Intro
These questions come from readers of the RADICAL COMPANIES: Without Bosses or Employees book and posts on the Radical Companies site. ∇
Co-Ownership
Does a company has to be co-owned to be Radical?
Yes, it has to be co-owned and co-managed.
The owner is the ultimate boss and self-management, by itself, is at the mercy of a benevolent owner. On the other hand, when everybody in the company is a co-owner then co-management can happen unobstructed.
In businesses the Board is the owner. In theory, it has to keep its hands out of operations, but it can replace the CEO at its whim. If the CEO was the benevolent type that allowed self-management to happen, then self-management goes out the door with him.
By the same token, co-management is required for “ownership” not to become corrupted. For example, when John Spedan Lewis created the John Lewis Partnership in the UK in 1929 he left in place a hierarchy in place. Eventually the managers took control of it. These companies are very generous compared to their competitors, but what’s left of worker ownership is cosmetic at best.
Are RADs the same as shares of stock?
They are different things. They both represent “ownership,” but very differently,
- Stocks are static. Each share of stock represents a fixed percentage of the business forever.
- RADs are dynamic, always changing. They represent the work that has gone into creating the value the company represents.
Stock is not at work in Radical companies. If your company has been incorporated to have stock, then re-incorporate it not have stock. For example, in California Unincorporated Associations don’t have stock.
What does it mean that RADs are dynamic?
It means that the total amount of generated RADs (denominator) changes regularly and the total number of RADs allocated to a co-owner (numerator) changes regularly.
For example,
- Last month, we had 1,800 RADs in total to distribute among ourselves.
- You ended with 450 allocated RADs (25%) and I got 234 (13%).
- Next month the team generates 1860 more RADs for a total of 3,660.
- This time you get 142 additional RADs for a total of 592 (16%) and I end up with a total of 630 (17%).
Who’s looking out for the business?
The allocation of RADs is not based on traditional key performance indicators, or targets, or any of the things that are usually measured and checked by the bosses. So, the question is who is looking out for the company? And the answer is the co-owners, the people who embody it.
The metrics that are important to the business continue to be important to the company and co-owners will want to look at these metrics, question the results, etc. For example, if I didn’t come through on something I promised to do that was critical to these indicators, then we’ll have to figure out why it didn’t happen and what could we have done differently to make it happen. These conversations may get heated, and voices may be raised. There is no avoiding difficult decisions and hard conversations.
And strategy?
As far as the company’s strategy, in a small company maybe everybody gets involved and comes up with one. In a larger company, a few people may prove better at strategy and they can lead it. No matter, other co-owners can always bring their opinions or data to bear.
Stock shares don’t count? Really?
Stock counts when a company is sold, either to another business or to the public market. It is unlikely that a Radical company will be sold, but if it is, the total amount of money paid for the company would be distributed according to the distribution of the RADs.
A Radical investment is ruled by a specific contract that stipulates how and how much the investment is to be paid back. This agreement is what rules the investment. If, out of habit, the investors demand “stocks!” then you can create a separate company and they can hold stock in that company, but with the condition that the stock goes back when the investment is paid according to the terms agreed upon. The parallel company could hold a percentage ownership in the Radical company.
As always, experiment to figure out what works for you.
Does a department head or an executive give out RADs from a budget?
RADs are not related to hierarchical titles or roles. All co-owners create the company and the wealth generated by it and this is represented by RADs. All co-owners get RADs from other co-owners on a regular basis. The most “senior” person gets the same number of RADs as the more “junior” person or a newbie. People who contribute more often are likely to get more RADs.
Why would I want my business to become a Radical Company?
You organize as a Radical company because,
- You want everybody to financially benefit from the wealth the company creates.
- You want a better quality of life for yourself and those around you.
- You want the company to grow.
- You want to take more chances.
- You want to minimize risks.
- You want the company to outlast you.
How do I become a Radical Company?
By committing to transforming to the Radical paradigm.
- If you are the owner, it’s easiest to get started, but making it happen will still take a lot of work.
- If you are the top boss, it’s a lot easier but you still have to get the owners in line. Once they are, you have a lot of work ahead of you.
- If you are a lesser boss, you can get “your” team going in the general direction by using RADs. It will be easier to move towards co-management (because you are a boss), but more difficult to move fully into co-ownership.
- If you are not an owner or a boss, leave and either start your own company or join one that’s aligned with where you want to go.
Can we take advantage of ESOPs?
One thing you can do with stock is to have it be owned by an Employee Stock Ownership Plan (ESOP) Trust. According to US legislation, ESOPs don’t pay taxes on revenue. If you want to know more about this, consult a lawyer.
