To our children: [627989]

To our children:
Brian’s Luke, James, and Aletheia
and Isaac’s Elie

Contents
Introduction
1
“How” Companies and “Why” Companies:
How Not to Run a Business
2
Are You Managing for the “Three Percent”?
Exceptional Companies Do Not Confuse the
Exception with the Rule
3
From Artisans to Automatons:
The Origins of the “How” Culture
4
Freedom Is Not Anarchy:
A Liberated Company Must Have a Shared Vision
5
Why They Did It:
Two Triggers of the Liberation Campaign
6
What’s Your (People’s) Problem?
Building an Environment That Treats People As Equals
7
Liberating an Established Company:
How to Reach Out Directly to Your People
8
From Motivation to Self-Motivation, Part One:
Beyond Grace and Intrinsic Equality
9
From Motivation to Self-Motivation, Part Two:
Work and Management Practices That
Nourish
10
In Search of Lost Boots:
The Big Payoff from Letting People Self-Direct and Grow
11
The Anti-Mad Men:
One Man’s Quest for Peace and Liberty in Advertising
12
The Secret of Liberating Leadership:
How Paradoxes and Wisdom Help Freedom
13
The Ultimate Paradox:
The Culture of Happiness as a Path to World-Class Performance
14
Butterflies in Formation:
Sustaining Freedom Over Time
Acknowledgments
Notes

Introduction
F
REEDOM WORKS
.
In every aspect of our lives—in politics, in economics, in entertainment, and in
family life—we demand the freedom to decide matters for ourselves. And yet when
it comes to our work lives, far too many people are stiɻed, constrained, hemmed in,
and tied down by bureaucracy and rules that have nothing to do with allowing them
to do the best they can in their jobs. These constraints leave people feeling out of
control of their work lives, which, in turn, leads to stress, fatigue, and
disengagement from work.
Amazingly, all of this is already well understood and has been for decades. As far
back as 1924, William L. McKnight, the legendary CEO of 3M, put the matter
succinctly: “If you put fences around people, you get sheep. Give people the room
they need.” With that in mind, McKnight went on to build an environment at 3M
that unleashed the creativity and initiative of 3M’s people. And yet, the culture
McKnight built at 3M has been more admired than imitated. Sixty years later,
Japanese industrialist Konosuke Matsushita looked across the ocean at his
competitors and described a corporate America still in the grips of Frederick W.
Taylor’s “scientiɹc management,” which organizes work by means of detailed
procedures that specify narrow, repetitive tasks for everyone, and demands full
compliance with their execution:
We are going to win and the industrial West is going to lose out … because … your ɹrms are built on the Taylor
model.
Even worse so are your heads. With your bosses doing the thinking while the workers wield the
screwdrivers… For you the essence of good management is getting the ideas out of the heads of the bosses and
into the hands of labor. We are beyond the Taylor model. Business… is now so complex and diɽcult, the
survival of ɹrms so hazardous and fraught with danger, that continued existence depends upon the day-to-day
mobilization of every ounce of intelligence.
1
Notice that Matsushita was not arguing that liberating your employees was a nice
thing to do for them, or that it would make them happier or make managers better
people. “Continued existence,” he said, “depends upon the day-to-day mobilization
of every ounce of intelligence.” That means every ounce of intelligence in every
brain that comes through the door of your company every day. If you are not doing
everything you can to take advantage of that brainpower and the knowledge those
brains possess about your business, you’re not only leaving money on the table, you
are putting your company’s survival at risk.
As we write these words in early 2009, the United States and the world economy
are in a dire state. The U.S. economy is shrinking rapidly, corporate proɹts are
collapsing—or in many cases simply nonexistent—and a half a million Americans a

month are losing their jobs. Everyone is afraid. Bosses are afraid that if they don’t
maintain or restore proɹtability, their jobs will be on the line. Frontline employees
are afraid that their jobs will be cut so that their bosses can keep their own.
We can guarantee you that important opportunities—for the elimination of
senseless waste that shows up nowhere on your proɹt-and-loss statements, for
keeping customers, and for acquiring new accounts—lie just down the hall, in the
minds of the people you already employ.
But wait—don’t walk down that hall and ask them how to save your business just
yet. Sit back down and keep reading. If taking advantage of those opportunities
were as simple as asking people to raise their hand and speak, you’d have done it
already. People
respond to the environment in which they ɹnd themselves. That’s
what McKnight meant when he said that if you
put up fences, you get sheep
. The
fences turn the people into sheep in subtle ways that they themselves might not
even realize.
Now, Matsushita was being a bit unfair—the problems with “Taylorism,” with
turning your employees into automatons, have been appreciated for a long time, as
McKnight’s observation shows. At times, trying to address this lack of autonomy has
almost become an obsession among management gurus. But for all the ink spilled
and all the energy expended in the name of empowering employees, Dilbert’s
comic-strip world remains depressingly familiar to people inside most companies.
You might conclude from this that bureaucracy, top-down control, and maybe just
a touch of George Orwell is simply the cost of doing business in the modern world.
We may not like it, but is it possible to live without it?
The liberated companies in this book don’t just say that it is—they prove it. In
industries that range from high-tech to manufacturing, from services to ɹnance and
to heavy industry, these firms have done away with the whole gamut of mechanisms
of control that characterize too many businesses—and they’ve thrived as a result.
Freedom, Inc
. is the product of more than four years of research. As we studied
these companies, we became convinced of two things: First, they all have things in
common that tie their success together with their culture of freedom. And second, if
truly liberated companies remain relatively rare even today, it is not because their
lessons can’t be applied elsewhere. The problem with bureaucracy is, instead, a bit
like obesity. It’s no mystery how to lose weight or avoid gaining it. Study after
study has aɽrmed the basic truth that if you consume more calories than you burn,
you’re going to pack on the pounds.
We all know this. The evidence is clear, and so, too, is the road to our ideal
weight. But more and more people don’t travel that road (your authors not
necessarily excluded) because it’s easier to fall back on habit, even when the habits
are bad for you. You may admire the svelte ɹgure of some athlete or model and
resolve to look like
them someday—and then go back to your desk and sneak
another bite of that candy bar.

Well, it turns out that a number of the liberated companies in this book are a bit
like that supermodel. Executives come from all over the world to see FAVI in
northern France or Harley-Davidson in Milwaukee. Harvard Business School has
used Sun Hydraulics in Sarasota, Florida, as its main case study on freedom in the
workplace. But while other executives—and even competitors—admire these
companies from afar, they don’t, or won’t, change their own ways. This is not to
say, however, that they
can’t
. They can. The very diversity of the liberated
companies we encountered and studied convinced us of that. If a brass foundry in
France, an insurance company in Texas, and a software ɹrm in Pennsylvania could
all set their people free; if liberating leaders could change the culture inside
companies with decades of dysfunction in their past or build a new
Freedom, Inc
.
from scratch; then there were lessons here for any company to use to their
advantage.
Those lessons are:
1.
Stop telling and start listening
. Then, remove all the symbols and practices that
prevent your people from feeling intrinsically equal.
2.
Start openly and actively sharing your vision of the company so people will “own” it
.
But don’t do this before Step 1 because people who are not treated as equals will
leave you alone with your vision.
3.
Stop trying to motivate people
. That’s right. Instead, build an environment that
allows people to grow and self-direct—and let them motivate themselves. If they
understand the vision from Step 2, they’ll take care of the rest if you let them.
4.
Stay alert
. To keep your company free, become the culture keeper. In this role,
as liberating leader Bob Davids says, “One drop of urine in the soup is too much—
and you can’t get it out.”
2
The price of liberty is eternal vigilance.
These principles are universal, but each leader in this book had to apply them to
his own unique set of circumstances—and you
will, too. In other words, this book
cannot give you a formula for applying the above principles to any particular
situation. Freedom is, after all, the enemy of formulas—if we knew, or you knew,
every situation that would arise and how to deal with it, you would not need
freedom—or your employees, for that matter. You’d have all the answers already.
This paradox was captured by Robert Townsend, one of the best, most profound,
early thinkers on the problem of freedom and organization. Townsend was also a
liberating leader in his own right. One of his aphorisms was, “At best, a job
description freezes the job…
At worst, they’re prepared by personnel people who can’t write and don’t
understand the jobs. Then they’re not only expensive to prepare and regularly
revise, but they’re important morale-sappers.”
3
Likewise, if your liberation

campaign isn’t flexible, it’s probably a little short on the freedom thing.
Townsend got his start as a leader at American Express in the 1950s, which at the
time was a traveler’s check company. He introduced charge cards to the business,
ingeniously describing them to reluctant top executives as a “cross between a
passport and a traveler’s check.” He also drove AmEx’s foray into banking. More
important, though, from the moment he became a manager he practiced a kind of
leadership based on radical freedom for his subordinates. As he would later say, “As
a new manager, remove everything you didn’t like when you were a subordinate
and implement what you missed.”
4
But as the head of only one division at American
Express, Townsend could not transform the whole company. That opportunity came
in 1962, when he was oʃered the chance to become chief executive oɽcer of Avis,
which was at the time a moribund company that hadn’t turned a proɹt in thirteen
years. In just three years he liberated Avis and unleashed the initiative and action of
its thousands of employees. By 1965 Avis had become one of the fastest-growing
companies in the United States—its “We try harder” motto comes from those times.
That year ITT, one of the most acquisitive conglomerates of the 1960s, noticed the
turnaround Townsend had accomplished and bought the company. Townsend
resigned and, ɹve years later, published
Up the Organization: How to Stop the
Corporation from Stiɻing

People and Strangling Proɹts
. The book’s aphorisms and
advice, arranged in alphabetical order, describe what might be called an early
version of a liberation campaign. It opens with “A—Advertising: Fire the whole
advertising department and your old agency,” and it closes with “W—Wearing out
your welcome: Nobody should be CEO of anything for more than ɹve or six years.”
It would ultimately spend several weeks as a number one
New York Times
best seller
and remains in print today. The Wharton Center for Leadership and Change
Management at the University of Pennsylvania still ranks it the number one
business book “every manager must read.” For all that, Townsend’s advice has
remained somewhat less than universally applied since
Up the Organization
was
published.
One person in particular who might have been surprised by this was Douglas
McGregor, a professor at the Massachusetts Institute of Technology whose academic
work echoed Townsend’s practical experience. McGregor’s 1960 book,
The Human
Side of Enterprise
, is itself a classic on bureaucracy and human nature. McGregor
identiɹed two approaches to running a company: “Theory X” and “Theory Y”—
clearly, branding was not his strong suit. Each theory, according to McGregor, is
based on a diʃerent set of assumptions about human nature. The “Theory X”
assumptions are:
1. The average human being has an inherent dislike of work and will avoid it if
he can.
2. Because of this human characteristic of dislike of work, most people must be

coerced, controlled, directed, or threatened with punishment to get them to put
forth adequate effort toward the achievement of organizational objectives.
3. The average human being prefers to be directed, wishes to avoid responsibility,
has relatively little ambition, and wants security above all.
5
The “Theory Y” assumptions are different:
1. The expenditure of physical and mental eʃort in work is as natural as play or
rest.
2.
External control and the threat of punishment are not the only means for
bringing about eʃort toward organizational objectives. Man will exercise self-
direction and self-control in the service of objectives to which he is committed.
3. Commitment to objectives is a function of rewards associated with their
achievement. The most signiɹcant such reward, that is, the satisfaction of ego and
self-actualization needs, can be direct products of eʃort directed toward
organizational objectives.
4. The average human being learns, under proper conditions, not only to accept
but to seek responsibility.
5. The capacity to exercise a relatively high degree of imagination, ingenuity, and
creativity in the solution of organizational problems is widely, not narrowly,
distributed in the population.
6. Under the conditions of modern industrial life, the intellectual potentialities of
the average human being are only partially utilized.
6
McGregor was so convinced of the superiority of “Theory Y” to “Theory X” that in
1950—well before he wrote
The Human Side of Enterprise
—he predicted the death of
“Theory X” organizations within a decade.
7
That didn’t happen. Maybe the good
Mr. McGregor had never tried to go on a diet.
Dieting is hard because the pleasures of immediate consumption are obvious to
our senses, but all the ways in which we are damaging ourselves may be hidden
from us in the heat of the moment. It’s the same with bureaucracy. As you’ll see in
this book, overbearing control of one’s people comes with all sorts of hidden costs—
not just to your bottom line, but even to your health and the health of your
employees.
Even so, there are moments when the truth confronts even the most weak-willed
dieters. One of the liberating leaders in this book, Jean-François Zobrist, recounted
the following story. It occurred during one of those regular visits to FAVI by a CEO
who had heard about the company’s remarkable culture and performance and
wanted to learn more about it.
8
While walking by the supply closet, the visiting

CEO was surprised that it not only lacked a lock but that it was missing one of its
four walls—there was literally no way to close it securely. Zobrist explained that
FAVI, as a liberated company, trusts its people to take what they need for their jobs
and that they are free to do so. Just then, a machine operator came over to the
closet, so the visitor asked him a question: “What happens if the part you came for
is missing?”
“It never happens,” the operator replied, “because the guy who takes the last
piece in the box goes to the warehouse and brings back a full box.”
“Fine,” the CEO pressed. “But what if there are no more boxes in the warehouse?”
“Simple,” the operator answered. “If the guy sees that he’s taken the last box from
the warehouse, he lets the operator taking care of purchasing know so that more
can be ordered.”
“And what if he doesn’t do it?” the CEO persisted—this time, surely, the operator
would have no more clever answers.
After a pause, the operator told him simply, “It’s a question of good manners,
Monsieur,”
took what he needed, and excused himself.
The visitor’s interlocutor was not simply an uncommonly polite machine operator
in a brass foundry. He was the product of FAVI’s liberated culture. And what he
called “good manners” were, in fact, the norms that serve in the place of top-down
rules when a company is free. The visiting CEO might well have left thinking he
couldn’t entrust his company to “good manners.” But then again, even the strictest
rules are only as good as people’s willingness to follow them. The great intellectual
error of bureaucrats everywhere is to assume that because something is called a
rule, it’s preferable to a less formal arrangement. And yet most of those rules are
not only great morale sappers, they’re preventing the vast majority of your
employees from doing the right thing. The rules become so stiɻing that the only
way for people to do a good job is to go around them—sometimes at great cost. At
the same time, they are, as likely as not, failing to prevent the tiny minority of
potential malefactors from doing your business harm. In these times, can you aʃord
to continue stiɻing the vast majority of your people instead of giving them a chance
to help your business?

