Over the past decade we have seen genuine leaders implementing flat structures in startups across the world. The idea of this new company structure is simply that through removing the hierarchy model that has been prevalent for hundreds of years, company leaders can genuinely lead, rather than govern.
In traditional hierarchical models the authority of why people should do a job comes from the job title of the person at the top of the pyramid - ‘you do as I say because I am the CEO’. However, in more modern structures, leaders lead because people are behind them in a common vision, people buy into that vision and, most importantly, when it comes to reward, real leaders do not sacrifice their own people to increase their’s. In his 2014 Ted Talk ‘Why good leaders make you feel safe’ he notes that the reason for public outrage towards financial CEOs isn’t that they get huge bonuses, it is that they appear to be sacrificing others to get it. He goes on to ask the question of whether anybody would be angry if Gandhi or Mother Theresa were given a $200m bonus, with the clear answer being no.
If you think about the great leaders in history, from political leaders like Martin Luther King, through to Richie McCaw - captain of what was widely regarded as the best rugby team in history - they led by example. King would be at the front of every march and McCaw was always the man who tackled the biggest and worked the hardest on the field. They would also be the people who sacrificed themselves for others and never used their position to sacrifice others for their own gain. Sinek, in his TED talk, discusses how running a company should be seen in the same way as running a family - you work to make those below you the best they can possibly be.
When leaders begin to lose sight of that and look instead at the rewards rather than the people, it is a slippery slope to failure. It is something that leadership guru Ken Blanchard recognizes, when he says ‘Great leaders realize that their No. 1 customer is their people. If they take care of their people, train them, and empower them, those people will become fully engaged and gung-ho about what they do. In turn, they will reach out and take care of their second most important customer--the people who buy their products or services--and turn them into raving fans.’ Through ignoring the needs of those beneath to try and increase the happiness of those above, leaders will ultimately do neither.
A company is formed not of those who create strategies or even those whose face is associated with the brand but is instead with those who provide the actual product or service. Through ignoring those ‘at the bottom’ a company will simply wither away. We have seen with many companies in the past that this can manifest itself in some ugly ways, but the most common element is increased numbers of exits.
According to a study by Gallup, which looked at 7,272 US adults and why they left their jobs, 50% said ‘to get away from their manager to improve their overall life at some point in their career.’ This is a telling statement because it clearly shows that half of these people found that their manager was working for themselves, rather than for their team.
We do not need to look hard to find companies where the impacts morale, which leads either to suspicious activity or consistent underperformance from employees. Wells Fargo is a clear example, where the motivation to work came not from the belief in a common cause and motivation from managers. Instead, it came from the threat of losing their job, and, allegedly, placing a black mark on employees files to prevent them from working in the banking sector again. This led to thousands of cases of illegal activity from employees opening accounts in others’ names without their knowledge.
However, one of the big issues that many companies currently face is through ownership.
Since the year 2000, the number of active private equity firms has increased by 143%, which has led to major conflicts with this idea. When a company is owned by a private equity company or any short-term profit seeking entity, the company leaders are compelled to act on behalf of the owner rather than their biggest stakeholder: their employees. Especially when the company is two or three cycles through, rather than investing to make the company perform better, there are often ‘balance sheet’ focussed decisions. Some companies may find that their workforce is cut by half, with costs decreasing in order to make the balance sheet look better for future prospective buyers. This leads to distrust of the leadership team, destruction of company morale, and a huge decline in productivity.
Once this process begins and the trust is lost, leadership becomes difficult because rather than the workforce working for you, they tend to work against you. Once this happens, it is practically impossible to bring back the previous bottom up leadership and company leaders are often forced to resort back to a traditional hierarchical role, which does further damage to the relationship they previously had.
Ultimately leaders need to lead for the company, which is the people working there, not the balance sheet or company owner.