Originally, we were excited by ESOPs and thought that they were it! Unfortunately, they are not. They are positioned as a retirement plan (i.e., they fall under the US ERISA legislation). They require a lot of bureaucracy to maintain them and that’s usually outsourced to specialized accountants and lawyers, so they are expensive to maintain. The only benefit is financial and that comes at a higher risk of having all your eggs in one basket (i.e., the ESOP is completely dependent on the performance of one company).
ESOP may have been well intended originally in terms of spreading the wealth, but they have become a windfall for owners. They still put a few more dollars into people’s pockets, but that is about it. They are no co-owners and they are not co-managers. They are not even involved in making any of the important decisions that affect them.
There are many ways to game ESOPs and the specialized accountants and lawyers can help you with that if that is what you are interested in. It is not co-ownership, it is not co-management, and it is definitely yet-another Fiat tool.
How does Radical work for companies that need investment capital?
One thing that is clear is that financial transactions should not be mixed in with governance.
A Radical investment is much like any other investment: the company gets a cash infusion. The significant difference is that a Radical investment is a purely financial transaction and assigns no other powers to the investor.
The investment terms will include a timeframe and amount for repayment. This could be something like, we will pay back three times the principal in three years hence, or we will pay back four times the principal amount in two years starting three years from now, or even we will pay back three times the principal if we reach X level of revenue, five times if we get to Y level of revenue, and ten times if our revenue grows beyond Z.
A Radical investor does not get a percentage of the company or any such. The investor doesn’t get a seat on the mythical Board, because there is no permanent Board. She does not get to “fire the CEO,”. She does not get to demand that the company change directions. She does not get to force the company to sell itself.
We would hope that the investor brings with her something other than money. If that is the case, the investor may be a valuable advisor and mentor and may be invited to discussions where her expertise and informed opinion are key. She may even get RADs for those contributions. But this is all up to the co-owners and not a given part of the investment. Company governance remains with the co-owners, not the financial investors.
Given the financial risk, then why accept Radical Investments at all?
- Every co-owner wants their business to succeed and wants any investment to be blow out financial success. Their self-interest is perfectly aligned with the financial investor’s interest.
- If problems arise, co-owners will recognize them right away and make them visible to other co-owners and investors. (i.e., transparency).
- Co-owners have the wherewithal to come up with solutions or ways around a problem. No energy is wasted into hiding a significant problem.
- There is very little chance of, say, a founder taking the company in the wrong direction for long. In a co-owned company co-owners will notice, voice their concerns, and do something about it.
This is not to say that a Radical investment is less risky than the traditional capital investment. But everyone in the company, and not just a select few, is personally committed to the company’s success.
</div>
Do I have to say no to investors?
As a class, VC investors won’t understand any of this. They’ll think it is nuts and walk away before you get a chance to say no.
However, if you need a capital infusion, then find an investor that agrees to 1) give you the cash infusion you need, 2) in exchange for a promise to pay back the original investment plus a return. For example, you may get a $500K cash infusion in exchange for a promissory note to pay back $1.5M in three years.
He may say, “oh, but that’s an Angel investment.” But keep talking. He may be willing to go for the “return” to be a percentage of profits for, say, five years.
What happens if the company gets acquired?
We don’t envision Radical companies being sold, but if that’s the way it turns out, then, as in any such transaction, you trade the company’s stock for the purchase amount. With that cash you pay off any outstanding debt and distribute the rest according to the RADs that each co-owner has. For example, if you end up with 10% of the RADs, and I end up with 5%, you get twice as much as I do
Is the Radical model really fair? Doesn’t it risk becoming a demotivator?
Fairness and equality are the children of the Fiat mindset.
The goal is to recognize personal contributions. And this is better done by the people who are close to that effort. One line of code makes everything great for the whole team while another line of code makes a mess of things. People in the team will readily recognize which is a plus and which is not.
If I think it was great, but I get no RADs, then I call for feedback. If the feedback is not resonating with me, then I leave. The problem today is that people’s livelihoods are deeply tied to employment. In the US, your health insurance is tied to your job and if your life partner is seven months pregnant, then you have to bite your lip and stick around for two more months and maybe longer. In other words, the current system is the problem.
My hope is that over time changing how companies are governed and owned will spill out and change the system we live in and make things healthier.
Do you know of other models for handling salaries?
There are a couple of companies in Argentina and a few in Europe that are experimenting with salaries. Ricardo Semler experimented with self-assigned salaries at SEMCO, in the late 1970s early 1980s.
In the cases we know of, they are still considered wages. We are so used to the work-for-money system that we don’t question it. We don’t even realize that it is more like, “I create wealth for you, and you give me a fixed amount of money that’s unrelated to the wealth generated.”
Things like a capped ratio of highest to lowest wage (e.g., cooperatives) didn’t resonate with us. It is an arbitrary compression of wealth extraction, divorced from contributions.