E
1
“HOW” COMPANIES AND
“WHY” COMPANIES
How Not to Run a Business
VEN IF YOU
don’t know what Gore-Tex is, you know what it does: It keeps you dry—
guaranteed. As a brand, Gore-Tex has been so successful that it sometimes seems in
danger of disappearing, of becoming a generic term like “Band-Aid.” Since it was
invented in 1971, Gore-Tex has given rise to a number of competing products. Some of
those boast properties said to be superior to the original. But if you walk into a store
and want to know whether a ski jacket is waterproof, the question you’ll probably ask is
“Is it Gore-Tex?”
It’s the kind of brand dominance—over both market share and “mind share”—that
marketers dream of, or lose sleep over. The story of how it came to be, and came to
symbolize an entire market category, is the story of two radical ideas.
Bill and Genevieve Gore’s ɹrst idea was that there were market opportunities for a
chemical called polytetrafluorethylene—PTFE for short—that DuPont wasn’t pursuing.
Today, PTFE is best known as Teɻon, that magical polymer that keeps our pans from
sticking and our pipes from leaking, among a myriad of other far-ɻung uses. It is
supposedly so slippery that it is the only known substance to which a gecko’s feet will
not stick. But in 1938, it was an experiment gone wrong for Roy Plunkett, who worked
at DuPont. Plunkett was trying to develop a refrigerant for car air conditioners when
one of his canisters of gas seized up solid. He cut it
open and found that the
tetraɻuorethylene inside had “polymerized”—that is, turned to a kind of plastic, white
and slippery. Three years later, DuPont received a patent on the stuʃ, but then
contented itself with selling it as a raw material to those who wanted to incorporate it
into their products. It would be another thirteen years before a Frenchman, Marc
Gregoire, stuck it to a pan so that nothing else would.
Bill Gore had other plans for PTFE. He thought it would make a great insulator for
electrical cables. But DuPont was a chemical materials company, not an electrical
products company, and wasn’t interested. So, at the age of forty-six, this father of four
quit DuPont, licensed PTFE, and set up shop in his basement with seed money from
friends in the Gores’ bridge club.
1
As it turned out, Bill Gore was right about PTFE’s potential. But it was his and Vieve’s
second idea that gave the world Gore-Tex, along with more than one thousand other
innovative products, and made W. L. Gore & Associates into a multibillion-dollar leader

in markets spanning from aerospace and electronics to energy and health care. Like
PTFE, that second idea was borrowed, in a way, from DuPont. But like the remarkable
polymer, Bill’s insight had to do with what the company he had worked at for years
wasn’t
doing.
Bill Gore believed that the way we talk about one another and about our jobs aʃects
the way we think and the way we act. So he replaced his employees with “associates,”
their jobs with “commitments,” and their managers with “leaders.”
Of course, it’s possible, as George Orwell knew, to change all the words without
changing reality. And changing the reality of how people work was Bill Gore’s real
ambition.
THE END OF “FUNNY” BUSINESS
Les Lewis, today a manufacturing leader at Gore, was one of the company’s ɹrst
associates. He recalled what it was like at Gore in 1965. “It was early on, at a funny
time for the company,” Lewis explained. “We had [one plant], seventy people, and
believe it or not, a dozen ‘supervisors.’ I was one of them, and I decided to write the
first
supervisor’s handbook—how to deal with back vacations, the sorts of things that a
supervisor needs guidelines for.”
What Lewis described as a “funny time” is a phase that almost every successful start-
up goes through. The company has started to grow; maybe one day you walk in and
realize that you no longer recognize everyone who works there and don’t always know
who does what and how anymore. Sooner or later, someone decides that order needs to
be restored, or established. An enterprising manager like Lewis decides he’ll share his
insights by setting them down on paper, and the ɹrst manual is written to tell people
how to do their jobs.
If you’re one of those managers, this might seem to be an attractive opportunity—a
chance to show your quality and pass on your experience. Some people might even
think it fun, a bit like setting down the rules of a whole new society that, from now on,
will run like a well-oiled machine.
But Lewis’s “fun” did not last long. Today, a handbook such as the one Lewis wanted
would be unthinkable at this company. But how did founder Bill react to the manual in
those early days?
Lewis described Bill Gore’s big idea as a product of his experience at DuPont.
2
As Gore
explained it to Lewis at the time, “When [DuPont] wanted to work on a project, they
would assemble a small team, and that small team would work very much as equals …
where there was not a hierarchical thing. Everybody worked, everybody brought their
skill and knowledge together.” This was, for Gore, an ideal way of working. But at
DuPont, “once that project got to a certain point, they would all go back to their
organizations, in a much more hierarchical chain of command.” Gore’s notion was

simple: If this collaborative, nonhierarchical, liberated structure worked for important
projects that needed to get done quickly, why shouldn’t a company work that way
all the
time?
So once Gore left DuPont and started his own company, he decided to do just that.
According to Lewis, Bill Gore “vowed that if he ever had a company of his own, he
would want it that way because he thought that it really invited a lot of people’s
creative skills to come forward.” Even so, it took time and experimentation before Gore
settled on an effective way to implement his idea.
The discovery of Lewis’s supervisor handbook, as it happens, was a clarifying moment
for Bill Gore. “He wasn’t turned on by it,” Lewis said drily, adding, “But when I wanted
to introduce a requisition form for shop work, that was the end of it—Bill hated forms.”
So Bill Gore decided to take his supervisors out to dinner. Soon the monthly dinners
became an academy in the values and principles of leadership. “It was almost a Socratic
approach to teaching people to lead,” recalled Lewis. “At these dinners, he would talk
about how to lead—we wouldn’t call it ‘leading’ then; we were [still] ‘supervisors’—and
how to ‘sponsor’—we didn’t call it ‘sponsoring’ then. He would discuss problems that we
had and would ask everyone, ‘How would you do that?’ We would hear diʃerent ideas
about how to deal with situations,” Lewis explained. “It was absolutely a dialogue. He
would never drive his answers to us, [saying, ‘This is] what you ought to do.’ Instead, he
would ask, ‘How have you solved this problem? Has anyone else experienced one of
these?’ Meanwhile, he was also instilling in us values and value judgments.”
So the “funny time” ended. No supervisors ever attempted to write rules and policies
again, because there were no more supervisors at Gore. And the leaders, who took the
place of the supervisors, were busy helping people—instead of telling them how they
had to work. But it would take more experimentation and time before Bill Gore fully
implemented his second big idea of a radically different way to work.
THE YELLOW BRICK ROAD
Fast-forward to the mid-1980s. Thirteen years ago, Lewis had left the company for
greener pastures. After spending this period in more traditional command-and-control
companies, he’s now decided to return to his native Newark, Delaware, and give W. L.
Gore & Associates the beneɹt of knowledge and experience he’s gained about managing
big companies. Gore itself had gotten a lot bigger over the years, with several
manufacturing sites in the United States and abroad and several thousand associates.
The circumstances looked
perfect. The plant had just been moved to a brand-new facility
and Lewis, a newly minted manufacturing leader had a big corner oɽce, making him
feel important: “I was feeling very conɹdent—‘I have arrived,’ you know?” There was a
lot on his plate. Operations were ineɽcient and the manufacturing techniques people
used appalled Lewis: “Instead of computers they were using a columnar pad with
numbers they were ticking off to run manufacturing operations by hand.”
So Lewis decided to change all that, to instill some discipline, show people that they

were working in a backward way, and push them to use a newfangled tool called a
computer spreadsheet.
It looked like the right thing to do. Though quite big already, the company lagged
behind its main competitors in the use of modern, computer-based operations
management. Lewis’s proposed course of action was unimpeachable and would have
been accepted in any other company. What Lewis couldn’t see is how diʃerent Gore had
become since he’d left.
His eʃorts lasted six months and the only result was personal—he was ready to leave
the company again. And it wasn’t because of then-president Bob Gore’s—Bill’s son—
hatred of computers (“Bill hated forms, Bob hated computers,” Lewis explained) but
because no associate would ever listen to him, never mind follow him. “I was using the
techniques that I had been practicing for thirteen years elsewhere. More power, more
inɻuence, more whatever, and suddenly it dawned on me—an epiphany: ‘You know
what the Gore organization is like. You were in it. Why are you trying this top-down
kind of a way?’”
And so Lewis rediscovered the values and principles of leadership Bill Gore had taught
him and others at their Socratic dinner meetings. Lewis dubbed it the “yellow brick
road.”
“You ask your associates ‘Where do you want to go?’” Lewis told us. “And they say,
‘To the Emerald City.’ So you don’t tell them, ‘Follow the yellow brick road,’ the road
your own knowledge dictates is the right one,” Lewis explained. “You don’t, because all
they will say is, ‘You’re crazy. We’re going oʃ through the woods.’ So you take your
bricks and go with them, and throw them one by one in front of
them—not giving the
answer, but ideas, information, letting them ɹnd their own answers. And with every
new brick they step on, [your] credibility goes up.” Lewis summarized: “I had no
credibility, but little by little each of those bricks brought my credibility up.”
Lewis had rediscovered that, with all his responsibility for leading a big plant, all his
knowledge and experience about how to run operations better, associates wouldn’t
follow him until he ɹlled what he called his “credibility bucket.” He was learning that a
“leader” is not just a manager with a diʃerent title. A leader is someone whom others
follow
naturally
. At Gore, when Lewis returned, that culture was already so strong that
he ran into it face-ɹrst, and it nearly drove him back into the command-and-control
world. But even at more traditional companies, this same dynamic holds. It’s just that at
traditional ɹrms, all the tension is under the surface. As Gore’s CEO, Terri Kelly,
explained, “What you ɹnd in a lot of companies is that if there isn’t true support for the
decision, it gets undermined along the way. In fact, it may never come to fruition. So on
the one hand you’ve made a very quick decision—‘We’re going to go to China’—but then
you’ve got all kinds of resistance.”
3
So in those companies, the employees may not go
into open revolt—most of the time. But if they are not sincerely consulted by their
manager, or if they think he lacks credibility, your company will quietly leak
productivity every day—and perhaps even sink.

The diʃerence at Gore is that the associates there are
genuinely
consulted—and they
are free to choose. This freedom is one of the hallmarks of all of the liberated companies
in this book. And by exercising their choice not to follow the Les Lewis who had returned
from the outside world, Gore’s associates were actually doing him a favor. They were
providing him with valuable information about how he was doing his job that allowed
him to change tack and become a more eʃective leader. The all-too-familiar alternative
—each of us grumbles to himself, his family, or his coworkers, but keeps his head down
and does enough work to avoid attracting attention—may be one of the invisible but
profound reasons your company isn’t performing the way you think it should.
OK, you may say. But how do you get everyone to row in the same
direction without a
boss at the helm? What guides people’s freely chosen actions and prevents them from
pursuing their own interests at the company’s expense? Gore has a way of thinking
about these challenges. And unsurprisingly, it’s just a little bit diʃerent from the way
most companies do. Gore people live the company’s four principles: The ɹrst is
“freedom.” But along with it are “fairness,” “commitment,” and “the waterline.” The
thing to know about these principles is that, unlike the mission and values statements at
many companies, associates actually think about and
live
them. Fairness, commitment,
and the waterline make freedom work for Gore.
“FORMULA FOR FAILURE”
Fairness is about being fair to others—both inside and outside the company. According
to Lewis, W. L. Gore & Associates wants to treat its suppliers and its customers as equals.
But fairness has an internal component as well—it’s about treating your colleagues with
dignity and as equals. Lewis, in fact, once needed a little help to understand the fairness
principle.
Back in the mid-1960s, when Lewis was a young supervisor, the company was
scraping by and still working out the kinks in its production of PTFE-coated cables—its
only product at the time. When a batch went bad, Lewis came up with what he thought
was an enterprising way to save money by stripping the bad cables so the materials
could be reused. “So, I got these three women in the back of the plant and I gave them a
wire spool each to sit down on,” Lewis explained. “And I put these spools of cable that
had to be stripped there, and I gave them some kind of a knife or something to strip it,
and they are sitting back there in the bowels of the Earth like a coʃee klatch, stripping
this wire oʃ.” Lewis thought to himself: “‘All right. I am set up. Man, we are getting this
stripped oʃ and getting it recoated; we are going to save all this.’ Back then we couldn’t
aʃord to throw stuʃ away.” Needless to say, Lewis was pretty pleased with his economy
and enterprise. Bill Gore, however, thought that Lewis needed some help.
Lewis left the women to their work and went back out onto the shop ɻoor, where Bill
found him. Lewis continued the story: “‘Do you have a minute?’ Bill Gore said.
“And I said, ‘Sure.’ So we turn around and walk out of the shop and into the only

oɽce in the plant, where the only blackboard was in the whole plant, and he shut the
door and said, ‘Have a seat.’
“And I sat down, and he wrote up on the board,
‘Formula for Failure,’
and underlined
it.”
Underneath, Gore listed a series of bullet points:
Provide inadequate lighting
Provide uncomfortable seats
Provide tools that give blisters.
“He listed about eight things. Honestly,” Lewis said. “And then he said, ‘Are
you
responsible for that wire stripping in the back?’ “I said, ‘Yes sir.’
“He opened the door and walked out.”
Fairness means, above all, that human dignity is not subordinated to bottom-line
considerations. Lewis may have thought he was saving money for a struggling start-up
with a dwindling bank account. Instead of frugality, Bill Gore saw short-term thinking
that would lead to long-term failure.
But there was an even deeper lesson for Lewis in Gore’s “Formula for Failure.” Lewis
had a problem—how to save some money on the defective wire. And he imposed a
solution on his employees that, he thought, would solve it. He was not the one who had
to strip the wire or sit in the dark on old spools, so the obstacles that he had erected to
those people doing their jobs did not even occur to him until Gore pointed them out.
Lewis never asked whether they had any ideas for how to salvage the wire or what tools
or conditions they’d need to get the job done. He never even asked himself whether the
problem he was trying to solve was the right one. He never treated his fellow associates
as intrinsically equal, as people who are paid to know how to do
their
jobs as well as he
knows his.
If his company was going to be diʃerent from traditional companies,
Bill Gore could
not afford leaders who treated people unfairly. That, too, was a formula for failure.
“ALL IN THE SAME BOAT”
At Gore, associates have commitments instead of jobs. This, again, is more than mere
semantics. A job is something a boss gives
you
, something framed in a box on an
organizational chart. A commitment is
freely
entered into, and is a promise of sorts
made to those working alongside you. Commitments are more ɻuid than jobs.
Depending on one’s workload and capacity for new projects, an associate may have
one, two, or several commitments simultaneously. An associate may ɻow in or out of a
commitment as the work requires. New hires are not assigned a job but encouraged to
seek out commitments where they feel they can best employ their talents, skills, and

experience.
In this sense, a commitment is the opposite of a job. It is something chosen, rather
than something imposed. It is another sense in which Gore associates are set free from
the demands of a traditional hierarchy.
But that’s a recipe for anarchy, not for freedom, you may think. Today a person may
like some activity and commit to it. But tomorrow, he may like another activity more
and just “recommit” there, leaving his current team with a huge hole to ɹll. Without
some discipline, this freedom of commitment will quickly fall apart. This is where the
credibility bucket comes in.
A drop goes in the bucket every time an associate keeps a commitment, from one to
ɹnish a memo by tomorrow to seeing through a multiyear project. The credibility bucket
also gets a drop added every time an associate helps somebody. Commitments are
voluntary—but once a commitment is made, you’d better keep it. If you don’t, your
credibility bucket will drain quickly, and with that your ability to work with other
associates dries up. Leaving your current commitment without ɹrst discussing it with
your team, ɹnding a way to reduce your involvement gradually, and avoiding
disrupting
your colleagues will not only blow a hole in the team’s activities. It will also
blow a huge hole in your credibility bucket and, with that, your chances to work in a
new team. W. L. Gore & Associates’ culture doesn’t use discipline to avoid anarchy. It
relies firmly on self-discipline.
The waterline principle is another way that W. L. Gore & Associates uses self-
discipline to keep freedom from becoming anarchy. A “waterline decision”—another
local code word—is one that could sink the “boat.” If an associate feels that a decision is
important enough that it is make or break—either because it involves a large ɹnancial
outlay or it could have broad ramiɹcations for the business—then he must consult with
leaders and other associates with better knowledge or authority to guide him to the right
decision. Corporate freedom is not a blank check, and the water-line helps ensure that
freedom is used in a responsible manner at Gore.
The authority to help make those waterline decisions, however, does not come from
organizational charts, as Lewis found out when he ɹrst returned to Gore—which has no
org charts anyway. One of the ways that a leader at Gore acquires the authority to lead
is by ɹlling his credibility bucket. Lewis’s was empty upon his return, which explains
why people wouldn’t listen to him.
One could imagine how the waterline, if interpreted broadly enough, could become a
covert mechanism of control. But the waterline is not invoked very often in most
associates’ daily lives. Individual initiative and risk taking have always been strongly
encouraged at W. L. Gore & Associates. Bill Gore was known for asking associates on his
daily plant tour: “Have you made any mistakes lately?” And if the answer was “No,” he
would say: “You haven’t been taking enough risks.” Needless to say, if the risk is that
you might fail to keep a commitment, you should warn others immediately. If you don’t,
you’ll punch a hole in your credibility bucket.

