The Companies We Keep
Recoding the corporation for proportionality, evolution, and long-term value creation.
For a culture to emerge around this higher stage [of development], it has to be embodied... it has to be enacted in the real world.
—Ken Wilber
If you want people to think, give them intent, not instruction.
—Ricardo Semmler
Most people don't realize it, but many organizational problems originate in the corporate structure, which is baked into the tax code. If you look at the typical C Corp, for example, it assumes a management hierarchy. The legal structure creates it: You have an executive board, officers, and sometimes shareholders. Everyone else is more or less composed of the managerial rank and file, that is, managers and workers.
Organizations must recode their legal structures to avoid the myriad problems endemic to this form—problems such as:
Inflexibility and Slow Response. Traditional hierarchies impede agility due to bureaucratic layers, slowing decision-making and adaptation processes.
Stifling Innovation. Top-down firms discourage creative thinking by undervaluing or ignoring grassroots ideas.
Employee Disengagement. Traditional structures diminish employee autonomy, leading to a lack of ownership, reduced motivation, and low engagement.
Communication Breakdown. Hierarchies obstruct effective communication, causing distortions, broken feedback loops, and a lack of transparency.
Resource Inefficiency. Hierarchies lead to suboptimal resource allocation, workload imbalances, inefficiencies, and underutilization of human potential.
Tom Thomison, an early co-founder of Holacracy One, is an innovator in this space. Thomison has devoted much of his career to what he calls a 'power shift.'
After Tom helped found Holacracy One, he founded Encode, an organization dedicated to helping found for-purpose organizations. There is no board of directors in a powershifted organization—no CEO, C-Suite executives, bosses, or managers. Everything is self-organizing through the basic organizational codebase and the actions of self-sovereign enterprise partners who are mutually accountable.
Powershift
Encode helps transform organizations from traditional non-profit and for-profit structures into powershifted organizations. Once these organizations are powershifted, they grow organically through distributed work toward a corporate purpose.
Powershift basics include:
New legal rules allow workers not to be 'employees' but stakeholders operating in a structure that fosters engagement and entrepreneurial opportunities for everyone. These new models facilitate evolution in the ever-changing dynamics of risks and rewards for each individual as they contribute to the corporate purpose.
Novel agreements encode the distribution of decision-making authority and make equity profit sharing proportional to each colleague so far as they can add value. In this way, powershifted organizations are not egalitarian. They build in proportionality:
From each according to her receipt of mission-based value to each according to his contribution to creating that mission-based value.
New relational models and cultural tools such as Metarelating allow the organization to integrate diverse individuals in an environment of increased complexity and pluralism.
These models, which function more like meritocratic cooperatives, align the incentives and bring out the best in people. Legacy models, including democratic organizations and traditional co-ops, suffer from many of the same problems that democracy does. That’s one reason we don’t see many of them in places where they’re legal for anyone to spin up—despite new generations who claim to hate hierarchical corporations. Power-shifted organizations, though new, promise to help us realize some of the aspirations of cooperatives and flat organizations without all their pathologies.
And the beauty of all this? We can start transitioning now.
But as we’ve suggested, these models are not the default in the law, B school, or the average person’s mind. They're mostly unknown. The unknown can be scary to startup founding teams and investors. Yet these novel forms are not on regulators’ and politicians’ radar.
Think about it this way: one way to liberate the people is to liberate them from ideas that have outlived their usefulness. One such idea is that groups of cooperating humans—organizations or societies—must be scientifically managed (Taylorism and technocracy). Another idea is that majoritarian elections by workers or citizens with proportionally little knowledge of the whole, much less skin in the game, will bring about good outcomes (coops and communism).
Again, U.S. states, the SEC, and the federal tax code tend to privilege hierarchical corporations. The good news is that some default models, such as limited liability corporations or partnerships, can be adapted to create powershifted organizations. We will all do well to find ways to raise awareness of these models and reduce the legal cost of adopting them.
Because there is no single point of ownership or locus of power, neither executives nor founders are given undue authority and disproportionate shares. In some cases, execs and founders don’t exist, at least in the conventional sense. Mutual accountability abounds.
Everyone serves the organization's purpose, not equally, but rather:
From each according to her receipt of mission-based value to each according to his contribution to creating that mission-based value.
“No longer are we dependent on inspired, progressive leaders,” says Tom Thomison, “we can be inspired by something else, something greater than ourselves.”
