These days, i’m exploring designing a corporate model based on principles of ‘equity’ and ‘equal opportunity’. I’ve been on this journey for some years now, and experimenting along the way on some of these principles at Srijan – with mixed results and half-success. However, the reasons for not achieving desired results, in no way, diminish the upside for having a corporate structure on the lines below.
Most of the of the observations here are a result of my first hand involvement (as employer) in two small businesses, my work (in employee capacity) 2 small-medium sized companies, and my years of reading and being coached by mentors and management thinkers, and the several books i’ve read on these issues.
Traditional Corporate model
- Businesses work hard for “increasing shareholder value” quarter after quarter with little care (perhaps face-value) for the environment and community they work in
- Shareholders are initial investors, who mostly have little/no contribution in running the day-to-day business, yet it is for them that all the mess in the corporate world exists – greed arising from measurements of company’s success based on profit increases quarter-on-quarter; else CEOs are booted out, and so on.
- Who are the shareholders? Mostly large investment firms who pay obscene amounts of money to their employees who risk people’s (tax payers’) money for increasing the wealth of the already wealthy
- A business’ goal is to increase its share-value – for an investment they made years ago, most-often through wealth that they did not create themselves (but perhaps inherited)
- Capitalism was invented to distribute wealth; and make it accessible to whoever was willing to take risk, and put in effort
- Now, effort/work/skills is de-linked from wealth-creation; worse there is often not even an equal opportunity for wealth creation by those who do not have much access
Stress between Employees and Employers
- Equity and ownership for employees is mostly left to offering ESOPs, which are also unpopular these days, specifically in India – where the laws are just-not as evolved as they are in the US
- Every business wants its employees to offer their 100% to the growth of the business
- While the enjoyment of the results of growth mostly lie with the promoters.
- Most often the promoters work the hardest – especially in small businesses – while employees can often take things as “another job”
- Those employees who take 100% ownership and responsibility and far few; and while they do tend to get rewarded, most often the rewards are not commensurate to their efforts
- Attitudes at both ends are problematic, dissatisfying and lead to slow-down in the pace of growth of a business
- For an employer/promoter it causes stress and a work-life imbalance, and most often dysfunctional lives in spite of the wealth created
- If everyone shared “equal responsibility” (in their own respective roles and functions), and rewards for such equal-ness could also be proportionately distributed, the complete dynamics of the running of a business could change
- A key principle in this whole equation is “transparency” (in finances and information access) and “fair yet strong methods of measuring accountability”
Resulting problems in society
- The larger impact of such concentration of wealth with a few, creates complete disparity in society and results in the ever-widening gap between the “haves” and “have-nots”.
- The haves, further lobby and push government policy through often corrupt means to further maximise their opportunities for creation of wealth.
- Equal opportunities cease to exist; human self-expression and innate creativity (and meaning of life) takes a big hit, and eventually causes our social pathologies of rage, murder, rape, wars, and so on
- What we see in the Middle-East is at its core, just this inequality (in opportunity) erupting.
Successful business models that inspire
There are actually quite a few companies around the world who have created successful companies while make such partner models or even simply democratic models. Some examples:
- John Abraham has created a successful co-operative with his construction company in the USA
- Ricardo Semler has created deeply democratic structures at Semco in Brazil
An alternate business model
Learning from the Big 4
- It is possible to have an alternate model by copying the core ideas from the the biggest wealth-creation accounting and consulting firms such as KPMG, Deloitte, E&Y, PWC (Big Four), Accenture, others
- They have a model of “Partners”
- KPMG example:
- KPMG is registered as a co-operative in Switzerland
- All its country-specific arms are registered under laws of their respective countries mostly as Companies; KPMG India is a Pvt Ltd
- KPMG India has some few (perhaps less than 10) Senior Partners who are partners in the Swiss Co-operative
- Then there are Senior Partners in every practice, and region within India
- There are Junior Partners in every practice, and region within India
- Then there are employees
- The key difference between an “employee” and a “partner” is the amount of bonus a partner can make over an employee.
- As an example, an employee could only make 20% of bonuses, if the company did well, of their annual salary; however a junior partner could potentially make upto 80% (these are just example figures)
- Most partners, in spite of being partners, have really no say in any policy making or larger decisions covering the direction of the company – such as direction, M&A, or even how much profit sharing should be distributed.
- Financial information is not transparent and remunerations are likely to be extremely disparate
- Equal opportunities do not exist – because of the “political nature” (non-democratic) of their functioning
Fairness between Employees and Owners
- If a similar partner-model could be extended to creating all businesses, it seems, we could create a win-win between Employers and Employees certainly; and as a result of this a win-win-win between the Business, its Customers, and even the larger society it operates in.
- The legal structure in India now offers an LLP – a “limited liability partnership”, which allows promoters/partners to limit their liability in case of the failure of the company, while enjoying the ease of business of a partnership – which can be determined by the Shareholders agreement – which can be made just as they like – without any governance regulation imposed under the companies law. [This is to be verified].