For Gore’s associates, the result is a company where they feel uniquely free to pursue
their own interests within the framework of a fulfilling job—or, rather, commitment. But
for the company as a whole, the proof is in the results. And the company has been
eating
its freedom pudding for ɹfty years now. It still tastes as great as ever. In the
early days, Bill Gore started out with an unloved little compound called PTFE and one
product—coated wires and cables. Today, Gore takes in close to $2 billion in sales and is
still growing by double-digit percentages every year, both in revenues and in the
number of employees. It not only makes the most famous waterproof membrane in the
world, but it continues to innovate in ways that no five-year plan could foresee.
ONE THOUSAND INNOVATIVE PRODUCTS
Take Gore’s foray into guitar strings, where it is, unbeknownst to most of the world, the
market leader. The story of how it got there is surprisingly typical of the way that Gore
has grown for decades, without planning. Elixir guitar strings are a premium product,
selling for three times what ordinary strings can command in the market. But they came
about, like Gore-Tex itself, through a happy accident of the sort that the company has
stumbled into over and over. One of Gore’s associates in the medical devices division,
Dave Myers, was a bicycling enthusiast who was unhappy with the performance of the
cables used to shift gears on his bike.
4
So in his spare time, he set about to see whether
he could improve them by coating the metal cables with PTFE. It worked, but the
product itself, Ride On bike cables, was something of a bust. In the meantime, however,
Myers had moved on to another commitment—PTFE-coated wires for giant marionettes
(don’t ask).
While working on the marionette wires, Myers hit upon the idea that would bring
Gore into a whole new, and more proɹtable, line of business. Guitar strings age because
they oxidize; dirt and grime from the players’ ɹngers accelerate the process. Coating
them with PTFE might be just the ticket. Myers didn’t play guitar, so he tapped the
experience of a colleague, Chuck Hebestreit, who did, and Elixir—a guitar string that
sounds better and lasts up to three times longer than an ordinary string—was the result.
Gore had no idea how to break into the market, and its initial—traditional—eʃorts
ɻopped, so it resorted to a giveaway, including sets of strings free with the purchase of
guitar magazines. The product took off; today Gore controls a third of the market.
As for Gore-Tex itself, it, too, was discovered by accident, by Bill’s son Bob. In 1969,
Bob was trying to stretch PTFE into strands thin enough to be woven into a fabric. It
wasn’t going well. In frustration, Bob took a piece of freshly extruded PTFE and yanked
on it. It stretched into a thin, ɻexible, strong form that, when made into sheets, was
both breathable and waterproof. In this way, expanded-PTFE, or ePTFE, for which Bob
Gore would be granted a patent in 1976, was invented. The rest is sportswear history.
As impressive as Gore’s record is, there’s no denying that founder Bill Gore had certain
advantages. He started the company and was able to shape it from its earliest moments.

He could hire people with the attitudes and values that ɹt the culture he was building—
although he occasionally had to deal with managers’ penchants for developing
“formulas for failure.” He could let them ɹnd the roles where they were willing to
contribute most. He could impose a principle that no facility could exceed 150
associates, in order to keep communication ɻuid. More generally, he could use his
privileged position as founder and CEO to prevent even one drop of command-and-
control culture from poisoning his corporate well—the uniquely free environment he
was building in his company.
But what if you don’t have those advantages? Halfway across the world from Gore’s
Delaware headquarters, Jean-François Zobrist faced exactly that problem when he took
over a brass foundry called FAVI in April 1983.
THE CHAIN OF COMMAND
FAVI is as old-economy as they come, manufacturing brass plumbing ɹxtures and gear
forks for cars. It was family owned, and Zobrist was parachuted in as CEO. Actually, he
was helicoptered in. FAVI’s owner liked surprises. So after taking Zobrist on a one-hour
helicopter ɻight to a destination unknown, the proprietor touched down at
the plant
and oʃered Zobrist the top job in a most unusual way. When they had landed, the
owner gathered all the employees and informed them all—including Zobrist—that
Zobrist was their new CEO. FAVI’s owner then left as suddenly as he had arrived. For
three weeks Zobrist heard nothing further from him, until one day his phone rang. The
owner asked Zobrist, “They haven’t wolfed you down, have they?”
5
“No,” Zobrist replied.
“Well, then you can stay,” he said. After a short pause, he added: “Your charge: Make
me money and don’t go to jail.”
Familiar with the owner’s penchant for extreme language, Zobrist translated this
charge as “You have all the freedom of action you want, within the limits of law.” That
suited Zobrist. But he soon realized that the rest of FAVI’s employees were not so free.
Zobrist got an early taste of this one day while walking past the supply closet. There he
saw an employee, Alfred, waiting in front of the closed window.
“What are you waiting for?” Zobrist asked.
6
“I came to exchange my gloves,” Alfred replied. He hastened to add, “I have a slip
from my boss and my old gloves.”
And so Zobrist learned the policy: When a worker wore out his gloves, he would show
them to the head of the workshop, who would give him a slip for exchange. He would
then cross the workshop ɻoor—chatting with others and perhaps visiting the bathroom,
before ringing the supply closet’s bell, waiting for the keeper, and giving him the slip
and the old gloves. At that point, he could get his new gloves and go back to work. The
process could easily take a good ten minutes—assuming the closet keeper was present

and answered the bell promptly.
So Zobrist posed a question to the accounting department, which informed him that it
cost FAVI the equivalent of one hundred dollars an hour to run the equipment on which
Alfred worked. That worked out to more than ɹfteen dollars lost every time a pair of
gloves needed to be exchanged—nearly twice what the gloves themselves cost. The
real
cost of the gloves to FAVI was so high that if they were freely distributed, the company
would actually save money,
even if some workers took home an extra pair for their
gardening every now and then.
Of course, as in most companies, accounting had a line item for glove purchases but
kept no track of the productivity lost to glove policing. In reality, FAVI was losing
thousands of dollars by keeping the gloves under lock and key, Zobrist discovered, but
on the official ledger, it would be recorded as a gain.
And the gloves were only the beginning. The more he looked around, the more of
these bureaucratic false economies he discovered. Based on these early observations,
Zobrist concluded that if FAVI remained set in its ways, it was headed for extinction—or
to China. And, in fact, that is precisely what happened to much of the old-line
manufacturing in Europe during the time that Zobrist ran FAVI. But Zobrist had other
ideas. And under his leadership, the company has thrived where others have failed.
He eliminated the time clock because employees “should work to make products, not
hours.”
7
At the same time, he eliminated overtime pay while raising salaries to the level
of one’s total pay over the previous year, for the same reason. Zobrist captured his
leadership philosophy with a distinction. There are, he said, two kinds of companies:
“Comment”
in French, or “how” companies, and
“pourquoi,” or
“why” companies. “How”
companies spend their time telling workers
how
to do their jobs—where to place the
machinery, when to come to work and when to leave, and so on. This has two
consequences. The ɹrst is that you end up judging employees by everything except what
counts, which is whether the job gets done and the customer is happy. The second is that
it becomes diɽcult, if not impossible, to change any of the myriad rules about
how
to
get things done. You want to move that cart to a diʃerent spot on the shop ɻoor? You
need clearance from your manager, who may have to ask
his
manager, and so on,
creating a never-ending “chain of
comment.”
The result, as Zobrist put it, is that it
becomes impossible to get the work done without disobeying somebody in the chain of
command.
A
pourquoi
company is diʃerent. It replaces all the myriad “hows” with a single
question: Why are you doing what you’re doing? The
answer is always the same: to keep
the customers happy. As long as what you do satisɹes that commandment, Zobrist
doesn’t worry about how you do it. Freedom at FAVI meant replacing the chain of
comment
with a single
pourquoi
.
Getting there wasn’t easy. Zobrist smiled when he recalled how his newly liberated
employees still gazed wistfully as they passed the blank space on the wall where the
time clock used to be—and where some of them used to hang out in advance of the shift-

ending bell so that they could be the ɹrst to punch out and head home. But even more
than the shop-ɻoor workers, Zobrist had problems with the middle management. He
tried winning them over, but they—conscious that with everyone set free on their own
initiative, they’d have little left to do—wouldn’t budge. Eventually, he dispensed with
middle management altogether, moving supervisors to other roles more beneɹcial to the
company while leaving their salaries intact. He eliminated the human resources
department, too—because, he said, humans aren’t resources, they’re people.
In place of the supervisors, he organized the shop ɻoor into what are essentially self-
directing teams of two dozen or so. Those teams each serve a particular customer with a
particular product, allowing them to become intimate with the needs of the clients they
serve and to see directly whether they are happy—or not. And they approve candidates
for the leader’s role, whom they can also depose. Those leaders report to Zobrist—about
as flat an organization as you could ask for.
8
The results have been extraordinary. For twenty-ɹve years, FAVI has been able to
reduce prices by 3 percent a year on average and has never been late with a delivery,
allowing it to remain competitive in an age of globalization. It remains a European
leader in its sector—half of all cars built in Europe contain gearbox forks from FAVI, an
unheard-of market share for an auto-parts supplier. It has bought out its last remaining
competitor on the Continent, introduced breakthrough brass products, such as electric
rotors, in totally new markets, and—unlike its now-extinct European competitors—FAVI
actually
exports
parts to China. And regarding the economic downturn in 2009, FAVI’s
projection is to come out of it with an 80 percent
market share in gearbox forks in
Europe because a number of its international competitors have been wiped out by the
bad times.
Many CEOs have great things to say about their companies’ corporate cultures. Many
also claim to believe that their people are their greatest assets. We suspect that
somewhere there is a top-secret executive seminar for CEOs where they are trained to
tell their employees that they shouldn’t be afraid to bring problems to their bosses’
attention, and that if they walk into a room with their ɻy down, they expect an
employee to tell them right away.
But the fact is, most employees don’t believe a word of it. Sometimes it’s the little
things that give the bosses away. The CEO will say she’s open to new ideas. And then
she’ll direct employees to a special-purpose internal website—a high-tech “suggestion
box”—where those ideas go to die, to be read by an assistant charged with sending a
respectful reply and ignoring the recommendation, or wind up examined, ɹltered, and
mostly rejected by some duly appointed “suggestion committee.”
FAVI and the rest of the companies in this book really are diʃerent. They prove it—to
their people most of all—in ways big and small. When Zobrist says that your only job is
to keep the clients happy, he proves it by eliminating the measurement of everything
else. The results, as seen in the foundry’s performance numbers, are remarkable. But
when viewed from “down below,” through the eyes of those employees, the eʃects are

more remarkable still.
THE JANITOR WHO IMPRESSED A CLIENT
It was 1985, two years after Zobrist became CEO. Christine, a night janitor at FAVI, was
doing her job after everyone else had gone home when, at 8:30 p.m., the phone in the
plant rang. Christine didn’t know it, but the man at the other end of the phone was an
auditor from Fiat, an important new customer for FAVI. He had just landed at the
airport in Paris and was expecting someone from FAVI to pick him up and drive him up
to Picardy, ninety minutes away, where he
had an appointment at FAVI ɹrst thing in
the morning to ensure that the plant was meeting Fiat’s quality standards.
Christine, upon hearing that the man on the other end of the line was a visitor
expecting a pickup at the airport, arranged a meeting point and hung up the phone.
Zobrist picked up the story: “I had waited until 7 p.m. on the evening the auditor was
due to arrive, thinking that he perhaps had some diɽculty. And then I went home.
Imagine my surprise when I saw him waiting in my oɽce the next day at 8:30 a.m. He
said, ‘Something very strange happened to me yesterday.’”
9
The Fiat auditor explained that, being in a hurry, he had not been able to call in
advance (there were no cell phones back then). When he arrived at the airport and
found no one from FAVI waiting for him, he called the company. To his surprise, a
feminine voice answered. He explained that he was late, but that in principle the
company had told him someone would pick him up. The woman who had answered the
phone came, retrieved him from the airport, drove him to his hotel, and wished him
good night.
“The funny thing,” the auditor told Zobrist, “is that she was very kind, very polite, but
she didn’t seem to have the slightest idea who I was or what company I was from.” Even
funnier, though, was that Zobrist could not for the life of him ɹgure out who the mystery
chauffeur of this important visitor was.
After the meeting, the CEO called a few people and tracked down Christine. When she
had heard the man’s story, Christine had simply taken the keys of one of the company
cars—keys that always hang near the entrance to the plant so that they are available to
any employee who needs a car. She then went to the airport, brought the visitor to the
hotel—and came back to finish the cleaning she had interrupted three hours earlier.
What’s more, she had seen no need to tell anybody about her trip. She was an
employee with a job of her own to do, who had nonetheless taken three hours out of her
evening to drive to the airport and back. She took a company car on a two-hundred-mile
roundtrip journey without seeking anyone’s approval simply because it
seemed like the
right thing to do. The company had oʃered this man a ride from the airport and there
was no one else available to fulfill the obligation, so she did it herself, without hesitation
and without seeking credit for what she had done.

This is the diʃerence between a “how” company and a “why” company. Christine, a
night janitor who had probably never taken a company car on company business in her
life, saw a chance to do some good for the company, and she took it. As Zobrist put it,
“Facing a company problem, she is not a ‘janitor,’ she is ‘the company.’” Most
companies hope in vain for that attitude to take root among their employees. In fact, on
the oʃ chance an employee at a “how” ɹrm
had
gone to those lengths on the company’s
behalf, one of two things would likely have happened. In the worst case, Christine
would have been sanctioned for unauthorized use of company property, not to mention
leaving her assigned duties. But only slightly better is the alternative, in which the
company, so surprised at the lengths to which this janitor went, makes a hero out of her.
Zobrist did neither. “When you neither punish nor reward people’s actions, those actions
become normal, banal,” Zobrist explained. “She didn’t think she was doing something
exceptional. Everyone here facing a problem and having a solution, just goes and does
it. No need to tell, either before—for permission—nor after, for thanks.” Then, with a
satisɹed smile, Zobrist added: “By the way, thanks to her initiative the auditor increased
our quality rating by 10 percent!”
The time between Zobrist’s encounter with Alfred outside the supply closet and
Christine’s impromptu nighttime drive was just two years. But in those two years,
Zobrist had already achieved a remarkable turnaround in the habits of many of FAVI’s
employees. The subsequent years have seen innumerable acts of everyday heroism by
FAVI’s liberated employees. There was the time that an order could not be delivered
because the truck needed to deliver the products did not arrive. The employees in
question—together with Zobrist—hired a helicopter to get the order to the customer as
promised. Or the worker on the factory ɻoor who told us that when one of
his
customers
had a problem with a product, he, together with a coworker, immediately left the
factory and drove to Germany to
address the issue—without prior authorization,
bien
sûr
. When we asked him why, he shrugged. It seemed like the right—even normal—thing
to do.
Most companies say they dream of people who can develop high-margin, innovative
products in their spare time, or who look for creative ways to satisfy customer demands
without thinking twice about it. But the truth is that these people are all around you
right now—the technician who seems unconcerned with product quality, the sales rep
who appears uninterested in clients’ innovative suggestions, and, yes, the janitor who
looks like he’s never been interested in anything—who looks invisible, even. They just
need to be set free from the bonds that hold them back. Our liberated companies have
discovered the secrets to doing just that.
By freeing the initiative and gifts of every single employee on their payroll, they have
succeeded where their competition has failed; they have taken on entrenched
incumbents many times their size and have, in many cases, grown beyond their
founders’ wildest dreams. Some, like six-hundred-person-strong FAVI, are relatively
small. Others, like the insurance giant USAA, with twenty-three thousand employees, are
much larger. They exist in services and in the industrial sector. Some, like Harley-

Davidson, are publicly traded and are dominated by unionized workforces. Surprisingly,
Harley’s main reason for going public in 1986, according to then-CEO Rich Teerlink,
was to be able to launch a liberation campaign, which would otherwise have been
blocked by the banks that controlled the company at that time: “I’d rather face
shareholders than bankers, any day,” Teerlink said.
10
In 1998, Sun Hydraulics, a world
leader in hydraulic valves, also went public, many years after building its liberated
culture, and a decade later it hadn’t lost an ounce of its unique culture. And still others,
like the Richards Group, the largest independent advertising agency in the United
States, are still private—and will remain so forever.
Though very diʃerent, all of them had leaders who were unwavering in their
commitment to the creation of a corporate culture that freed up the initiative of
everyone on the payroll. Bill Gore and a series of leaders he helped nurture manifest
that commitment by
small daily acts—oʃering help and encouragement when
associates’ actions live up to the company’s principles and asking, as Bill Gore did with
Lewis, “Do you have a minute?” when their actions violate them. Some, such as Stan
Richards of the Richards Group, have literally broken down barriers. Richards changed
the physical geometry of his Dallas oɽce so that nothing stood in the way of face-to-
face human contact. Each of these responses reɻects the unique challenges posed by
their particular ɹelds and their starting points. But whether they were built from the
ground up to be diʃerent, like the Richards Group, Gore, and Sun Hydraulics, or were
transformed after a long period of underperformance, like USAA, Harley, and FAVI,
they all hold lessons on the power of freeing the potential that inheres in one’s people.
Freeing that potential isn’t easy. It requires a ɹrm commitment to the idea that, taken
together, your people know a great deal more about what your company is capable of
than any single employee or—for that matter—CEO ever could. If you believe that, then
it becomes easier to understand what Jean-François Zobrist meant when he said that his
goal, as CEO, is “to do as little as possible.” But to fully understand what is wrong with
the “how” companies’ approach to running a business and whether it’s possible to
change it, it helps to understand how we got here.

