This Company Democratically Elects Its CEO Every Single Year

So, one rainy November day we find ourselves in the Swiss city of Sankt Gallen to learn more from Marc Stoffel, the currently-elected elected CEO at Haufe-Umantis. Marc was elected CEO in 2013, and has continued in this position ever since. He told us about the company’s remarkable story.

The origins

In 2001, Hermann Arnold decided to ‘build a company to fix the traditional way of working’. He chooses to focus on the development of HR software, and calls the company Umantis. Hermann is heavily influenced by democratic ideas, which leads to their mantra, ‘Employees lead companies‘—which is alive at all levels in the company.

This determines not only how they treat thier people, but also how they do business. Their focus is on their two fundamental values: democracy and agreement. They are convinced that people doing the right thing is their largest asset, and sustains the success of a company.

Marc: “It’s not our mission to be a happy workplace per se. It’s our mission to find out the best way for employees to run the organization.”

The shadow organization

Marc, who is personally inspired by Bucket List hero Ricardo Semler’s book Maverick, joined the company in 2005 when it was still relatively small (about 20 people). It continued to grow. To cope with the growth, they reacted like most traditional organizations: they hired more senior managers.

Initially this worked. But over time they sensed innovation and entrepreneurship were reducing rapidly.

Marc: “The company created an informal organization. We call this the shadow organization, which in some cases can be more powerful than formal hierarchy.”

People became frustrated with the increasing bureaucracy. This encouraged a strong desire to return to the agile, ‘garage feeling’ of the early days.

Marc: “We started looking for the balance between the best of the two worlds: agility and hierarchy. In order to do that we are constantly developing our organization operating system so it can play those two games.”

That sounds good. But what did they do, in practice, to make this happen? We distilled 4 tangible initiatives from our visit.

1. Democratic decision making

In 2008 the company suddenly found itself in crisis mode. Then-acting CEO, Hermann Arnold, starts something radical. He decides to involve everyone in the decision making about the future of the organization. And he walks the talk.

The first major democratic decision

Arnold calls for an all-hands meeting with the 70 employees. He explains the current crisis as best as he can. He proposes two options to survive the situation:

• We lay off people, or
• We cut salaries (30% pay cut for managers, 15% for employees).

Hermann asks the group to decide democratically what to do, by raising their hands for option 1 or option 2. A big majority (90-95%) opts for option 2—cutting salaries.

So that’s exactly what they did.

It’s the birth of democratic decision-making at Umantis. And it worked so well they decide to keep developing the practice. It has evolved, and is now used in all major strategic decision making, as the following example illustrates:

Other major democratic decisions

There came a time when the leadership of Umantis is convinced that merging with a bigger company could provide them with many advantages. Again, Hermann calls an all-hands meeting. He explains as best as he can what he wants to do, and why he wants to do it. He asks all employees to vote yes or no on the following question: Should we merge with a bigger company?

Collectively they decide this is a good idea. But there are two candidates to choose between, so Hermann asks the employees to vote, once again. They can choose between the following options:

• A major player in the field, with a high offer and a bad cultural fit.
• A smaller player in the field, with a lower offer and a good cultural fit.

About 90% vote for the second option. It is clear they want to merge with the player with whom they have a much better cultural fit.

And so they do. Umantis merges with the Haufe Group and becomes Haufe-Umantis.

Marc explained how this approach gives them many advantages. “The practice provides clarity about the major decision making of the company. All employees are involved in the process and are aligned with the outcome. Collectively they vote for a certain direction, so they’re naturally more inclined and motivated to make it work. Besides, the practice is a good check to see if management is not getting completely out of reality.”

2. Local hiring

The leadership becomes convinced that teams should decide who they want to work with. So, they start another experiment. The hiring process moves from HR to the teams. This produces an interesting change in behaviour.

Marc: “In the previous situation, only 5% of the new hires were recruited through referrals, despite having a very generous referring policy. Now, in the new situation, 60% of the new hires are recruited through referrals!”

3. Leadership elections

The successful experiment with hiring new people leads to another interesting experiment. In 2012, Hermann starts to realize that he isn’t the right candidate for the CEO role any longer. The company has grown rapidly, and is expanding at a staggering rate. He chooses to step down.