With Encode's alternative corporate structure, self-organization is coded in from the start. Such is a completely different way to conceive and grow businesses. Even the employee, as such, goes away under this model. Partners, equal before the rules, are rewarded according to their contribution, and each is empowered to serve a mission uniquely within a relevant role. But each is also fully accountable in this regard. There is no buck passing.
This level of autonomy makes it possible for one person to be a fractional partner in multiple enterprises.
Proportionality
For-purpose enterprises will be healthier for society, too. There isn't likely to be an outsized concentration of shares among any single partner or investor in the enterprise. You are likelier to see a distribution that resolves the three paleolithic senses of 'fairness' that are otherwise at odds.
The first is fairness as equal outcomes.
The second sense is fairness as proportionality.
The third sense is life ain’t fair, so suck it up, buttercup.
The first sense means one reacts emotionally to the idea that some partners are perceived as getting too much of the firm's revenues when someone else is perceived as getting too little. The second sense is an emotional reaction to knowing that someone carried a larger share of the work (or risk or innovation) but isn't rewarded according to that contribution. The third sense is that people should accept whatever parties agree to at some fixed point, even if such agreements focus on short-term thinking and value.
Powershifted enterprises split the difference with a bias to proportionality.
There is still a sense that people should accept what parties agree to, but the starting point for such agreements is proportionality. So founders don't get some fixed portion of the pie they get to keep when the company has been grown decades later by others' efforts, so early efforts still matter a lot but still have a rate of decay. And those who work hard and have good ideas that result in the company's growth are rewarded according to their continued value creation.
It's an omni-win set of cooperative rules.
People with a traditional conservative outlook might initially dislike powershifted organizations because they have an old-school idea about how rewards should flow to investors and founders. People with a more progressive ideological outlook might dislike corporations full stop. To the extent they tolerate them, they will prefer rewards flow to need instead of value creation.
It doesn't matter.
People across various ideological spectra can experiment with different models for pay and dividing shares. If they adopt a powershift mindset, many will find the Encode model strikes a healthy balance.
And at the end of the day, no one has to invest or work for a power-shifted organization if they don’t want to. But intrapreneurs—contributors who expect to be rewarded for their contributions and relish building something with others—will thrive in these organizations.
I suspect that if powershifted for-purpose organizations predominated, we'd see not just a larger middle class but a middle class that pushes our concept of middle-class life into ever-higher living standards. Income and wealth inequality would still be with us—as it should be. But the system would look much more like scaling laws we can see in the natural world. That's because these models work with the Law of Flow.
As we have said, whether it’s information, energy, or economic flows, the distribution of everything is determined by vascular patterns, like those of tree branches or river tributaries. They calve and change to create new flows. Naturally, these branches and arms are not, and can never be, equal. Within a self-organizing organization, the same processes can be unleashed, unstoppered, and undamned by c-suite executives who once had multi-year plans.
Another exciting aspect of power-shifted organizations is that stakeholders can commit to different amounts of time. Someone might work 100 percent of her time for a single organization; another might spend 20 percent. Both contribute differential value per unit of time, and each contributes a different amount of time on aggregate. Assuming 100 percent of one's time is 40 hours, we can imagine the 20 percent contributor working for three or four separate organizations as a fractional (dynamic) shareholder if she so chose.
Post Script: Color-Coded Organizations
It’s no accident that the above color chart refers to the psychosocial developmental stages I set out in this series. The different color choices came after a schism between practitioners Ken Wilber and Don Beck parted ways. (The graphic above uses the Wilber scheme, and I use the Beck color scheme in the series below.)
Here are the eight stages as set out by Don Beck:
(BEIGE) Order of the Naked: Survival, Sensation, and Self-Concept
(GREEN) Order of the Leaf: Environment, Consensus, and Equality
(YELLOW) Order of the Nautilus: Integration, Emergence, and Complexity
(TURQUOISE) Order of the Lotus: Holism, Paradox, and Ineffability
The point is that power-shifted organizations are designed to take us from Blue, Orange, and Green to an organizational form that facilitates integration, evolution, and emergence.
As society becomes more complex and investors and workers find a Golden Mean in proportionality, we can evolve together as a species, finding that maybe, just maybe, these forms of organization can replace our sorry old political systems that seem hopelessly stuck in the first tier (1-6).