W
2
ARE YOU MANAGING FOR
THE “THREE PERCENT”?
Exceptional Companies Do Not Confuse
the Exception with the Rule
HAT
J
EAN
-F
RANÇOIS
Zobrist calls “how” companies are also known as hierarchical,
bureaucratic, or command-and-control companies. And, unfortunately, they are
known all too well by too many of us. These terms describe, with slightly diʃerent
emphases, the structures that are common to most large organizations—the (sometimes
long) chain of command, procedure-driven decision making, or top-down control. But
those structures, in turn, emerged in support of the real core of “how” companies: the
assumption that the people on the frontlines need to be controlled and told how to do
their own work. Underlying this core assumption are deep beliefs held by management
about human nature. When management—often implicitly—believes that people don’t
want to work or to learn much, it will naturally assume that people have to be told and
controlled. Given this assumption, it makes perfect sense to put in place hierarchies that
give authority to the superiors to “tell” and control. And from there, it’s only natural to
routinize much of this telling and controlling through policies and procedures.
This “natural order of things” emerged—as we’ll see in the next chapter—during the
Industrial Revolution, when ɹrms ɹrst had to employ mostly illiterate workers with
rural backgrounds. But it’s important to acknowledge that this type of organization
permitted
many “how” companies to perform well, not only back then but throughout
the past two centuries.
Indeed, in many ways the performance of “how” companies has been remarkable.
According to the economic historian Angus Maddison, these traditional organizations
helped propel newly industrialized nations to rates of economic growth that were
unprecedented in human history. This growth, in turn, allowed a substantial portion of
the people in these countries to live the materially comfortable lives that had previously
been reserved to a tiny elite throughout the world.
1
And on a smaller scale, there’s no
question that these traditionally organized “how” companies have given the world many
of the material advancements and innovative products that shape our lives every day.
To the early-twentieth-century German sociologist Max Weber, the success and
dominance of the “bureaucratic organization” was perfectly logical. It was, he argued,
the result of its “technical superiority over any other form of organization.” He claimed
that the demands of the “capitalist market economy” could be met only by a “strictly

bureaucratic organization” that was capable of discharging its “oɽcial business…
precisely, unambiguously, continuously, and with as much speed as possible.” Other
forms of organization would only slow down the fast-moving world—of 1922.
2
And to
this day, some management scholars continue to think that companies have to be
bureaucratic tyrannies to perform well. “Of course they do,” one author wrote recently,
“if we want speed, ɻexibility, and above all proɹt in a competitive world. Our ability to
create wealth depends at least partly on managerial authority. Top-down power and its
potential abuse are here to stay in corporate America. It is foolish to think otherwise.”
3
But since Weber’s day, a long line of management thinkers have come forth to dispute
this view and argue against bureaucratization.
4
Critics of capitalism are right that the unprecedented economic growth achieved by
traditional companies has come at a price—a human price. In the early years of the
Industrial Revolution, the working conditions in all but a few of these traditional “how”
companies
were akin to those currently found in the sweatshops of the world’s poorest
countries—with child labor as its inevitable consort. But even after basic workers’ rights
and working conditions were protected, the human price remained high. Frequent
friction between labor and management, work stoppages, and even wildcat strikes and
deadly violence are still around. Of course, militant unions and arrogant management
may explain some of this conɻict, but not all of it. Neither compliant unions—or no
unions—nor less arrogant management can change the day-to-day experience of too
many people who are constantly told how to do their jobs and compelled to comply.
There is a reason, in other words, that the television show
The Office
has been a hit on
two continents, and
Dilbert
has become a cultural touchstone. At the same time, the idea
of humanizing large corporations is not new. A whole host of management theorists and
gurus have come forward over the years with this or that proposal to ease employees’
senses of futility and alienation.
5
The continued existence of the cottage industry
devoted to reforming companies is proof that much still remains to be done. But even so,
these eʃorts have not been totally without eʃect. Highly eɽcient, yet “humanized,”
mainstream companies do exist.
Take Toyota. When you enter one of its plants, you are struck by the way everything
there ticks like a Swiss watch. Identically dressed employees know exactly what
procedure they must follow to accomplish their tasks in the most eɽcient way. These
procedures may entail pedaling a tricycle to deliver speciɹc parts at precise times to
particular operators, or detail which bolt to use on a given type of wheel and even with
which hand to drive it home—all operators are trained to be ambidextrous and have two
pneumatic screwdrivers available at any moment. A procedure may even specify eye—
yes, eye—movements, so that operators will not unnecessarily turn their heads hundreds
of times per day and risk straining their necks. Everything is performed according to
standard procedures in which employees are well trained and everything is measured
and controlled.
Thousands of industrial companies have adopted a similar Japanese-born procedure-

based approach, known as “lean manufacturing.” Lean manufacturing reduces waste,
inventory, space, human motion, the tools needed, and product development time. And
many industrial, service, and distribution companies have adopted another Japanese
approach called “Total Quality Management”—or TQM—which relies on the
participation of all employees in the reduction of every process variation to common
standards in order to guarantee complete customer satisfaction. Not all of them can
boast, as Toyota does, that they don’t need to check their ɹnal product before delivering
it to the customer, so sure are they that their standardized procedures will guarantee
quality. But many have very good results. Not much aʃected by turbulence, they steadily
deliver high-quality products desired by customers at competitive prices, showing
continuous growth and robust profits in all kinds of industries.
But there are no infallible procedures, and even the best process can’t account for the
unforeseeable. Although Toyota and other successful procedure-based bureaucracies may
seem to run like a Swiss watch, they don’t. Because of the inevitable problems in
complex manufacturing, service, or distribution processes, they stop and break down
quite often. At the best of these companies, many of these stoppages are not caused by
problems but are initiated by the employees themselves or by the management.
On a Friday at noon in January 2001, just three ɻawless weeks after opening its ɹrst
small-car plant in Europe, Toyota’s management in Valenciennes, France, ordered the
assembly line stopped. Facing the astonished operators, the managers explained that
this break was voluntary, would last half an hour, and was called to allow operators to
put in place their ideas to improve the existing procedures. At Toyota, as well as in
many other successful bureaucracies, procedures are not designed to tell underskilled or
undermotivated people how to perform their tasks and to control them as they carry
them out. No, the procedures are designed to capture the
best known way
to accomplish
routine tasks. So, unlike in so many companies, rare is the Toyota employee who
complains about “this dumb procedure.” If he does he can simply change it.
At Toyota, it is not the foremen, or group leaders, who determine whether operators
follow the procedures. It’s the operators themselves. If the results are not up to
standards, most often the cause is the operator’s action, which he self-corrects. But
sometimes the operator is conforming to procedure and the cause is the procedure itself,
which is no longer adequate and has to be improved or replaced by a better one. That’s
why lean-manufacturing procedures coexist with teams that enjoy substantial autonomy
to reorganize their work, and standard-enforcing TQM coexists with continuous
improvement and idea-management systems, which are the opposite of idea-killing
suggestion boxes because they ensure that ideas are quickly and efficiently implemented.
This encourages everyone to suggest useful improvements. This ɻip side—the procedure-
challenging, reorganizing, and improving side—is as important as the standard
procedures themselves, and perhaps even more so. Without it, employees won’t commit
themselves to the standard procedures handed down to them by managers or industrial
engineers. In fact, at Toyota they don’t even have a job title of industrial engineer. In
order for employees to respect the procedures, they have to be involved in their design,

control, and improvement. In short, the standards have to be
theirs
, not management’s
or the engineers’.
6
That’s the paradox most companies that rushed to copy lean manufacturing and TQM
did not understand. So it’s no wonder that according to one study, two-thirds of the TQM
projects at American companies have not met expectations.
7
But there is no real
paradox. They focused on the tools and ignored the deep assumption that Toyota’s
management holds about its workers. In a way, Toyota’s workers—in spirit—resemble
pre-Industrial Revolution artisans in charge of what they do.
For all that, in many ways Toyota is still a traditional bureaucracy, with the
accompanying hierarchies, policies, and procedures. And yet Toyota has a dramatic—
but often overlooked—advantage that distinguishes it from most other mainstream
companies and has helped make it one of the best manufacturing companies in the
world: Toyota believes in people’s willingness to do a good job and to learn. As a result,
the company organizes its managerial practices
around the assumption that standard
procedures convey the
best known
way to perform a task—but the people on the
frontlines know better what works. So they are constantly encouraged to question and
improve these procedures. Toyota’s people, in other words, are given eɽcient ways to
perform their assigned tasks, but are not told to stick to them if they discover a method
that works better. And rather than employ the traditional tools of corporate control,
Toyota provides its people with tools to monitor themselves. This allows them to see for
themselves whether current procedures are still eɽcient or need to be improved. This is
dramatically diʃerent from the experience of people in most mainstream companies. No
wonder Toyota has never endured labor strife in the United States.
Indeed, despite numerous attempts to organize Toyota’s plants, the unions have never
attracted enough support. More dramatically, at its ɹrst U.S. plant—NUMMI (New
United Motor Manfacturing, Inc.), built at a former General Motors truck plant in
Fremont, California, Toyota did inherit the United Auto Workers, and with it a rather
rough labor history to boot.
8
GM had closed the plant several years earlier and no
wonder: One depressingly typical year had featured four thousand grievances, 20
percent absenteeism, and wildcat strikes. It was there that GM oʃered Toyota the
chance to build its ɹrst American plant, which was to be jointly owned but run solely by
Toyota. To the surprise of GM’s management, the plant became the most productive
auto-manufacturing facility in the United States within just a few years, inundating the
market with high-quality, aʃordable Geo-model cars. But what’s more, labor relations
were exemplary at NUMMI under Toyota’s control.
Kiyoshi (Nate) Furuta, who negotiated at NUMMI with UAW president Dick
Shoemaker, described the gap Toyota wanted to close:
Once they [the UAW] agree to a production standard they cannot change it. If management wants to change it, there is
a struggle. That is a very rigid system. When we develop the original standard work, we want the team member
involved. We then want the team member involved in improving the standard. We need multiskilled and not single-

skilled workers.
We say we do not need so many job classifications—too many…
9
And Furuta succeeded spectacularly. Although sales were 30 percent below target the
ɹrst year, NUMMI management kept the entire workforce—there were no layoʃs, which
would have been routine in the past. Instead, they developed a major training program,
launched team members’ workshops to improve standards, and provided extra vacation
days. The trust NUMMI management had developed with the union allowed them to
agree to the most liberal contract the UAW ever signed, including just two job
classiɹcations, the ability to move workers around based on capability rather than
seniority, and even the right to use temporary workers.
Not surprisingly, GM’s management started to ɻy in planeloads of executives to the
plant to discover what magical management tools Toyota had employed to pacify the
facility and make it so productive. And they did try to apply what they learned back in
Detroit. But according to NUMMI’s former CEO, they didn’t get it, even after spending
days at a time at the plant trying to uncover its secrets.
10
It wasn’t the management
tools that they couldn’t comprehend; it was Toyota’s assumption that people were
willing to do a good job and to learn, if only they were allowed to. The “magic” could
not be found in any particular manufacturing technique or procedure. It lay in the
freedom of Toyota’s people to continuously improve the procedures with which they
began. GM copied the procedures but left out the freedom, and instead focused on trying
to enforce strict adherence to these new procedures. Needless to say, GM’s pilgrims to
NUMMI never could ɹgure out why Toyota’s manufacturing techniques didn’t work at
their plants. They had borrowed the procedures but left the “magic” behind in
California. In sum, although on the surface it looks like a traditional “how” company,
Toyota is closer in spirit to the freedom-based companies.
Toyota’s performance is impressive, but it is possible to go much, much further than it
has done—as we shall see. Even so, its
very existence is a standing rebuke to the
executives of other automakers who argue that they are doing the best they can with the
tools and the people they have.
The companies in this book compete in a wide array of industries, from
manufacturing to services and technology. Each of them is proof that, whether you are
in insurance, manufacturing, software, or some other ɹeld, you can set your people free
and reap the rewards of their knowledge and initiative. If, like GM, you have the
misfortune of competing against a world beater like Toyota, you may already feel the
pressure to understand what makes them “great” while you are merely “good.”
But if there is no Toyota or Gore or FAVI breathing down your neck—or leaving you
in the dust—you may suppose that the old, supposedly proven ways of managing people
and businesses are just ɹne. After all, there are plenty of proɹtable and even growing
companies out there that no one—least of all their employees—would call “free.” It’s
fair to ask whether, at the end of the day, there is anything wrong with that. To answer
that question, we need to take a closer look at the performance of these traditional
firms.

THE HIDDEN COSTS OF “HOW” PERFORMANCE
Great Britain’s Royal Mail is the oldest and most famous post oɽce in the world. In the
early 2000s, on any given day, 10,000 of its 170,000 employees were absent without
any valid reason. Desperate to reduce absenteeism, the post oɽce oʃered raʀe tickets
to employees who bothered to show up for their jobs for six months without missing a
day. The prizes included thirty-four $24,000 cars and sixty-eight $4,000 holiday
vouchers.
11
We can assume that this lured back at least some of the malingerers. But we’re willing
to wager that the managers of the missing ten thousand employees would have been just
as happy if they’d stayed home. In oʃering enticements totally extraneous to their work
—on top of, you know, paying them—the Royal Mail was engaged in an extreme
version of treating the symptoms rather than
the disease. It must have seemed far easier
to the Royal Mail’s top management to oʃer prizes than to examine why they had such
a terrible absentee problem. Dave Ward, the local union oɽcial, oʃered them some free
advice: “The company needs to get to the root of the problem, which is low morale, poor
pay and conditions. That is the cause of sickness and absenteeism.” Now, union oɽcials
always say that more pay will mean more-productive workers. That’s their job. But by
bringing in low morale—disengagement—Ward was on to something, even if it is a
subject that management wants to talk about even less than low pay. Increasing pay is,
at least in principle, something management can easily do if it wants to. But improving
morale is a lot harder than signing a check—because it requires management to examine
their role and the structures they put in place that contributed to the problem in the ɹrst
place. Far better, then, to ignore the causes and attack the symptoms—in the case of the
Royal Mail, bribing employees to do what they had already legally contracted to do.
The Royal Mail’s “solution” was extreme, and this institution, in many ways, is
incomparable to better-performing companies. Most good ɹrms, especially private ones,
are motivated by proɹt and never allow things to get quite that bad. Absenteeism cost
the Royal Mail $500 to $700 million a year; few private ɹrms can aʃord a deadweight
loss like that—as even GM has recently discovered. But all around us, every day, most of
our organizations, large and small, instead of addressing the disengagement problem,
prefer to treat its “symptoms”—not through extravagant bribes but through the
establishment of rules and procedures aimed to catch the malingerers.
Gordon Forward, the former CEO of Chaparral Steel, calls this “managing for the 3
percent.”
12
Many managers have a tendency to address a small problem—sometimes a
problem conɹned to a single “nonconforming” employee, or a couple of them—by
creating even more drastic rules for everyone. One CEO at a small company explained
to us that because he caught one secretary dipping into the oɽce supplies for her kids’
back-to-school needs, he issued a regulation that no oɽce supplies could be ordered
during the summer. “In that way,” he explained, “there will be nothing left on
September
ɹrst for her to take.” Of course, by then there might not be any oɽce
supplies for anyone else either, but by golly, he showed that secretary, didn’t he?