But instead of simply appointing a successor (as a traditional company would), he asks himself a fundamental question: “When teams can choose their own peers already, and if we truly believe employees run companies, why not allow our employees to elect their own leader, their next CEO?”

The first leadership election

So, CEO Hermann calls another all-hands meeting, this time with 100 employees. During the meeting he shares his thoughts, his vision and his idea about voting for the CEO position.

Marc: “He basically said, "This is the situation. Let’s vote on it!” And that’s what we did”.

Marc is chosen as new CEO, with 95% of the votes.

This particular experiment precipitates yet another interesting consequence. Mark: “Suddenly the rest of the leadership wanted to be elected as well. I asked them if they were sure about it, because there were realistic chances that they would be voted out of their own position. Still they wanted to go on with it. It would provide them with a feeling of a mutual contract. An agreement from both sides.”

This led to what Marc calls the initial ‘cleansing’ of the organization. What he had warned the existing leaders of became reality. One was even voted out by 100% of the voters. From this time on, there is simply no tolerance for bad leadership.

Marc: “It was a very sensitive situation which was difficult to handle. Some of the former leaders needed time to reflect on their own behaviour. But I’m happy that all the people that were voted out are still in the company, or left due to other reasons after a long period of time.”

How do the elections work?

Fast-forward a few years. Today the leadership election process looks quite different.

• The CEO starts the process by proposing the organization structure for next year. It is an open document sharing a vision of the future, and what is needed in terms of leadership positions.
• This document is made public within the organization. Anyone is able to question the necessity of any electable position.
• Once the electable positions are defined, people can apply, or suggest someone else for it.
• One month before the elections, the people who applied present themselves and their ideas. This is when active campaigning starts.
• After a month of campaigning, it’s time to vote. This is done, anonymously, via an online tool. Employees choose one of three options: Electable candidates, external candidates, nobody (if they believe there is no suitable candidate or the position is not needed)
• Successful candidates need to be supported by at least 2/3 of all stakeholders. They are looking for a majority, not for consensus.
• If nobody receives the necessary number of votes, the previous person stays on for another 6 months—when new elections for this position are held.

Is all of this positive and perfect? No, certainly not. Marc lists some clear disadvantages of the practice and process.

Marc: “Most prominent is the fact that the process takes a lot of emotional energy from the entire organization. It’s especially exhausting during the campaigning month. Besides, lots of shit gets to the surface during the elections. And lastly, for many new recruits the process is exotic, so it takes extensive on-boarding to get used to the process.”

But, when done well, leadership elections enhance diversity in leadership and should enable what Marc calls ‘spiral careers’. Marc: “You need to create an atmosphere where people leave leadership roles without losing their face. It will allow people to feel comfortable by going in and out of the leadership to develop a spiral career.”

At Haufe-Umantis they are convinced that these spiral careers lead to a strong culture. The best people for the job are voted in at the right time. Marc: “Thereby, it also creates more movement in everyone’s career. It makes you more flexible.”

4. Corporate referendum

In the meantime, the company has grown to 220+ employees. Each has the right to call for a referendum—if they want to challenge the status-quo. It still took almost four years before the first referendum was called.

Marc: “Recently, and as the first time in our history, the right of holding a referendum was opted for by one of our engineers. The referendum was about if we should work with a big client or not. The business had the opportunity to sell a big contract. However, the technology engineers doubted the feasibility of the project. Therefore, one engineer used his right to hold a referendum.

As input for the referendum, the sales and IT team jointly executed a due diligence to assess the feasibility of the project from all perspectives. Once the result of that due diligence was shared with all employees, they went to a vote. The result: 96% voted yes.“

A truly democratic organization

Those four tangible experiments show the truly democratic nature of this organization. It doesn’t always appear to be easy, and at times it can be very time-consuming. But it works well for them. Even Marc, as CEO, is not immune from the power of a democratic workforce.

Marc: “I have been chosen as CEO for 4,5 years in a row. But the last time I was only chosen by 68% of the votes, where 66% is needed. We will see what the next election will bring.”

Will Marc become a powerful example of the spiral career? Only time will tell.