How Progressive Companies Survive and Thrive In Crises
We have written lots about progressive companies, mostly when they were enjoying prosperity. But, how do they act in a crisis? Reality is there are times when businesses need to take a step back—and slow down. Notably, this happens in times of regional and/or global crisis.
This is relevant. According to our beloved editor, Ken Everett, there is a significant externality to disrupt your plans every 5 years or so. "Over 25 years, examples include the 1997 Asian currency crisis, 9/11, SARS, the Global Financial Crisis, and most recently the Coronavirus," he wrote.
Recently I was quite often asked: "How do other progressive organizations on your Bucket List behave in times of crisis?"
Here are 7 organizations and their strategies. They are inspirational and telling.
1. Barry-Wehmiller, USA
Although we have not visited Barry-Wehmiller in person, Harvard Professor Amy Edmondson tells (in the Fearless Organization) the story of how this U.S. company of 12,000 people acts in times of crisis.
Edmondson writes: "The Great Recession of 2007-2009 presented a dramatic opportunity for Barry-Wehmiller to make good on its promise to care for people like family. When new equipment orders declined considerably and layoffs seemed inevitable, Chapman (the CEO) instead initiated a program of shared sacrifice."
"Following his principle that in a caring family 'all of the family had to experience a dramatic loss', there were no layoffs. But all employees, no matter their position, took a mandatory unpaid furlough of four weeks at a time of their choosing. And cost-cutting in the form of shared sacrifice manifested in other ways. Chapman reduced his salary to $10,500, suspended executive bonuses, halted contributions to retirement accounts, and reduced travel expenses."
"What was the result? Unions supported the program. Team members created a market to help each other. And those who could afford to take more than a month off voluntarily traded with those who could not. Barry-Wehmiller rallied from the economic downturn relatively easily, and by 2010 reported record financial results. In other words, by continuing to make team members feel safe and cared for during a crisis, the company created a win-win for everyone."
2. FAVI, France
Voluntary, shared sacrifice is what we also heard of from Jean-Francois Zobrist, the former CEO of FAVI, a French metal manufacturer with ~500 employees. Frederic Laloux shared this story well in his book Reinventing Organizations: "It was a common occurrence, that when faced with difficult and critical decisions at FAVI, Zobrist would readily admit he needed help to find a good answer. On impulse, he would go around the shop floor and ask operators to stop their machines. Then he would climb onto a box and share the problem with the employees, trying to figure out a course of action."
"The first major crisis under his leadership occurred in 1990 when car orders plummeted in the wake of the first Gulf War. Stocks were piling up, and there simply wasn't enough work to keep workers busy. Capacity and costs needed to be reduced. There was one obvious solution: fire temporary workers. But at FAVI, no-one was really considered a ‘temp’. Because of French labor laws, new recruits were hired as temp workers for 18 months before being offered a full contract. Most were already considered full members of their teams."
"By firing the temps, FAVI would rescind its moral commitment to them, and it would lose talent it had invested in, and with recovery perhaps only a few months away. With many questions and no clear answers, Zobrist found himself on the soapbox and shared his dilemma with all employees in that shift (including the temp workers whose fate was being discussed). People in the audience shouted questions and proposals. One worker said, 'This month, why don't we all work only three weeks and get three weeks' pay, and we keep the temp workers? If we need to we will do the same thing next month as well.' Heads nodded, and the proposal was put to a vote. To Zobrist's surprise, there was unanimous agreement. Workers had just agreed to a temporary 25 percent salary cut."
"In less than an hour, the problem was solved and machine noise reverberated around the factory again. Zobrist’s ability to keep his fear in check paved the way for a radically more productive and empowering approach, and showed it is possible to confront employees with a harsh problem and let them self-organize their way out of it."
3. Buurtzorg, The Netherlands
Laloux described another strategy of approaching crisis with transparent communication in a Buurtzorg example. Buurtzorg is a Dutch health care organization with 15,000+ people, led by founder and CEO Jos de Blok.
