Opening the Company
When the economic downturn hit, we tried the logical thing: counter it with an austerity plan. Such an attempt, however, was more easily wished for than achieved. I called a company-wide meeting to inform our employees there would be no more overtime, no more quarterly bonuses, and no purchases of new machinery. Wage increases would be delayed or, if conditions worsened, eliminated. While I expected no one to be pleased, I hoped for understanding. Instead I got suspicion, resentment and innuendo.
It was the traditional American labor versus management syndrome. When I mentioned that I, too, was sacrificing by taking a wage cut, the hearsay was: yeah, from an outrageous $200,000 to $199,000. After explaining the company's most recent quarter ended in a loss, I heard snickers of doubt.
If, despite what I would say, my people didn't believe bad things were happening to the company, one alternative would be to show them. This, I learned, required an act of courage. And I was a reluctant hero. Possessive of my business, having built it through personal sacrifice and risk - from a money losing operation into a prosperous credit-worthy enterprise - I found sharing its innermost secrets anathema, akin to revealing one's sex life.
Our accountant and all my business friends were appalled at the concept, saying it was bizarre and highly dangerous. One business acquaintance warned that under such circumstances I'd have to give up my Mercedes, sail boat and country club membership. But the company didn't own a boat or belong to a country club, and I drove only a company Buick.
But I reasoned that the benefits would outweigh the risk, that if I shared the bottom line, and the details of our expenses, I would also be sharing the burden of having to take action. The firm would change from a typically American autocratic enterprise into a uniquely democratic one. As in any democracy, openness elicits responsibility. Was I in for a few surprises!
At the end of the quarter we shut down the plant for an hour and held an all-employee meeting in the cafeteria. There on a blackboard was displayed a replica of the profit-and-loss statement. Based on questions such as "What is meant by gross profit?" and "What is the difference between fixed and variable expenses?" our executives realized that showing wasn't enough. We'd have to educate our people.
One of our managers volunteered to hold daily sessions teaching small groups of employees how to interpret a P & L statement. I appointed him to present the statement at each company-wide quarterly meeting. It was a continuation of his enjoyable instructive role.
From that first session on I relished that I was no longer a lone worrier. Now my employees could worry along with me. They would learn as insiders that being in business isn't the "picnic" they thought it was from outside. And they would have no choice but to believe what they see. Right? Just as I began to think we had succeeded in allaying all suspicions of management's motives, I was stunned with the accusation that we kept two sets of books and we had ulterior motives in showing the one we did. I could only marvel at the deep-seated distrust between worker and management. Knowing that my assurances would count for little, I invited the company's outside accountant (and auditor) to attend the next session to explain his role, and to validate the genuineness of the figures.
As the employees became more enlightened the liveliness of the sessions increased. More intelligent questions were asked. The openness promoted understanding, trust, and cooperation that far exceeded my expectations. Another surprise.
Take, for example, a simple expense item of $4,000 that appeared on the quarterly P&L: the workers' rented uniforms. They had no idea that what they wore and tossed into the laundry every day was so costly. They came forward with the remarkably simple suggestion that the company purchase the uniforms and invest in a commercial washing machine and dryer. They could then wash their own uniforms at the end of each working day before going home. The estimated savings was $12,000 a year - an office worker's annual wage.
The employees bottom-line thinking didn't end there. When they learned that we spent several thousand dollars each year on a Christmas party, they asked that we do without one. Instead, they suggested that the accumulated earnings of our vending machines be set aside and raffled off during the holidays (a possibly illegal practice to which we all agreed).
While everyone was invited to comment on policy decisions, each employee had a direct responsibility in making the final one affecting him or her. Our janitor, knowing why we had to cut our advertising budget, for example, chose the broom he, not we, preferred.
Of course, nothing goes smoothly for long in human affairs. Some individuals, unable to see beyond their own narrow interest or to identify with a larger entity, refused to sacrifice for the good of the organization. Most disappointing, some of those people were in the upper echelon. Uncomfortable with our open style - or choosing to ignore it - they would be better off in a traditional closed company where they would be told nothing, their responsibility would be restricted, and where they would be free only to suspect everything. That's where I suggested they go.
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