“Management for the 3 percent” is inevitable in “how” companies because simple
controls are always outwitted by that 3 percent. Naturally, new, more drastic ones are
introduced to catch them. In addition to the ordinary bureaucratic overhead incurred
through the accumulation of these “corrective” policies, managing for the 3 percent
imposes dramatic hidden costs on businesses by contributing to the disengagement of the
other 97 percent.
But this kind of rule making, as silly as it looks from the outside, does have a number
of advantages if you’re a manager. There’s no awkward confrontation with the pilfering
employee, no embarrassed denials or outward resentment. Instead, the manager gets to
fall back on the last refuge of bureaucrats everywhere: “That’s the policy!” And so the
regulations live on, far beyond whatever usefulness they once had, even years or
decades after the single, awkward circumstance that they were designed to address has
passed out of memory. All the while, these “useless” rules nevertheless have far-reaching
consequences. They reliably contribute to the malaise of the 97 percent, who ɹnd
themselves treated with suspicion and crushed by seemingly arbitrary company policies.
But more and more “how” companies go even further than simply casting a
generalized control and suspicion over the 97 percent. Still unable to catch the 3 percent
who usually ɹnd ways to outwit the bureaucratic police, these companies try to enroll
the 97 percent in policing.
We happened to encounter two managers from one large American company who had
been placed in precisely that situation. They had received a new company policy
document on “how we conduct business.” Every employee was expected to read, agree
to, and sign the document, which included a commitment to call a hotline and blow the
whistle on any malfeasance of which he became aware. One of the two objected to this
—he didn’t want to be a snitch. He threatened to refuse to sign the policy. His colleague
suggested that,
instead, he just sign it and not adhere to it, as others would do. The two
men then proceeded to debate whether it was better to object to the policy openly or
pretend to abide by it.
The point is not which course of action they chose in the end; that these two were
even having this debate demonstrates that the objector, at least, had enough integrity to
take the policy seriously. The 3 percent at whom the policy is aimed, by contrast, won’t
hesitate to sign and ignore the policy while the rest of the employees will feel alienated
by the humiliating ritual of promising to act as informers on their colleagues.
You may think that disengagement problems like these are rare in “how” companies—
that in the majority of traditional companies, a very small proportion of employees is
disengaged. Otherwise, how can we explain the unprecedented growth that the
developed world has experienced since the Industrial Revolution? This argument would
be plausible if we didn’t have some statistics on the matter. Gallup regularly conducts
broad surveys on the engagement of American workers. Its results are always similar. In
2006, only 27 percent of employees at the average company were “engaged,” while 59
percent were “not engaged,” and 14 percent were “actively disengaged.”
13
Actively

disengaged? To picture active disengagement, imagine that in an eight-man rowboat,
you and another leader in the two front seats are rowing energetically. The ɹve in the
middle periodically dip their oars in the water just enough to make a little splash. The
last man, meanwhile, is rowing energetically—but in the opposite direction from the
rest of the crew. And you wonder why, for all the splashing, your company seems
stalled?
Our rowboat is a metaphor, but it highlights an important literal issue: Do traditional
bureaucracies, with rules and procedures designed to substitute for lack of skill or
motivation, make up for the weight penalty of all that control with better results? It’s
time for a deeper consideration of this question. Let’s ɹrst take a look at the top line—
the revenues—and then at the costs.
DO “HOW” COMPANIES SHOW GREAT ORGANIC
GROWTH THROUGH INNOVATION?
As we discussed earlier in the chapter, there are many examples of traditional command-
and-control bureaucracies that have had long spells of admirable revenue growth.
Pharmaceutical giants Merck and Pɹzer are two good examples. How much of that
growth is organic and how much is driven by acquisitions is not always easy to sort out,
given the rate at which these companies reshuʀe divisions and business units. But in
those ɹrms where there has been real, organic growth, one feature is usually present—
innovation. When it is mentioned, most traditional bureaucracies put two cards on the
table—their substantial research and development budgets and their patents.
Unfortunately these plays don’t have numbers to back them up.
Many companies talk up a large R&D budget, which has the same relation to
innovative product sales as the scouting budget of the New York Knicks—the NBA team
with the largest payroll—has to its dismal performance between 2002 and 2009. In the
United States, big pharmaceutical companies have the highest R&D budgets relative to
sales of any industry. Between 1991 and 2001, total research spending rose to $30.3
billion from $9.7 billion, while at the same time the number of new drugs introduced
each year dropped to twenty-four from thirty.
14
Money can’t buy you love, and a big
budget alone can’t buy you the next Viagra. As a matter of fact, Pɹzer’s R&D budget
couldn’t even buy the
first
Viagra. The drug’s beneɹt was discovered by pure accident
when a number of patients in a heart-disease drug trial—all of them male—reported a
strange, but not unpleasant, side effect. Thus, a multibillion-dollar industry was born.
Then there are patent portfolios. Research shows that patents themselves have no
eʃect on a company’s revenue: Only 5 percent to 10 percent of patents have any
market relevance, and only 1 percent of them actually bring in any proɹts.
15
Even
though it might seem counterintuitive, what really matters when it comes to patents is
the number of times they are cited by others. Having a portfolio of
frequently cited
patents does correlate with sales of innovative products.
16
Think of it this way: A patent

is like a pass in basketball. By itself, it doesn’t help your team win. But a patent that is
valuable to others, as shown by the number of times people cite it, is like an assist—a
pass that leads to a basket. Those do help your team win in a direct way. The logic
behind this is simple: Only those company’s patents that are cited by
other
ɹrms’ patent
ɹlings have some business value in their eyes, and vice versa; if a patent is never cited
by other ɹrms, it can be intriguing for science but of no value to business. But while the
NBA carefully tracks players’ assists, few companies measure the citation rate of their
patent portfolios, preferring to trumpet the size of the portfolio itself. It’s as if Steve
Nash, the NBA’s best point guard in recent years, went around bragging about how
many passes he made the night before. In the late 1990s, IBM boasted the world’s
largest patent portfolio. But when measured by citations, its relevance to proɹts was
below that of start-ups acquired by Cisco or even of a smaller company, such as Micron
Technology.
17
R&D experts are very important, but organizing their activities into large, often
isolated, bureaucracies, providing them with big budgets, and hoping it will lead to
proɹtable innovations at competitive costs hasn’t worked very well. Twenty years ago,
Richard Florida and Martin Kenney, authors of
The Breakthrough Illusion: Corporate
America’s Failure to Move from Innovation to Mass Production
, asked why the Japanese
seemed much better than American companies at turning scientiɹc research into
profitable and innovative new products. Their conclusion: “White-collar scientists” in the
United States were “arrogant toward shop-ɻoor workers.” As a result, “most [American]
corporate R&D labs retain [a] specialized, assembly-line model of organization,” which
leaves them deaf and blind to ideas that don’t come from the “right” places.
18
In sum, besides a costly—and bureaucratic—R&D program and a big patent portfolio,
most traditional bureaucracies have little to show in terms of eʃective innovation. Even
at companies such as Intel and the consulting ɹrm Accenture, it takes real guts for an
employee to push their ideas if they fall outside a small number of oɽcially sanctioned
R&D projects.
Jay Hedley was a junior consultant at Accenture who had a blockbuster idea with the
potential to bring in tens of millions of dollars for his company and possibly even more
far-reaching beneɹts for the U.S. economy.
19
He had designed—and would eventually
patent—an electronic system for assessing tolls on cars traveling at highway speeds
without installing transponders in the cars. And yet at nearly every step, he was blocked
or turned down in his quest for support for the project. If it wasn’t for his tenacity—he is
a U.S. Air Force Reserve pilot who has served tours of duty in Afghanistan—his wit, and
his good relations with many executive assistants, his idea would have never been tried.
But when, through good fortune and the good oɽces of those vital assistants, he got it
started, and when a top manager, by chance, learned about it over a beer in a bar, the
idea was named the innovation of the year at Accenture. Hedley went on to become the
company’s innovation hero—and all the oɽcial obstacles he’d faced before being
discovered were quietly forgotten or brushed aside.

Organized around structures that tell people how to do their work and control them
while they do it, “how” companies are fundamentally hostile environments for the ideas
proposed by their frontline people—the vast majority of the workforce. One of the ɹrst
managers to whom Hedley submitted his idea told him dismissively, “You’re supposed to
chop wood. Later, you will tell us where the wood is.”
As Gordon Forward—who has a doctorate from MIT and worked in research and
development before leading Chaparral Steel—told us, “Good ideas die every day” in
command-and-control companies.
20
Asked whether their current job “brings out their
most creative ideas,” only 17 percent of those “not engaged” and 3 percent of “actively
disengaged” employees answered aɽrmatively.
21
Recall that together, these two groups
of employees make up 73 percent of the American workforce.
22
It’s no wonder that,
despite plenty of talented people on their payrolls, many traditional bureaucracies have
to rely on innovation “heroes” or on special “creativity” programs and platforms to
ensure that ideas are heard and transformed into innovative products and services.
When a company’s structures
broadcast to the vast majority of people that their ideas
don’t matter—that they are supposed “to chop wood”—it comes as no surprise that it
will resort to extraordinary measures “to ɹnd where the wood is.” Some companies don’t
even do that and are forced to buy innovation from small, creative companies—from
which we get the all-too-common strategy of growth by acquisition.
Liberated companies such as Gore have long understood the limits of a closed and
elitist approach to innovation. So instead of conɹning innovation to exclusive in-house
units pursuing a limited number of R&D projects that have been sanctioned at the
highest levels, they encourage innovation for everyone. This has led to a continuous
ɻow of Skunk Works-type projects and low-cost experiments, some of which, such as
Elixir guitar strings and Glide dental ɻoss at Gore, have gone on to become leaders in
their segments.
Like Elixir, Glide was launched with a guerrilla marketing campaign. Gore associates
knew that ɻoss made from PTFE had great potential, but they knew nothing about
selling dental ɻoss, so they didn’t try. They gave it away instead—to dentists. Patients
loved it so much that they asked their dentists for some more for their family and
friends. When Gore convinced some drugstores to carry it, they could barely keep it in
stock. And, yes, we are talking about dental floss.
Few “how” companies have Gore’s reputation for organic growth powered by
outstanding capacity for innovation. Some, such as Hewlett-Packard, Sony, Samsung,
and Procter & Gamble, have had long spells of innovation, but they aren’t many. If
there were more, we wouldn’t hear 3M and Apple repeated every time that innovation
and organic growth are discussed.
But if bureaucracy does not produce great innovation and organic growth, perhaps it’s
at least good at keeping costs under control. After all, cost containment is something
most traditional “how” companies care deeply about. Repeated waves of rationalization
—from “delayering” and downsizing to “reengineering” and outsourcing—have

regularly trimmed the corporate body fat—sometimes leading, ironically, to layoʃs for
the people who designed and supervised the myriad procedures and layers of control in
the ɹrst place. The argument that
traditional bureaucracies have a good record—
appreciated on Wall Street—of keeping costs in check would be easy to accept but only
on one condition: that we stick to the costs measured by accountants and stock analysts.
But these costs are not the end of the story. There are other costs, swept under the
proverbial rug. Welcome to the under-rug costs—or the underworld.
THE COSTS THAT YOUR ACCOUNTANT
IS NOT TELLING YOU ABOUT
There is one kind of cost that all “how” companies have, one that never shows up on the
books. It’s the cost of all the things that didn’t get done because of the stiɻing eʃects of
Zobrist’s “chain of
comment,”
the chain of “how.” These
unaccountable
costs—the forgone
revenue, the missed business opportunities, the creeping ineɽciencies—are the
real
toll
that “how” structures take on a business.
The largest of these unseen costs stems from what we might call the low “execution
capacity” of a top-down firm. Whether working on a mundane task or a major corporate
initiative, employees who aren’t engaged—and more so the
actively
disengaged ones—
don’t go the extra mile that is so often critical to meeting deadlines or avoiding
penalties or the loss of a customer.
“Culture eats strategy for breakfast”: so said a banner hanging in Ford Motor
Company’s “war room,” from which the company was plotting an ambitious change
strategy to save it from near-bankruptcy in 2005. And for those who didn’t get it, the
plan’s czar, Mark Fields, would add: “You can have the best plan in the world, and if the
culture isn’t going to let it happen, it’s going to die on the vine.”
23
Sure, companies can
ɹnd ways to coerce, or “bribe,” their employees—and many do—into executing what
they are ordered to, but corporate history is full of stories of how badly such workers
accomplished their appointed tasks.
By their nature, the precise cost of lost opportunities brought on by disengaged
employees is hard to measure directly. But there are some indirect ways of quantifying
the losses. One cross-industry
study showed that 73 percent of customers who abandoned
a company attributed it to an indiʃerent or bad attitude from customer service
employees.
24
And a 2001 study of mergers and acquisitions showed that, contrary to the
expected boost in revenues and reduction in costs that most mergers aim for, “83
percent of all mergers and acquisitions failed to produce any beneɹt for the
shareholders, and over half actually destroyed value” due to a weak execution culture.
25
Finally, a large study across the world’s ten leading economies compared companies
with
high
employee engagement with low-employee-engagement ɹrms. It found that
over a three-year period, the ɹrst group
increased
their operating margin by 3.74
percent and net proɹt by 2.06 percent on average. The second group
decreased
these

bottom-line indicators by 2.01 percent and 1.38 percent respectively.
26
These diʃerences
are substantial. But they still don’t give a full accounting of how exactly all these
disengaged employees translate into lost revenues and increased costs. And, indeed, all
this may look like a necessary cost of doing business, something akin to the accidents
that accompany ownership of a ɻeet of corporate cars. This interpretation would be
easier to accept if we knew nothing about the costs of one major disengagement-related
phenomenon. To discuss it will require a detour to the world of psychiatry.
HOW MUCH YOUR STRESSED-OUT PEOPLE
COST YOU—BEYOND THEIR SALARIES
Anecdotally, workplace stress has become a redundancy. But is this ubiquity backed by
numbers? Unfortunately, yes.
27
According to the National Institute for Occupational
Safety and Health, stress aʃects 40 percent of American workers and is the number one
cause of worker disabilities. We will describe in a moment what the sources of
workplace stress are, but one thing is clear: Most of the symptoms are highly
unpleasant, and we react to them with the instinctive impulses of flight or fight.
We try to ɻee the people and events causing us stress, hence, the absenteeism and lost
productivity. We ɹght back by striking out
(albeit usually not physically) at what we
believe to be the causes of our stress—whether those are coworkers, managers, or even
the entire company. That is what Gallup’s
actively
disengaged 14 percent are doing.
This, once again, leads to lost productivity—$328 billion per year for the U.S. economy
according to Gallup’s estimate.
28
And when we are unable to literally ɻee
or
ɹght, we
may “escape” by smoking, drinking to excess, and even abusing drugs. All this ɻight and
ɹght is accompanied by the evolution-conditioned responses of elevated adrenaline
secretion, blood pressure, and heart rate. But while all three are momentarily good if
you happen to be ɻeeing a saber-toothed tiger, they damage our health when they
become chronic companions. Unsurprisingly, workplace stress is recognized today as a
key contributor in 75 percent to 90 percent of all primary-care doctor visits. And the
longer these stress responses persist, the more damage is done to our health.
In the short term, workplace stress leads to mundane “modern” diseases, such as
stomach disorders, back pain, musculoskeletal problems, headaches, skin problems, loss
of sleep and energy, and emotional distress. Because stress weakens our immune system,
it even makes us susceptible to catching colds. And if stress persists over a long period,
the problems get less mundane and often lead to heart disease.
The conclusion is grim: Stress-related problems are not only expensive—even if mostly
unseen today by traditional accounting systems—but also lead to avoidable human
suffering. So what causes workplace stress?
Decades’ worth of psychological research provide us with a good understanding of the
mechanism. It all begins with events and situations in the workplace that we perceive as
either physically or psychologically threatening. Psychologists call them “stressors.”