Laloux writes: "Buurtzorg (founded in 2007) faced a crisis in 2010. The young company was growing at breakneck speed when Jos de Blok heard that health insurance companies had threatened to withhold €4 million in payments to Buurtzorg, citing technical reasons. A cash crunch loomed."
"Jos de Blok wrote an internal blog post to the nurses exposing the problem. He put forward two solutions: either Buurtzorg could temporarily stop growing (new teams cost money to start) or nurses could commit to increasing productivity (increasing client work within the contract hours)."
"In the blog comments, nurses overwhelmingly chose to work harder because they didn’t like the alternative: slower growth would have meant saying no to clients and nurses wanting to join Buurtzorg. In a matter of a day or two, a solution to the cash problem was found (and the insurance companies eventually disbursed the withheld funds)."
How Progressive Companies Survive and Thrive In Crises
4. AES, USA
Laloux described yet another similar case that tackled a crisis with transparent communication: AES, a global energy supplier. Under the leadership of co-founder Dennis Bakke (1994-2002) the power company grew to 27.000 people in 27 countries and operated with radical self-management principles (they have turned rather traditional since Bakke left the company).
Laloux writes: "In fall of 2001, after the terrorist attacks and the collapse of Enron, AES’s stock price plummeted. The company needed access to capital markets to serve its high debt levels but found them suddenly closed. Swift and drastic action was needed to prevent bankruptcy. A critical question was: how many and which power plants would need to be sold off to raise the necessary cash?"
"He (Bakke) didn’t work out a plan behind closed doors with his management team; instead, he publicly announced that top-down decision-making would be made during a limited time for a limited number of decisions, albeit critical ones."
But that was not all. "To investigate the best course of action and make the tough calls, Bakke appointed Bill Luraschi, a young and brilliant general counsel. Luraschi wasn’t regarded as one of the most senior leaders nor as someone who would seek a leading role in the future. The signal was clear: the senior leaders of the organization were not looking to exert more power. Top-down decision-making would be handled by someone with no thirst for power, and it really would be temporary."
5. Haufe-Umantis, Switzerland
During a visit to the Swiss IT-company Haufe-Umantis, we heard of yet another story about approaching crises with open and transparent communication—to judge employee emotions. We wrote after our visit: "In 2008, Haufe-Umantis found itself in crisis mode. Then acting-CEO Hermann Arnold starts something radical. He decides to involve everyone in decision-making about the future of the organization. And he walks the talk. Arnold calls for an all-hands meeting of the 70 employees."
"He explains the current crisis as best as he can. He proposes two options to survive: we lay off people, or we cut salaries (30% pay cut for managers, 15% for employees). Hermann asks the group to decide what to do, by raising their hands for option 1 or option 2. A majority (90-95%) opts for option 2—cutting salaries. So that’s exactly what they did."
6. Semco Partners, Brazil
Yet another story of how the heaviest burden was put on the strongest shoulders came when we visited Semco Partners in Brazil. Semco is a Brazilian company well known for its radical way of organizing. Under the ownership of Ricardo Semler, revenue grew from US$4 million in 1982 to US$212 million in 2003. By now, his innovative policies had attracted interest around the world.
Ricardo shared with us about how they coped during a crisis in the 1990s (this story is on Wikipedia). It says, "After dramatic restrictions on liquidity instituted by president Fernando Collor de Mello in 1990 to combat hyperinflation, the Brazilian economy went into a severe downturn, forcing many companies to declare bankruptcy. Workers at Semco agreed to wage cuts, providing their share of profits was increased to 39%, management salaries were cut by 40% and employees were given the right to approve every item of expenditure."
Besides voluntarily cutting their salaries, workers were encouraged to take on multiple roles: "Performing multiple roles during the crisis gave workers greater knowledge of the operations and they made more suggestions on improving the business. Reforms during that time led to a 65% reduction in inventory, a marked reduction in product delivery times and a product defect rate that fell to less than 1%. As the business climate improved, Semco's revenues and profitability improved dramatically."
