is the author of Reinventing Organizations. He’s spent many years trying to find out what modern, forward-thinking organizations share in common. In order to keep everything organized, Frederic has come up with a system where he labels businesses with different colors: green, orange, or teal (which represents flexible, freedom-oriented organizations). This model helps us to explore the ways in which choice, specialization, and freedom help or hurt in our desire to find happiness and fulfillment.

Ricardo Semler (RS):

It seems to me that people have incorporated the cliche of a contemporary business with modern practices more than they have actually put those ideas into practice. I’m curious if that’s also your impression or if you think that this is changing more dramatically than it looks to me.

Frederic Laloux (FL):

I think it’s both. I actively have to fight the bubble of thinking that everyone loves these ideas and everyone sees it this way. If I just look at my inbox, then that's the impression I get because, of course, I only hear from people who are like the ideas that I’m sharing. So, sometimes I have the impression that the whole world is changing and I need to remind myself to step back. When I do that, I do think that we’re talking about a small set of business. Part of that is because the type of change we’re talking about is so radical - these arent’ small changes. We’re talking about entirely new ways of conceiving how we run businesses and how we work together.

On the other hand, I see real signs of hope. When I did my research and wrote my book, I really thought that I would only talk to a handful of CEOs and leaders who were on board with me, but I was quite surprised to see a large number of people truly get this. And I'm not talking people who superficially adhere to these ideas. I've really met some CEOs of large organizations who really want to do this and they wonder how to do it.

About a year ago, I told somebody that I only work with CEOs who really get these ideas because, otherwise, I didn’t think anything would really change. He said, "Yeah. You’re right, Fred. But I play a different game. I really believe in the people who are 25 to 35 years old. They seem to really understand these ideas and in 10-20 years they’ll be the CEOs." I had to agree with him because I think these ideas related to self-management intuitively make sense to this generation of future leaders. Lots of them have experienced this idea in the IT world and they’re just waiting for it to burst out into more general areas.

I also think that more traditional managers are starting to understand this idea. The first time I was invited to talk to a very traditional audience of very traditional managers, I thought they would boo me off the stage or they would laugh. But that’s not what happened. I think the big shift that we're seeing is that in the 1980s or 1990s, people still felt like the traditional way to success with working and organizations was still functional. I sense that, even with the most traditional business leaders, there is sort of a looming sense now that something isn't working quite right - but they're not ready to embrace something radically new. But there is a sense that something isn't working and I think that is fruitful terrain.

RS:

To me, it seems that there is a contradiction between what the CEO’s quarterly expectations are and what changes the company needs to make in the long-term. These are changes that could take years before they really work. Also, you have to share power with your employees in order to gain trust and confidence in self-management. Giving up power is giving up information that only you have that someone else does not; it’s taking a leap of faith in the direction of a new program that you haven't tested. Combining the short-term and long-term needs with this necessary leap of faith means that it’s a very unlikely step for organizations to take.

FL:

Yeah, I agree. I think we will see really interesting things pop up in small numbers before we have a larger culture shift. The CEOs who are focused on quarterly reports are not going to be the first ones to embrace it because it means a loss of some control.

I've seen some large companies - I’m thinking of one with 60,000 people - doing some truly radical things. But these companies are privately-held. They have family owners who understand what’s happening and then put a CEO in charge who also gets it. When that happens, a lot of things become possible because the CEO isn’t under quarterly pressure and because owners brought in somebody who doesn’t require that illusion of control over everything.

RS:

If you look at a list of the 10,000 largest companies in the world, you see that about 18% of them are family-owned - but only half of them are family-run. That means that 91% of these organizations cannot make the kinds of changes we’re talking about because they don’t have the support of a family-run business that is willing to shoulder the risk over the long run. How do you imagine that those 9,000 other privately-run companies will start to change how they operate? Are they going to look at the numbers and say, "Okay, your employees are happier and, therefore, your revenue per employee is higher than mine"?

FL:

I wish I had a crystal ball and I could see how this will unfold. One thing I'm sure about though is that no one will embrace the kind of radical things that we’re talking about simply because they look at the numbers in the way you just talked about. They won’t say, "Okay, so the numbers show that people are happier and because they are happier they will be more productive. And by abandoning control I will actually make more money." No one who looks at the world that way will adopt these practices.

All leaders who do accept this path do it from some inner integrity - they simply couldn’t do it another way. I really don’t believe that we’re going to convince any CEO that looks at their business through a traditional, scientific, industrial way of "let me tweak and optimize my profit" is going to come on board. I don’t spend any time talking to CEOs who look at this way because it requires them to give up control in a way that they could never fathom.

One avenue for change is to go through a major life crisis - I’ve seen that happen. Some of the people that I researched had a very traditional outlook and then experienced a major change in their life - a child who fell ill, a horrible divorce, or something that deconstructed their ego that was so profound that they ended up looking at the world in a new way. Those experiences can lead a person to say that they don’t want to lead their company in the way that they did before.

Sometimes there cultural changes that happen that can shift the general narrative. For example, look at smoking in restaurants. 10 years ago, everybody was smoking in restaurants and you were laughed at if you asked somebody not to smoke near you. Now, smokers expect that they need to go outside and are very apologetic if even a little smoke comes near you. The cultural discourse has changed. We could see that sort of shift happen within businesses in the future. Our expectations of how a business should operate can change so radically that more traditionally CEOs might actually start to feel like dinosaurs.

RS:

You started your work by trying to classify by what was being done in these business. You’ve created a framework which would give you an almost scientific classification of companies so that you would be able to separate them. Of course, you decided to use colors to help you with that. Do you ever wonder if, by creating a framework, you’re also creating a more insular structure that companies will automatically attempt to understand and then place themselves within? Is there a risk of this framework playing against itself despite your original intent?

FL:

That could happen and, if it does, I’ll be happy to speak out against. Any framework can be very helpful because it gives us the language to see patterns that we didn’t see before and so a lot of very messy things can become clear. If we hold them in the wrong way, then they can become boxes or a purity test which is stupid. Reality is so complex and never fits in any box nearly. I’ve had people tell me that they enjoyed my book because it’s given them the language to understand why they were so uncomfortable in their organization. The framework is a way to view the world, not a list of 15 things that will make your organization better. That would be absurd.

RS:

There’s a paradox in this whole idea. Of course, in order to see these kind of radical changes, we also have to impose those changes onto an organization. Somebody at the very top of the pyramid has to decide to make this change.

FL:

Is an absolute paradox and everyone sees it. Our current power structure is that nothing of importance can happen if the person at the very top doesn’t want it to happen. This means that, if we want to evolve into something with a very different structure and very different practicies, then the person at the top needs to want it and needs to either impose it themselves or provide the space to let it happen without having others be squashed by the system. So, it is an absolute paradox and I think what is helpful is to unpack it a little bit.

Basically, the authoritarian leader says, "My last authoritarian decision will be that I am no longer an authoritarian leader and that we will go through to a whole new system." But the interesting thing is that one of the things that we find in many of these organizations is that people step away from a fixed job title and start to think about what roles they can fulfill. For instance, a CEO in this new system can say that their new role is to make sure that the company operate in this new system and that they will fiercely defend the organization from going back to the more traditional, pyramid way. They can communicate to everybody that they enforce this new system very strictly with their old CEO powers. But, importantly, they can point out that there are many other decisions on strategy or finance or whatever, that they will no longer have autocratic power over and that they will operate squarely within the new system. So, it’s a very special role and they should communicate that to everybody. The CEO has special powers that they will retain for a while to help transition the organization to their new structures.

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