Instead of “wages” or “compensation,” we looked at it from the point of view of wealth extraction and things started to fall in place for us. For the people who embody a company, the PRI model described in the book is clearly tied to the contributions everyone makes and the wealth created by it. For an investor, it makes it completely transparent how much goes into financially taking care of people versus other expenses and investments.
We don’t know what the ultimate form of this will be, but we feel strongly that wealth extraction has to be tied to financial performance and contributions.
Investors don’t have any form of control?
The existing financial system is broken, and what’s happening with many businesses, not in oil and gas, is a reflection of that. We don’t know how to tweak the current system so it lets us survive a bit longer, but we know that more bureaucratic controls are not going to fix it.
In a decentralized world, co-owners will deal with problems before they become a problem. They become a problem today because a handful of people can decide to ignore “externalities” for the sake of financial gain.
Aren’t the liquidity suggestions super complex? What about tax-wise? Do we want the people to deal with that?
We never said anything about taxes and laws because we don’t know much about them.
We have been accused of being impractical, but it is not so much that these ideas are different and unfamiliar.
Co-Management
What about titles?
In a co-managed company there are no titles.
People perform functions that have to be done according to the skills people have. People work together in teams (fluid), but there are no departments (static).
How would this work with our Purpose?
In general, we don’t know what Purpose is. To us it is the why component of an Explicit Alignment. We want to make newcomers aware of what our why is so they can decide if they still want to join us.
How would this work with our Circle framework?
“Circles” is a practice that can work for you. Non-hierarchical circles come together and dissolve, as needed; their scope is limited to the task at hand.</p>
If by “circles” you mean yet-another-hierarchy that are inimical to co-management and co-ownership. Co-management is very basic to the Radical approach. People have to make their own decisions without being afraid of losing their livelihood. What you get instead is a company that creates more wealth, for more people, a better quality of life for all, more innovation, less risky, more resilient and scalable, and a learning, collaborative culture. At least. The age of the owner is not a factor. The business is ready to be sold. The owner can change his mind on any issue at any momeny. Take Basecamp. Basecamp is a software company and was touted as a self-management poster child. Its owners, Jason Fried and David Hansson, believe strongly in the capability of people to self-manage. Fried even wrote books about it. Then one day Jason and David got off on the wrong side of their respective beds, so to speak, and brushed aside everything that the Basecamp employees had built over many years as a self-managed team. As a result Basecamp lost more than a third of its staff overnight. In the case of Basecamp, this change of heart played out in the open (i.e., Fried posted the letter publicly). Most often, benevolent owners backtrack little by little hoping to go unnoticed. This stuff about “sanctioning bad behavior” only makes sense if the whole ecosystem is corrupt. This is very likely the case in a business. But in a Radical company even if a few co-owners drink too much Kool-Aid, the others will raise the red flag. In any case, this is not about “sanctioning.” It is about applying the same Core Design Principle to any interactions with other groups within the same organization managing a Common Pool Resource, For more information, see the Ostrom’s Core Design Principles book appendix. More financially successful, yes. On the other hand, engagement and tenure are going down, innovation is much talked about but non-existent in practice, burnout and suicides are going up. No question that financially businesses are going up, but the financial “rewards,” the dividends, are going to fewer and fewer people while the price, emotional damage and diminished health, is being paid by more and more. We cannot “do this” for anybody. With this book, we are simply trying to make everybody aware of the system we are immersed in in, which is like making fish aware that they live in water. As Radical ideas become more widely known and more people go from I-am-curious to I-am-ready, companies will start to transform. This will be evolutionary, from living in water to living on land. Through it all, we'll find out what works and what doesn't for every particular company. Rather than dictate yet-another overly detailed structure, we are proposing a few foundational basics, These are what we think are the important dimensions by which to view how healthy a community is and how supportive it is for learning and the development of its members. You can also look at it as a self-assessment tool that companies can use to figure out what is most important to them and where they want to go. It is also meant as a common language for companies to work with each other. Regardless of what “solutions” they’ve adopted, they can use these dimensions to figure where each is and how they could possibly collaborate with one another. Without a simple shared language, we can quickly slide down to “my X is better than you Y” and conversations are not possible. Note that this is not a way of ranking one company against another. But you can use this foundation to measure your company’s progress over time K2K Emocionando in Spain has been helping companies transform to co-management since 2007. Krisos, also in Spain, is also doing it now, although they are buying companies to get the old, reticent owners out of the way. The company I co-founded, and sold successfully, was co-managed from the start. We don’t know of any business being co-owned, but they are starting. We are not drowning in scarcity. We are drowning in enclosures of abundance. In fact, most people alive today live in financial splendor compared with the royalty of old. On the other hand, we definitely lack time, mental health, choices, and are generally stunted in our ability to live a full life. At