7. NER Group, Spain
We encountered such solidarity, not only in single companies but even in a Spanish 'community of companies' called the NER Group. The NER group is structured around 20+ companies (with 1,300+ staff) that voluntarily form a ‘community of businesses’ in and around the Basque country. The group has members in diverse industries including engineering, manufacturing, law, cybersecurity, and education.
These businesses help each other in good times, and in times of crisis. The businesses in the community operate autonomously, but the key to their success lies in awareness of the group to leverage each other’s strengths, knowledge and resources when needed.
They even share and relocate staff when businesses in the community are facing crisis. This implies a solidarity agreement between the companies to voluntarily move staff to other firms within the group for the time a critical situation lasts—to guarantee job security for other staff. More than 100 ‘relocations’ have taken place. And no-one has ever been fired from the NER Group for economic reasons.
Moreover, companies in the NER Group have a strong social commitment to their own staff and local community. The group has created an aid fund (€20.000) to help staff who find themselves in a critical situation. The group even founded a bank to provide staff with favourable mortgages.
3 lessons from progressive firms in times of crisis: (1) put heaviest burden on strongest shoulders, (2) ask for voluntary, collective, and shared sacrifice, (3) transparent communication gains support for radical decisions
There are lessons we draw from these seven cases:
- First, solidarity by putting the heaviest burden on the strongest shoulders is the way to go in times of crisis.
- Second, a voluntary, collective, and shared sacrifice is a powerful way to survive—and to thrive afterwards.
- Last, transparent, open communication (especially from leaders) will mostly likely gain support from the workforce to make radical decisions as needed.
And what about you? What lessons do you draw? Please drop them in the comments below.
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Important and good examples for learning now. As a consultant (and psychologist) I'm focused on how we on an individually basis cope with our autonomic nervous system and our naturally impulses when we feel threatened. Basically how to feel safe when we are not? Working with acceptance is the first priority because then we stop fighting (or flying). We perceive we are in big danger but we are not - a shaking ground is not the same as real danger. So we have to read reality very adequately to be able to react adequately and NOT in the strong and blinding light of fear.
I agree with you Michael, we should take care that we are afraid of the right things. Or as Hans Rosling writes in his bestseller Factfullness: "Fear can be useful, but only if it is directed at the right things. The fear instinct is a terrible guide for understanding the world. It make us give our attention to the unlikely danger that we are most afraid of, and neglect what is actually most risky."
In 2008 Carpenter Oak in South West England were hit hard by the financial crisis. To avoid collapse the whole team reduced their hours to cut costs. The company survived and now flourishes. The legacy of co-operation and collaboration is beautifully illustrated by the team in this video https://vimeo.com/321462687 , punctuated by the fact that they are now evolving to employee ownership.
A fine example. I think a key feature is to train the ability to "trust in the unknown" which of course is a paradox but again something you can work with and get used to. In this proces it is helpful to work with your attention. Try to notice how many times you act and not are certain on the outcome and still everything works out good... Experience and learn that you do not always have to have a long linear causal plan to succeed .
"If you are afraid to fail - you will be too late"
Following Otto Scharmer and Ulab, look for the cracks and go where the energy is. Hook up with the managers/execs who are likely to be most receptive. Have a story to tell, probably based on the content above and contextualised to your organisation. In my experience those early conversations must enable others to see 'what's in it for me' to give them a reason to step in. As the conversation evolves 'me' becomes 'us'. Don't endeavour to 'make it happen'. Try to hold the space to 'let it come'.
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Social capital and social networks are becoming increasingly important in today’s economy at large, and for individuals within organisations. For my MSc dissertation in Organisational Psychology, I researched how newcomers transition into a self-managing organisation (Lee & Edmondson, 2017), an organisation where authority is decentralised and classic manager-subordinate relationships are absent.
It’s all about your people. Now more than ever. But in knee-jerk reactions to the coronavirus many companies are laying off large numbers. I want to shout out to the shareholder-value managers driven by their spreadsheets: “This is not only inhumane. It is bad for your business!”. Why? It will harm your company. Companies that treat their people best in bad times emerged as winners in the past.