Among the stressors are such things as increases in the amount of work or of work
demands, or uncertainty about what needs to be done. In addition, stressors include all
the constraints and interpersonal conɻicts that prevent employees from doing a good
job. The reader will, we fear, recognize many of them below:
Someone interfered with your work.
Others took resources or information you need for your job.
Someone took credit for your work.
Someone made a negative comment about your intelligence or
competence.
You were a target of rumors or gossip.
You were excluded from a work-related or social meeting.
You were given the silent treatment.
Others failed to warn you about impending dangers.
You were denied a raise or promotion without being given a valid
reason.
29
All the big and small stressors trigger negative emotional reactions in us, most often
anger or anxiety. From there, the road to the stress symptoms—called strains—is all
downhill. Sometimes, it is true, stress leads to constructive actions aiming to cope with
the stressor, such as getting the needed information from somebody else. But most often,
the reaction is destructive—ɻight or ɹght. And right alongside come those “bad”
companions—increased adrenaline, blood pressure, and heart rate—and the health
damage that follows. In some corporate cultures, it is normal to belittle those who react
badly to what some consider “ordinary” work-related stress. But this is a serious mistake:
Research has shown that stressful work incidents are even more damaging to our well-
being and health than major stressors in our personal lives.
So what’s the bottom line on stress for the economy? Studies estimate the cost for U.S.
businesses could be $150 billion to $300 billion a year or more from stress-induced
absenteeism, lost productivity, and health expenditures. And the hidden cost to your
business? According to the U.S. Bureau of Labor Statistics, the annual cost of stress is
$10,000 per employee.
Fortunately there is one extremely important potential ameliorating factor for
workplace stress: the perceived control an employee has over her work. First, when a
person believes she has a high degree of control over an event or situation, she judges it
as less stressful,
even as simply “challenging.” Military ɹghter pilots don’t typically
report seeing their ɻight missions, even in combat, as stressful—because they have
complete control over their jobs. In fact, training ɻights may be more stressful than real
missions because trainees do not yet feel totally in control of their aircraft or tasks.
Second, this perception of control minimizes a person’s “emotional reaction” to the

stressor. For example, facing a sudden upsurge in clients, a salesperson who feels in
control of her work will be conɹdent that she’ll ɹnd a way to adjust and keep the
workload manageable. Hence, her emotions, instead of becoming negative, may even
bring a positive feeling of challenge. Finally, high perceived control may lead to the
search for constructive responses to the stressful event.
Why is this important? Because for a person with a low level of control over her work,
the reaction is quite diʃerent. Not believing that she can change the way she does her
work, she’ll engage in the destructive actions of ɻeeing or ɹghting to reduce her
emotional distress and feel better. Three psychologists, Hans Bosma, Stephen Stansfeld,
and Michael Marmot, spent ɹve years studying the stress levels of more than ten
thousand British civil servants. And what they found was that men who
feel
that they
have little control over their jobs—whether that is true or not—are 50 percent more
likely to develop heart disease than those who feel as if they are in control of their jobs.
For women, it’s even worse—the risk is 100 percent higher, presumably because they
often work in positions that have even less job control than men. Bosma and associates
suggest that such control and freedom of choice may be a universal human need. But
they say more: “Especially in bureaucratic organizations, this need may not be satisɹed
for those at the bottom of the hierarchy…. In such strongly regulated organizations,
control may be especially relevant, because persons with control can possibly more
easily escape from bureaucratic procedures and more often may know the manifest and
latent rules concerning the distribution of rewards.”
30
This is one way to escape stress and its consequences—available, of course, to a
minority, the higher-ups. But there is an alternative, much more dramatic, way the
hidden stress-related costs can be reduced—for everybody. Give people real—even
perceived—control
over their work, stop telling them how to do their jobs, and the stress
will go down. Absenteeism will go down; hidden costs will go down. Engagement will
go up. All this, of course, is hard to accomplish in “how” companies. As we will see later,
the perception of self-control is the key to the free corporate environment that liberating
leaders aim to build. There is more good news: Freeing a company’s people to act not
only eliminates many hidden costs—it also dramatically boosts its innovation and
organic growth, as we’ve seen with Gore.
In sum, although traditional “how” companies are omnipresent and some report
organic growth and good margins, their performance could be better—it could be
great
.
What prevents this is the so-called 97 percent, many of whom are disengaged, stressed
out, ill, or even absent. The damage doesn’t show up in the oɽcial accounting but is
hidden in the costs of turnover, workplace stress, and conɻict-ridden labor relations. It
also shows up in lack of innovation and slumping organic growth. In the NBA, a team
on which players are late or absent from training or even games, who snipe at one
another and quarrel with the management, can’t dream of going far in the play-oʃs or
even reaching them. In the NBA, teams can’t hide their problems. Their performance
consequences are out in the open for everyone to see at the next night’s game. In the
corporate world, however, many companies succeed in keeping their failures out of the

public eye for a long time. But even oɽcial accounting can’t hide these costs forever—
think of the legacy airlines or the Detroit three.
The issue we turn to next is when these “how” companies emerged, and why—despite
all the underperformance and hidden costs—most ɹrms still organize themselves this
way. Then, we’ll discover whether it’s possible for a “how” company to change its
culture.

T
3
FROM ARTISANS TO
AUTOMATONS
The Origins of the “How” Culture
HE BUREAUCRATIC, “HOW”
approach to running a business seems natural today. But it hasn’t
always been that way. It emerged during the Industrial Revolution to address two
speciɹc problems: The ɹrst was the perceived need to regiment the work habits of
artisans accustomed to keeping their own hours and working at their own pace. The
second was the need to obtain uniform, reliable output from the mostly illiterate rural
workers who were hired into factories in large numbers in the late eighteenth and early
nineteenth centuries.
Nowhere was this transformation seen more clearly than in the city of Birmingham in
the British Midlands. In 1776, in “the city of a thousand trades”—as Birmingham was
known at the time—war in some far-oʃ colonies was the last thing on most people’s
minds. Birmingham was busy with a diʃerent kind of revolution—an economic one.
Since 1769, when James Brindley’s canal from Wolverhampton to Birmingham was
opened, the place had been booming.
1
Overnight, the canal had transformed
Birmingham into an inland port, and the incomparable superiority of water
transportation over roads had had a dramatic impact. The price of coal had dropped by
half. Flour and bread were much cheaper, thanks to the demise of local grain
monopolies. Raw materials from other areas were abundant.
Since 1774, local entrepreneur Matthew Boulton’s factory had
been running full speed
manufacturing a unique and revolutionary product—James Watt’s steam engine. Watt
patented his steam engine in 1769, but after an earlier venture failed, Boulton made the
steam engine a commercial success. The ɹrst generation of steam engines had been
employed primarily in pumping water out of coal mines. But Watt’s new engine was
four times more eɽcient than the older designs, making them practical as a power
source for the cotton, corn, and malt mills that had previously relied on water wheels—
or horse power.
2
Coal-ɹred steam engines had been around since about 1704, but they
had caught on only slowly. Now Watt’s patented improvement on the old Thomas
Newcomen engine was transforming entire industries.
One industry in particular had beneɹted from both the new source of power and the
canal—pottery manufacturing. Among pottery manufacturers, Josiah Wedgwood stood
out both for the way he capitalized on industrialization and for the economic and social
contributions he made. Despite having no formal scientiɹc education, he made many

improvements in pottery production that allowed the mass production of high-quality
green-and jasperware. A great proponent of the canals—some people even called him
their “king”
3
—he foresaw how they would reduce his costs for clay while providing a far
more reliable delivery system for his ɹnished products; he could avoid the frequent
breakages that came with using the rough, rutted roads. And Wedgwood’s vision was
validated in full: The freight costs to and from potteries would fall by more than 80
percent after the completion of the Birmingham-Wolverhampton canal. Wedgwood even
discussed with Boulton the idea of building previously unheard-of steam-powered canal
boats.
That kind of visionary thinking was encouraged in the Birmingham Lunar Society, of
which Wedgwood and Boulton were both members. Founded in the 1750s, the society
met regularly—on full-moon nights so members could ɹnd their way home—to discuss
new, often dramatic, projects and ideas related to their industrial and economic times.
Perhaps it was after one of these discussions that Wedgwood decided to go beyond
improving production methods and delve into improving the organization of work itself.
Whatever the genesis of the idea, Wedgwood implemented a system of organization
that, in 1776, Adam Smith dubbed the “division of labor.” Every worker was trained “in
detail” so that he was able to respond to the “growing demand for new shapes, glazes,
and clays.” Commodity articles were produced by workers diʃerent from those
producing ornamental items. Such was the extent of this scheme that in Wedgwood’s
Etruria plant—built in 1769 on a canal he had helped to plot and on a site he named in
honor of ancient Greek and Etruscan pottery traditions—all but ɹve of the 278 workers
had a speciɹc assigned task.
4
However, “with a view to the strictest economy of labor”
Wedgwood didn’t stop there in his search for eɽciency. He placed foremen over the line
workers to ensure that productivity was maximized. The ɻexible working hours that had
been inherited from the artisanal tradition were banished and replaced by strict, regular
schedules. Wedgwood was so unrelenting in his pursuit of eɽciency that he even
installed a time clock. His business prospered. Patrons and orders ɻowed in, including
from Queen Charlotte, who appointed Wedgwood a queen’s potter, and Russian empress
Catherine II, who ordered 952 pieces in 1774. His wealth also increased dramatically—
at his death Wedgwood left behind a fortune of £500,000 (the equivalent of perhaps
$100 million today), a thriving business, and a daughter, Susannah, the mother of
Charles Darwin.
British industrialists greatly beneɹted from the Industrial Revolution that unfolded in
the Midlands, Scotland, and elsewhere around the British Isles. Economic growth during
this period was such that even though half of British industry’s export market was lost
due to American independence, growing internal demand quickly took up the slack.
However, not all participants in this revolution benefited equally from it.
In 1795, a local clergyman memorialized Wedgwood’s death with the following poem:
Such the true patriot, from whose gates each day
A crowd of healthy workmen make their way

Whose rare productions foreign courts demand
And while they praise, enrich his native land
.
View his Etruria, late a barren waste
Now high in culture, and adorn’d with taste.
5
Wedgwood’s workers did indeed have decent housing at the idyllic site, but that was
not the case for most of the working class. This new way of working created conditions
for workers that were very diʃerent from those experienced by craftsmen a quarter of a
century earlier. We will not dwell on the despicable use of child labor and the
scandalous poverty that most lived in; today’s Third World poor remind us how it was
back then in much of the West. But even in the rare places that didn’t employ children
and that offered decent salaries, housing, and even health care, how did the laborers feel
inside these mills and plants?
According to the University of Chicago philosopher Richard Weaver, the author of
Ideas Have Consequences
, they felt shocked.
6
For the ɹrst time in their lives—and in the
lives of their parents and grandparents—they could not see or control the ɹnal result of
their work. Before, the peasant farmer would determine what was necessary to bring the
harvest in and saw everything through to the end. The craftsmen—who acquired their
skill through years of apprenticeship—decided how they needed to work to make the
perfect product. Now, the simple act of following one task through to fruition was
neither possible nor expected of the factory worker. It was not possible because he was
in charge of a small, speciɹc part of the production process. It was not asked of him
because there were procedures—and foremen to enforce them—that determined how to
do things. All the worker was asked to do was to arrive at a speciɹed time, to execute
speciɹed operations for a speciɹed number of—long—hours, and to leave. Indeed, in
overcoming an independence that stretched back centuries, Wedgwood’s main diɽculty
was not training people to do this repetitive work, but to stop them from wandering
around, taking unauthorized “holidays,” and even drinking on the job.
7
The new
division of labor, as Adam Smith described in
The Wealth of Nations
, had great
advantages for productivity. But it came at a cost that was harder to measure than was
output in terms
of pins per hour. Lack of control over one’s work, over its purpose—
and, as a consequence, lack of involvement in the ɹnal results—led to a loss of respect
for the procedures. This, in turn, led to more supervision from the foremen, the
introduction of time clocks, and other control mechanisms. The result: even greater
disengagement of the worker from his work’s ɹnal purpose. The seeds of the “how”
bureaucracy had thus been planted.
Over the past two centuries, that apparatus of control has been tuned, adjusted, and
updated. But its basic form and underlying assumptions would be recognizable to
Wedgwood even today, were he around. In fact, there are factories in England right
now in which Wedgwood would feel very much at home. Northampton, England, is ɹfty-
four miles southeast of Birmingham and looks for all the world like so many nineteenth-
century industrial towns in England. More important for Northampton, though, is that it

is only sixty-seven miles from London, the main market for its traditional industry—shoe
making. The town’s association with shoe making predates industrialization: Its artisans
made boots for Oliver Cromwell’s army in the seventeenth century. The local folklore
has it that Cromwell thanked Northampton’s cordwainers for all those boots by never
paying his bill. By the early nineteenth century, more than a third of the men in
Northampton worked as cordwainers, the traditional term for those who make shoes—
unlike a cobbler, who
repairs
shoes. At that time, cordwainers still worked as artisans in
their own homes, even if they worked for a larger concern. But beginning in the 1850s
shoe making became industrialized. By the late nineteenth century, it employed half of
the town’s working men.
8
The Northampton tradition of shoe making continues today; if
you’re fortunate enough to own a pair of “Made in England” men’s shoes, with its model
and size still written by hand on the inside, there is a strong chance they were made in
Northampton.
In 2008, we visited one of these factories, housed in a nineteenth-century redbrick
building that seemed little changed since it was built. For that matter, the way the
company and its work were organized also seemed untouched by the passage of time.
There are still more than a hundred steps involved in making a pair of shoes, each
step
done by hand with the help of rudimentary machines. All this handwork helps ensure the
shoes’ outstanding quality. But in following this whole manufacturing process step-by-
step, from cutting the leather with special knives (a process called “clicking”), to the
hand waxing and polishing of the ɹnished shoes, the similarity to nineteenth-century
industrial organization was unmistakable. Every person worked at a speciɹc position,
repeating the same small operation the whole day, day in, day out, on a timeworn,
noisy, and rather dirty shop ɻoor. These highly skilled workers, making some of the best
men’s shoes in the world, looked surly and depressed. Many were overweight. The only
enthusiastic workers we saw were a new hire, who had asked to master several positions
so that he could regularly switch to escape the monotony, and a couple of shoe waxers
who—although uncomfortable—were sitting next to each other and chatting a lot.
The CEO of this plant, who runs it for an international corporation that now owns the
shoe company, explained that he was fully aware of the situation. He knew of
sophisticated machinery to replace the aging equipment in the plant—equipment for
which spare parts are impossible to obtain because no one makes them anymore. He
was aware of all the modern shoe-making methods, of lean manufacturing and
continuous improvement, used, for example, seventy miles north, at Toyota’s Burnaston
facility. But he couldn’t change anything, he said, as he was blocked by the opposition of
local managers and fear of disrupting production even for one day.
Whether these reasons were true or just excuses for his indecisiveness, the fact is that
exactly
the same type of organization that Wedgwood and other British industrialists
implemented during the Industrial Revolution is perpetuated today in some companies
that have the best products in their industries. It’s true, of course, that modern
machinery, computers, and a cleaner environment have made their way into many
other companies. But in most of them the key principle of Wedgwood’s organization has