work, we don’t function as adults. We don’t live as much as we exist. We are financially dependent on our jobs. And we live in fear of falling into destitution if we step outside the box. We tried not to make it sound like war, but probably got over-enthusiastic in places. At this point there are people who recognize the problem and are looking for ways out of it. They will not feel threatened. No language will move people who are squarely committed to the status quo. On the other hand, we do not want to equivocate the fundamental message that the status quo is killing us and we have to find alternatives. Radical offers an alternative Foundation. Every so often we will get a letter from a company asking us to “please, vote” for a new Board. However, there's usually a given slate of Board candidates already selected and, at best, you can write in a candidate or two. In the end, the system remains and the new Board operates like the old Board. Every few years we get to vote for our “leaders” in the US. Your vote counts to determine who gets elected, but it doesn’t change the system they operate in. This is one problem with voting. The other problem is that voting assumes that you are choosing between bosses or rules that apply to everyone. It assumes a monoculture, but life is more subtle and complex than that. There are people who are gluten-intolerant in the US, but they can gorge on bread when they go to Europe. I don't want to vote between grain A and grain B, I’d rather have distincts breads made with different grains. The monolithic approach doesn’t work for businesses and it doesn’t work for people. Regardless of size, a group of people working together is in the best position to figure out what works for them, by talking and consenting to try it out, not by voting. This is scalable. Voting has brought us monocultures in politics and business and it is choking us. The reference to “larger organizations” only makes sense in the monolithic case, particularly when it comes to financial reporting. In the Radical model a “larger organization” is just the same as a smaller organization, except with more groups working on more things. The difference between companies is their Explicit Alignment, not their organizational foundation. Except for earthquakes, “extreme crises” happen because of the limited visibility of a handful of owners. A problem starts to build up but the owners manage to ignore it until it is pretty late. When everybody is a co-owner, somebody is bound to point out the problem just as it is taking shape and with others who care about the situation they’ll come up with micro-pivot before it becomes a crisis. If you are the first one to see the problem, then you may say something like, “we need to decide by the end of today, Let’s get together at 3 pm.” Most people will not to show up for whatever reasons, but everybody who wants to show up could, to be part of the decision. Maybe your proposal will carry the day you are very clear on what needs to happen and you'd be very convincing. But maybe there’s a better idea that comes out of the discussion. Either way, you’ll come out of it with a plan on what to do about it. In the extreme case of, say, a fire there is no discussion to be had and whoever is close to an escape will lead others through it. No need to wait for the boss to figure things out. There is no “evidence” because there are no Radical companies around. In the US we’ve identified only one that comes close, W L Gore. We can extrapolate from the financial performance of businesses which practice co-management, or have set up an ESOP, or those that practice Open Book Management. Even then, these businesses perform financially better than strict businesses. Imagine where they could go with co-ownership. Quite the opposite. Businesses put up a lot of barriers to any innovative and progressive proposal that doesn’t come from the boss or his circle. Decentralization means that ideas can come from anybody in the company. Funding the implementation of those ideas is up to the co-owner s which may support it. Over time, each company will learn which ideas are more aligned with their Impact and which are not. In an organization, the boss, and his circle, decide who gets how much for which project. A few decide which idea gets implemented. If it turns out to be a financial win, the boss will pat himself on the back for being innovative. Whitepapers will be written about it. If it doesn’t turn out, then nobody will talk about it. In a Radical-based company, everybody has the opportunity to put a Banner and to allow other co-owners to invest in their project. This opens the door to more innovation to come from all over, not just a select few. If you start to implement it and it becomes obvious that it is not going to work, the co-owners working on it will talk to you. If it looks like it is going to work, the co-owners working on it will probably push a bit harder to get it out the door sooner.
Radical Companies Blog.
<https://radicalcompanies.com/blog/>
Does a company need to be co-managed to Radical?
What do I have to give up?
If the benevolent owner is fairly young, self-management by itself is not a big risk, right?
Ostrom’s Core Design Principle “Nested Enterprises,” is questionable. Bad behavior of one group may be sanctioned within a bigger ecosystem!
Can you say more about the boundaries of users and resources?
General
If “businesses are broken,“ how can it be that they are more successful than ever?
How do we do this [transformation] even for the people that do not want it or are not ready for it?
people
Meaning & Belonging
commitments
Decentralization & Transparency
practices
Experimentation
How can a company transform to a Radical model?
Are we really “drowning” in scarcity?
Maybe use a less “devastating, negative and martial” language when talking about businesses?
Voting may be a limited way of making decisions, but how can it be overcome, particularly in larger organizations?
How do we deal with an extreme crisis and you as an entrepreneur put everything you have at stake?
Where does the evidence for better financial growth for Radical companies come from?
Won’t the Radical approach risk slowly killing innovation and progressive ideas?
How many super successful projects and strategies would have never seen the light of day if it weren’t for the founders?
ENDNOTES
⌄ RELATED ⌄