survived: People are told
how
to do their work and are controlled and judged on how
well they succeed in following orders. Companies have structures to support telling and
controlling, and the inevitable “management for the
3 percent” to catch the few who
evade the controls. Thus, they create the employee disengagement and incur the hidden
costs and underperformance that stand in the way of greatness.
But if the “how” culture is subpar for both business and people, and business is
cutthroat, with competitors seeking advantages wherever they can ɹnd them, how could
such a ɻawed form of organization persist for so long? Why hasn’t the pursuit of best
practices, such as Toyota’s, long ago eliminated the excesses introduced by men like
Josiah Wedgwood?
WHY THE “HOW” CULTURE PERSISTS
A famous experiment involving ɹve macaques and a banana—which admittedly may or
may not have happened—offers a clue to help unravel this mystery.
The macaques are in a cage. A banana hangs from the ceiling, with stairs leading up
to the tasty treat. But the moment the ɹrst macaque starts to climb toward the banana,
the researcher sprays him—and all the other macaques—with cold water. The macaques
quickly get the message: Reaching for the banana—or even letting anyone else do so—is
a bad idea. Once they’ve learned their lesson, the researcher replaces one of the ɹve
macaques with a newcomer. Sure enough, the rookie spots the banana and heads for the
stairs—whereupon he is tackled by the other four, who remember and fear the cold-
water treatment. Frightened, he stops his initiative.
Once the newcomer has learned his lesson, another veteran of the water hose is
removed and replaced by another neophyte. The process repeats itself, with the ɹrst
replacement joining in the beating of the new guy without even knowing why he must
be prevented from climbing those stairs. One by one, the original macaques are
replaced, but each newcomer learns the rule—don’t go for the banana—even though
none of them, by the end of the experiment, have ever experienced the cold shower that
the ɹrst group got. If the macaques could speak, they’d probably just report that going
for the banana is
against company policy or that “this is how things are done around
here”—call it monkey bureaucracy.
This experiment has been described, with minor variations, in hundreds of books and
thousands of presentations. It may well be apocryphal. But whether those ɹve macaques
ever got the hose or not, audiences love the story because they instantly recognize the
phenomenon it describes.
Indeed, this story suggests a plausible explanation for our earlier quandary—how a
senseless and even damaging order of things can persist for so long. Giving a “cold
shower” to those who attempt to take the initiative can have long-lasting eʃects. People
learn from the harsh treatment that results from their “banana mistake” and then act
strenuously to prevent others from trying to do the same. This is the way that corporate

cultures are born, sustained—and eventually quash all attempts at change.
For many people, negative reinforcement from managers is a daily experience that
broadly discourages taking the initiative, which, ironically, is precisely the sort of thing
that a well-run company should hope its entrepreneurial people would do in order to
retain a client, solve a problem, or deal with an internal conɻict. Just one person in a
group receiving negative reinforcement when attempting to show initiative may be
suɽcient to convince others that they themselves shouldn’t show initiative. Moreover, it
also encourages them to prevent others from making the same “mistake.” Here is a
sample of familiar yet “mistaken” initiatives an employee may prevent others from
attempting:
agreeing to reimburse an unhappy client during his ɹrst call about an issue
(one is supposed to seek authorization first);
immediately leaving to visit a client who has a problem with the
company’s product (same “mistake”);
spending a small amount of one’s own money to solve a problem and
asking for reimbursement later (same “mistake”);
holding one-on-one discussions with all concerned colleagues about a major
problem (one is supposed to write a memo and call a meeting);
directly reaching out to a concerned colleague (instead of going through
“channels”);
publicly giving bad news to everyone (bad news is for management only);
or
communicating lavishly but only orally (one is supposed to keep written
track of everything).
Depressingly enough, the odds are that you recognize at least some of these
transgressions from your own experience and could even add to the list yourself. For the
cold-showered employee, getting authorizations, keeping written track of internal
discussions, following the policies
—how
the job is done—has become more important
than
why
the job needs to be done or what you are trying to achieve. What’s more, a
freedom-discouraging environment does not even have to be installed by the top guy—
one employee in a small group is all it takes to turn the people around him into a bunch
of “banana-fearing monkeys.”
For this reason, the odds of bureaucratization increase the longer a business—even a
small one—has been around. A company that starts out with a strongly entrepreneurial
culture will inevitably hit a rough patch, at which point someone will decide that it’s
time to bring in some “real managers” to get the situation “under control.” Because
control is their mandate and because their experience—which qualiɹes them as “real
managers”—has not prepared them to deal with a liberated company or its uppity
people, freedom is usually the ɹrst thing to go. “What this company needs is some

discipline!”—read: procedures and policies. And the larger a company grows and the
longer it’s been around, the greater the danger of being infected by the “how”
bureaucracy virus.
Recall the experience of Les Lewis upon his return to Gore in
chapter 1
. After several
years away, he became a carrier of the bureaucracy virus, and it was only the strength
of the culture that Bill Gore had instilled in the company that rejected his virus and
prevented him from infecting everyone around him.
Perhaps it was also easier for W. L. Gore & Associates to reject attempts to
institutionalize telling and controlling because the ɹrm
had been built around freedom
from the very beginning. Most companies, by contrast, don’t see anything wrong with
telling and controlling, and even when their business becomes so ineɽcient and the
human price rises too high to be hidden, they don’t question their “how” organization—
they just try to “reengineer” it. Indeed, it’s tough for an existing “how” company to
change, but it can be done. In the following chapters we will discuss several examples—
FAVI included—but we acknowledge that each has particular circumstances. Their
industries, sizes, histories, or locations may be very diʃerent from companies you may
be familiar with. But there is one fundamental phenomenon that illuminates the
question of whether an existing hierarchical, domination-, and control-based social
culture can ever change, and if it can, then how. To explore it, we’ll have to make an
unusual detour to the world of primates—this time, real ones.
OUR PEACEFUL BRETHREN
At ɹrst, studying primates may seem like a strange way to learn how to run a business.
But if primates can change their social habits, ingrained in them over millions of years,
it’s possible that humans, too, can learn how to change their work habits, developed
over just a few generations.
9
Common chimpanzees, unfortunately, don’t provide much encouragement. Not only
do they live in extremely hierarchical societies, but they are also violent, murdering and
even eating one another from time to time. Primatologists do not have evidence of
common chimpanzees changing their cruel and despotic ways. But there is another
variety of chimpanzee, pygmy chimps called bonobos. And, boy, are they diʃerent from
their robust brothers and sisters. Their males are not very muscular; they share food; and
if there is domination, it’s not by males but by females. Bonobos resolve social tensions
in a pretty unusual way, too—with sex. In fact, in captivity bonobos have sex with
everyone—related or not, with any number of individuals, and in such a variety of ways
that it often deɹes
Newton’s gravitational laws. Want to say hello, or need to resolve a
conɻict, reduce stress, or celebrate a good meal in good company? Have sex. This is not
a nature ɹlm you’d like your kids to watch on the Discovery Channel—it goes far
beyond back-scratching.
Unfortunately, it’s also not the way most of us would like to see our businesses run—

oɽce romances can quickly go bananas. Besides, bonobo society is still hierarchical,
which causes many problems, for which the bonobos have just one, X-rated, solution. In
the wild—the dense, remote Congolese rain forests—the sex, in all its charming
diversity, was accompanied by violence. Males pull, slap, hit, and bite other males to
increase the aggressors’ opportunities for sex. Females do the same to their “sisters” to
increase access to certain males and, joined by other females
and
males, also regularly
head gang attacks on males who tried to force sex. So, though bonobos may show that
both love and war are ways of life among our primate brethren, pygmy chimps are out,
too. Censored!
So much for chimps. Luckily, researchers have also studied Anubis baboon societies
living in the East African savanna. At the beginning there was not much to hope for, as
far as we’re concerned. Males frequently ɹght to gain rank in the despotic hierarchy and
regularly hit innocent bystanders, too. Females’ ranks are hereditary, so they don’t ɹght.
Unlike males, which transfer between troops at puberty, females stay where they are
born, and the high rate of “aɽliative” behavior—such as grooming—between females is
perhaps the one gentle aspect of their otherwise tough lives. Males rarely aɽliate with
females, and never with one another. The whole troop spends time foraging for food in
the open savanna.
So how is this relevant to the question of changing existing hierarchical cultures?
Witness the surprising transformation the researchers stumbled upon while following
one specific Anubis troop that scientists named “Forest Troop.”
In the early 1980s, this troop started spending the night in some trees about half a
mile from a tourist lodge with a large, tempting garbage dump. Another Anubis troop,
dubbed “Garbage Dump Troop” by the researchers, had already taken control of it and
were sleeping in the overlooking trees. In the early mornings, the most
aggressive,
asocial Forest Troop males—those particularly uninterested in the early morning male-
female grooming ritual—would challenge the Garbage Dump males and raid their place.
The food never ran out in the dump, but one day in 1983, Garbage Dump Troop’s luck
did run out when some of the baboons ate tuberculosis-infected meat. Tuberculosis is
extremely fatal to baboons; by 1986 the entire Garbage Dump Troop was dead. What’s
more, Forest Troop’s most aggressive baboons—nearly half of all the males in the troop
—also died. And here’s where the story gets
really
interesting.
Two things changed right away in Forest Troop. First, the surviving male baboons
found themselves with two females apiece. Moreover, the males who remained were the
least aggressive ones, which meant there was less aggression from dominating males
over lower ranking ones, more tolerance to occasional reversals of hierarchy, less hitting
of innocent female bystanders, and ɹnally, more intersexual grooming. There were even
several cases of male-to-male grooming—unheard of among other Anubis in the wild.
Hence, males and females alike had it better in the new, accidentally improved Forest
Troop. But more changes followed.
The biggest beneɹciaries of the new Forest Troop ways were newcomers. As

mentioned before, male baboons transfer to other troops when they reach puberty. And
when they enter a new troop, they are “nobodies”—low-ranking targets of the dominant
males and ignored by the local females. But the new Forest Troop was diʃerent. In
ordinary troops, a newcomer had to wait an average of sixty days before the first female
presented herself sexually to him and two weeks more before she started grooming him
—yes, in that order. In the new Forest Troop, newcomers typically waited only eighteen
days to enjoy sex and a mere two additional days to be groomed. In sum, newcomers
were quickly inundated by female attention. But even more amazing is that this friendly
way of life continued long after the original batch of “sensitive” males had gone. By the
early 1990s, none of the original males remained in the new Forest Troop, but their
legacy continued, as it has to this day. The old hierarchical society had irrevocably
changed into an egalitarian one. And it all
happened because the oppressive top males
were taken out of the picture, allowing the remaining baboons to shape a more
egalitarian culture.
This shift from dominating and aggressive to egalitarian and relaxed is not unique in
primate research. Another study showed that violent rhesus macaques, once removed for
ɹve months from their despotic hierarchical societies to live with the egalitarian stump-
tailed macaques, came back and maintained a totally changed, relaxed, and nonviolent
behavior once reintroduced to their fellow rhesus macaques.
10
Here, too, it was the
absence of oppression by a dominating few that led to a lasting transformation of their
behavior.
MONKEY DO, HUMAN DO
If a monkey can durably change his behavior when taken out of an oppressive system,
we reckon people can do it at least as well. But moreover, the primate experiments
illuminate the
causal mechanism
behind this change.
In the case of the Forest Troop baboons, the disappearance of the most aggressive
members relaxed the others—primarily females, in the Forest Troop—who were more
willing to reach out to the newcomers. The latter, though “programmed” to be treated
badly, were pleasantly surprised. They relaxed, too, and became low-aggression males
themselves, thus perpetuating the new culture. A similar mechanism was behind the
transformation of the rhesus macaques.
The fundamental lesson for hierarchical “how” companies is simple: Change has to
start from the top. The leaders must radically relax their ways so that the “subordinate”
members—now treated as equals—become relaxed too. And interestingly, once they are
treated as equals, primates relax exactly the same way that humans do. Researchers
traced how the change in the Forest Troop’s social habits inɻuenced members’ stress and
health. And their findings were strikingly familiar.
Anubis baboons are typically known as a highly stressed species. Indeed, the chronic
psychosocial stress of subordination and aggression
leads to the continuous secretion of

adrenals, accompanied by high blood pressure and elevated heart rate—the “bad three”
pattern we see in humans—leading to such health problems as adult diabetes and
impaired growth, slowed tissue repair, and infertility. But in the new Forest Troop, with
its relaxed ways, subordinate males didn’t show any increased level of adrenals, nor its
poor health consequences. The same good health consequences are observed when stress
decreases in humans—one more reason to consider carefully the lesson that primate
studies provide.
The good news is that people are not monkeys. It took an outside intervention to
change the behavior of the baboons and the macaques—in one case, disease, in the
other, manipulation by researchers. But people can decide to change on their own. We
don’t recommend poisoning middle management, but a liberating leader must,
nevertheless, free her people from the oppressive culture of the “how” company. Once
she does, she’ll notice that the behavior of the rest of the “troop” starts to change, too—
from complacent to free and proactive.

W
4
FREEDOM IS NOT
ANARCHY
A Liberated Company Must Have a
Shared Vision
I’m gone for eight months…. If you feel that it’s critical to contact me, that I get involved in your problem, what I want
you to do is to lie down. When that feeling goes away, I want you to get up, solve the problem, and then send me an e-
mail with the solution
.
—B
OB
D
AVIDS
1
E ARE IN
the Bahamas—at least, Bob Davids is.
2
Davids is the owner of Sea Smoke
Cellars, a young 350-acre vineyard in the gorgeous Santa Ynez Valley of central
California. But he spends eleven months of the year elsewhere, whether that’s in
Reno, Nevada; Bali; or ɹshing in the Bahamas. His goal is nothing less than to produce
“the best Pinot Noir humanly possible” from his vineyard. He says he scoured the world
to ɹnd just the right spot for it, and having found it, he stays away from it as much as
he can.
His quest to build a world-class winery began in earnest in December 1997, when
Davids, founder and CEO of Radica Games—then the world’s third most proɹtable toy
maker—announced to the board that he wished to resign so that he could make wine.
The reactions were, well, mixed.
The ɹrst to react was Robert Townsend, whom Davids had considered a mentor since
they ɹrst met in 1981 and whom he convinced to join the board after Radica went
public in 1994.
“You cannot leave the company. You
are
the company,” Townsend told him.
“But your book,” Davids retorted, referring to Townsend’s best-selling
Up the
Organization
, “says that the board’s job is to replace the CEO every ɹve years and I have
been here seven years already.”
“Not if the CEO is doing a good job,” Townsend shot back.
“Well, that last part is not in your book,” Davids sniffed.
Then, board chairman Jon Bengtson offered his own, Townsend-like, reaction.
“Do you know the best way to make a small fortune?” he asked Davids. Davids
shrugged. “Invest a
big
one in a winery,” Bengston oʃered. Davids let that one go. He

wasn’t getting into the wine business to lose money, however. One of his credos is, “If
you have 1 percent hobby in your business, it becomes 100 percent hobby.”
Despite this lukewarm reaction, Bob Davids, after doing his best to pass the reins at
Radica, retired, bought the land, started the winery, and, in 2001, put his ɹrst bottles on
the market.
Two years later, on this summer day in the Bahamas in 2003, Davids got a call from
the winery’s general manager, Victor Gallegos.
“I’ve got to talk to you,” Gallegos said. “We’re having a problem with the 2003 fruit.”
“Okay,” Davids replied laconically.
“Well, we’ve got to do a drop,” Victor announced, referring to the technique of
prematurely cutting a portion of the grapes from each vine so the remaining fruit,
having been endangered by suboptimal weather, is given a better chance to reach full
maturity.
“Well, you’re the viticulturist, why are you calling
me?”
Davids asked.
“Well, it’s a problem,” Gallegos answered. “I’m not a viticulturist. I can’t help you,”
Davids repeated. “Well, we’re going to have to drop a lot of growth,” Gallegos warned.
“Okay, what’s going on?” Davids demanded. “Well, we’re having all these issues.”
Gallegos flailed. Davids began to understand the real problem.
“How much fruit do you have to drop?” Davids asked.
“A lot.”
“‘A lot’ doesn’t answer my question,” Davids retorted.
“About 1.8 million dollars’ retail,” Gallegos ɹnally admitted, presenting Davids—as he
explained to us later—“with the opportunity to make this decision” for Victor.
But Davids didn’t take it. Instead, he said, “I’m going to give you your charge again.
Your charge is to grow the very best grapes humanly possible from that site.”
“But it’s 1.8 million dollars,” Gallegos replied, clearly in agony over the magnitude of
the decision.
“I’m going to repeat your charge,” Davids said. “It’s your charge to grow the very best
grapes humanly possible from that site. I’m not a viticulturist. I don’t know how to do
that. Your charge is to grow the very best grapes humanly possible.”
“But it’s 1.8 million dollars!” Gallegos implored.
“I’m not going to take your monkey. I think this phone call is over.”
Gallegos cut the grapes.
And no, the monkey Davids referred to wasn’t some exotic pet or anthropological
experiment. Davids believed that Gallegos was trying to take the proverbial monkey oʃ
his own back and put it on Davids’ by giving him responsibility for the big grape drop.
Davids refused to take it.
What did Bob Davids gain in sacriɹcing his power to tell Victor Gallegos what to do?

Worry-free time to enjoy ɹshing in the Bahamas? No, Davids sacriɹced it because it’s
good business. “If Victor didn’t do that, then he didn’t complete his charge to grow the
very best wine,” Davids said. “He couldn’t sleep, he was uncomfortable with the 1.8-
million-dollar decision, but if he never gains experience with such decisions, how is he
ever going to make them?” Davids clearly explained his business philosophy and vision
to Victor and every other employee he hired right while interviewing them: “I don’t have
the skill to make wine,” he would tell them. “I’m going to give you all the tools and the
ability to make the best product humanly possible you could make …all you need so you
do not
have an excuse to come back to me and say, ‘I could have done it better if only
you had allowed me to [fill in the blank].’”
Perhaps, you think, Sea Smoke is a unique company—a winery—with unique
problems. Most existing companies are not like that. It would be easier to agree with
this if Davids hadn’t also done what he’s doing at Sea Smoke at the eight-thousand-
person Radica Games and several other companies he has headed—build a freedom-
based environment.
Sea Smoke is a small and relatively young company, and its story illustrates the ɹrst
two key steps to building such an environment. First, telling people how to do their job
is fundamental in “how” companies, but a freedom-based business is founded on
not
telling your people what to do—even if they want you to. This has to start at the top—
with the owner, chairman, or CEO.
However, you can’t just say, “Do whatever you want,” or even, “Do whatever you
think is best”—that way lies anarchy. Without appropriate guidance, you’ll have
everyone doing what they believe is best for the company, even if those actions conɻict
with the company’s vision or with the actions of the people around them. Or, worse than
that, people will act in their own self-interest, not the business’s.
Freedom in the workplace is neither
hierarchy
nor
anarchy
.
The phrase “ordered liberty,” from political philosophy, comes close to capturing the
best way to think about it, even though freedom in the workplace is not political
freedom. It is a highly disciplined—actually, self-disciplined—form of organization. And
its main disciplining element is the company’s shared vision of world-class performance
—the second key step of building a freedom-based company. What Bob Davids conveyed
to his people—from the moment he interviewed them for the job—was that Sea Smoke’s
vision is to produce world-class Pinot Noir. It is to achieve
that
vision that he has set
them free to take the best actions they can.
Did these newly hired people believe that they were really free to take actions they
deemed the best? We have all heard leaders of “how” companies promise freedom of
initiative and autonomy of
action, only to be asked to submit for approval the ɹrst idea
we aired. But Davids was not building a “how” company.
Sea Smoke’s chief winemaker, Kris Curran, was dubious at the beginning, too. “I
chuckled and said ‘Yeah, Bob, we’ve heard that a million times before. And then the
owner puts twenty thousand dollars more into landscaping and doesn’t allow me to buy

an extra two-hundred-dollar wine hose that I need.’”
3
Even after she accepted the job,
Curran remained skeptical until the day Davids asked her to get the project oʃ the
ground and told her to start with all the equipment she needed for an absolutely perfect
winery. So Curran took him at his word and drew up “a just outrageous list of things.”
When she was ready, Davids came in and went through the list item by item, discussing
“every last clamp, pump, and barrel.”
It took six hours. But in the end Davids said to her, “OK, so when do you start buying
all this stuff?”
Curran, still skeptical, answered, “You’re not going to knock anything oʃ?” just to
hear Davids repeat his freedom philosophy again.
“No, I believe your arguments that this is going to make better wine, and therefore
I’m going to give you everything you need so you do not have an excuse to come back to
me and say, ‘I could have done it better if only you had allowed me to…’” Did
this
convince Curran that Davids’s business philosophy and vision for Sea Smoke was not
just blowing smoke?
“I was blown away,” Curran said, “because I had been in the industry for eight years
at the time, and I had never seen anybody that I had worked for and anybody that I
knew that really stood behind what they said.” At that moment, Curran realized that
Davids would follow through with what he said in her job interview and that she would
be able to take the actions she thought were best for the winery. Davids put this
freedom-building block down for her—or so he thought.
But as much as people bristle at being told how to do their jobs, it can still be hard to
jump right in and accept one’s own freedom and the responsibility that comes with it.
Victor Gallegos accepted his freedom in certain situations, but he stumbled when a large
sum
of money was involved. Curran, on the other hand, wasn’t shy with her initial list
of equipment for making a world-class wine; as she admits, she was testing Davids,
trying to call his bluʃ by making a list she was sure he would balk at. But whatever
psychological obstacles people may face in embracing their own freedom, this is still the
easy part—freedom can be scary, but it’s nice to have. Getting people to emotionally
own the company’s vision is much harder. As a matter of fact, Kris Curran found herself
on the wrong side of the line between anarchy and freedom early on.
Several years into producing Pinot Noir, Davids—who says his main role in the
business is brand building—came up with the idea of making a great white Chardonnay
on an area of the vineyard’s soil that was ill-suited for Pinot Noir. He explained to
Curran and her assistant Katie Kennison—today marketing and direct sales manager—
that the plan was to use the Chardonnay to
promote
the Sea Smoke Pinot Noir in the
marketplace and the media. In other words, he planned to give the white wine away. He
even had a name for the wine—Gratis. Curran and Kennison, still getting used to
Davids’s ways—and perhaps thinking that this small Chardonnay production was
marginal and not a part of the great Pinot Noir vision—didn’t argue much, though as
winemakers they profoundly disagreed with the idea that you should ever give away

your wine.
Months passed and on one of his occasional visits, Davids entered the winery and saw
Kennison rolling out a row of used barrels. “Katie, where are those barrels going?” he
asked, surprised.
“We’re doing the Chardonnay,” Kennison answered.
“I thought we were using one hundred percent new barrels,” Davids asked.
“No, we’re putting it in used ones this year,” Kennison explained. Davids asked
Curran, the chief winemaker, to step outside.
“Kris, I thought we’d always been using new oak?” he asks.
“No,” Curran explained. “I’m not going to use new oak on a giveaway wine. If it was
my pocket, I’d even use stainless,” Curran replied, referring to a cheaper way of aging
wine: stainless steel tanks.
“Did I ever ask you to save me money?” Davids asked.
“No,” Curran admitted.
“What barrels will make the best quality Chardonnay? You choose,” Davids said.
Curran went back to the cellar and told Kennison, “We’re going to use one hundred
percent new oak.”
This didn’t make the assistant winemaker very happy. “Oh, dang it,” Kennison said. “I
already washed all these barrels.”
You may object here that Davids didn’t really stop telling Curran how to do her job.
He simply chose to tell her indirectly, making his wishes known without giving an order
in so many words, as so many bosses are wont to do. “Do what you like,” such a boss
might say. “But if I were you, I’d do this leaving the listener in little doubt about what
was necessary. This brings us again to the issue of freedom and anarchy.
Freedom begins by not telling people “how” to do their jobs. According to Davids’s
principles, Curran was free to decide how to make the Chardonnay. At no point did
Davids tell her directly or indirectly how to produce it. Nor did he insist on vetting her
decisions on it. It is true that his persistent questioning of the decision to use old oak
might well have been interpreted, in a traditional company, as a tacit order to change
course. But that was not Davids’s intention. He freely admits that he doesn’t know how
to make Sea Smoke’s wine—that is why he hires a winemaker. What he did want to
ascertain, however, was whether the decision to save on the barrels was being made for
the right reasons—for reasons, in other words, consistent with Sea Smoke’s vision.
Freedom and trust can’t be given out piecemeal. If they are, people will immediately
see the strings attached and reject the oʃer as a sham. But this does not mean that the
owner—or any colleague, for that matter—has to turn a blind eye when he notes by
chance that some action is
not
in the best interests of the company’s vision. That is the
road to anarchy, not to freedom.
In fact, sharing and communicating the company’s vision is a key role for a liberating

leader and the second building block of freedom. This is especially true when faced with
evidence, as Davids was, of a failure to fully understand and own the vision. If the
leader doesn’t fulɹll this role, some people will likely fall back on what
they

believe is
best based on their experience—of highly controlled “how” environments. And one
experience that we all have is that saving a buck is always a good thing, especially in a
downturn. There is nothing wrong, of course, with avoiding needless expenses in any
company. A liberated company in particular will be attuned to the perils of hidden costs
and false economies, instead of ɹxating on photocopying and travel expenses. And the
best action to take should
not
simply depend on particular experiences or current
conditions but on one single thing—pursuing the company’s vision. Cost-saving actions
should deɹnitely be considered best if the company’s vision is low-cost market
leadership, as it is for Southwest Airlines. But they won’t necessarily be as important at
W. L. Gore & Associates, whose vision has always been—in good or bad times—market
leadership through outstanding products and fair customer relations.
Gore’s Les Lewis was disturbed a few years back when he discovered that on-time
delivery performance was slipping.
4
He made some inquiries and learned that some
newer people, those with experience at companies with a diʃerent vision, had decided
that 80 percent performance was acceptable if getting to 100 percent would mean going
over budget. Lewis did not view on-time delivery as an economic decision at Gore. It
was one of its core principles and an element of its corporate vision—fairness to the
customer. The numbers revealed a vision-sharing problem, which Lewis then set about
correcting by reminding the associates in question how fairness ɹt into Gore’s vision:
“The success of our enterprise in making money and having fun rests on our ability to
invent, sell, and service products our customers value.”
Always
delivering on time is part
of the value that Gore provides to its customers. Lewis, of course, had learned the same
lesson himself years earlier when Bill Gore sat him down for his impromptu lecture on
the “Formula for Failure”—when all he wanted to do was save a buck.
Freedom inside a company isn’t anarchy when it is bounded by what Davids calls his
people’s “charge,” or by Zobrist’s “why” question. Both amount to the same thing—the
company’s strategic vision, which employees bring to fruition through their best actions.
A liberating leader’s first two tasks are to build a corporate
environment in which all the
people are free to make decisions, while ensuring that they understand, own, and aim
toward that vision. This second task—as we saw with the Chardonnay—is a tougher one
for the liberating leader.
OWNING THE COMPANY’S WORLD-CLASS VISION
Getting people to emotionally own a corporate vision is a long—indeed, never-ending—
task for a liberating leader. Fortunately, in freedom-based companies the vision is
always
world-class, which facilitates its acceptance. As Zobrist put it, people desire and
own dreams more easily than mundane goals—no one jumps out of bed enthused by the

goal of increasing market share by 2 percent. The task starts with the ɹrst encounter
with a prospective employee.
First, Davids—like other liberating leaders—makes sure that every applicant knows
the corporate vision before she is hired. That way, if she doesn’t agree with it she can
opt out right away. Sometimes, in her zeal to land the job, a person will agree with
everything, vision and all, without really thinking it through. Vertex is a Berwyn,
Pennsylvania-based six-hundred-employee-strong company whose vision is global
market leadership in advanced tax software and related services. To make sure that all
his new hires think this vision through, Jeʃ Westphal, the company’s owner and CEO,
tells them on their first day, “Welcome to Vertex. You are free to leave.” And it works.
“One of my most wonderful days at work was saying good-bye to one of our best
employees,” recounted Westphal.
5
“I gave a speech years ago when we were working on
our vision for the ɹrst time, and there was a woman who had been a long-time
employee, a wonderful woman and a ɹne employee. After we talked about this and she
engaged in the vision process, she came to me and said, ‘Jeʃ, I have to go. I want to
carve birds, it’s my hobby, but that’s what I love to do. I like working here, but I love
that more and I want to try to make a business out of that.’ And I said, ‘Kathleen, God
bless you.’ I gave her a big hug, had a little lunch for her, and oʃ she went. Because I
knew
I was serving her true needs, not our self-interest to trap her here against her
will.” Kathleen exercised her freedom to leave to pursue her own vision, which had
become more important to her than that of Vertex.
Tony Hsieh, the CEO of Las Vegas-based
Zappos.com
, takes it even further than Jeʃ
does—he continues to hammer home a similar message even after people start work, or
at least paid training.
6
Zappos sells shoes online, but is, like USAA, essentially a
customer-service business with a big call center, and has been growing fast. Still a young
company, its revenue was more than $1 billion in 2008, up from zero ten years earlier.
And so it hires a lot of people to work in its call centers and distribution hub. Hsieh, the
company’s founder, guards its vision and internal culture zealously and carefully screens
new hires for compatibility with both. But even so, he recognizes, as he says, “Zappos is
not for everybody,” and some people will realize that, too, as they go through the
training process. So, after putting them through four weeks of paid training, Hsieh
makes them an unusual oʃer: Quit now, and not only will we not hold it against you,
but we’ll pay you to leave. Until mid-2008, this quitting bonus was $1,000, but Hsieh
doubled it to $2,000 because, he told us,
too few
people were accepting it. He wants to
make sure his employees are there because they share Zappos’s vision, and so he is
willing to pay the would-be timeservers to hit the road. Getting people to own the
company’s vision emotionally can demand not only real effort but also real money.
But communicating and sharing the company’s vision doesn’t end on day one or
during training—that would be too easy. Most people, especially if they’ve gotten the
macaques’ proverbial “cold shower” at previous jobs, have trouble accepting that a
vision is more than something to be put on the walls, pasted into the annual report, and

otherwise forgotten. So getting them to share it and emotionally own it takes time and
vision-reinforcing effort. Let’s take another look at the Chardonnay.
Curran, the winemaker, agreed with Davids’s vision of making a great Pinot Noir—
she was even thrilled by it. But until Curran was asked by Davids to draw up the winery
equipment list, making great
wine remained
Davids’s
vision—
not
hers. Davids had set
her free to draw up a wish list of equipment to make his strategic vision a reality. And
she used all her experience as a winemaker to compile her “outrageous” set of demands.
But only when Davids approved her list in full did she begin to believe in his vision and
make it her own—at least as far as the Pinot Noir was concerned. But in the case of the
free Chardonnay, she didn’t connect it to the world-class Pinot Noir vision. Seeing the
goal as simply making a great-but-free wine, she made the decision—reasonably, in
light of her understanding of the goal—of saving the company money on what was,
after all, a promotional product. Davids stumbled on it by chance. As the vision keeper,
he then took the time to explain to Curran that saving money on the Chardonnay would
conɻict with the vision of Sea Smoke as a maker of world-class wines. But he did so in a
manner that still relied on her to draw her own conclusions and make her own decision.
Case closed.
Ownership of the company’s vision and the freedom to act on one’s own initiative to
pursue it are not, as they may at ɹrst appear, two separate, distinguishable things.
Many companies communicate their visions and try to make people “buy in.” But the
results are usually disappointing. People start emotionally owning the company’s vision
only when they are free to make
their own
decisions in pursuing it. Being free to do A or
B forces them to think of the criteria for choosing between the two—to ponder the
company’s vision. In “how” companies, on the other hand, where people are told to do
C and then D, there is no need to ponder the vision. In fact, pondering it becomes a big
distraction from following orders. People who are free to act come to know why they
did A rather than B, and this “why” becomes their own. The vision stops being an
abstraction for them, something touted by management for a while and then forgotten.
They start to own it emotionally. That’s why, as Davids says, he wants people to shake
oʃ the feeling that he can make their decisions. This is not to say that it is easy for
people to start using a corporate vision to guide their choices. Groomed in “how”
companies, many employees are prone to interpret “what is best” from their own
perspectives, based on their particular jobs, skills, or
experiences. It falls on the
liberating leader to patiently overcome these individual perspectives without telling
people how to do their jobs.
Instead, the liberating leader must continuously provide employees with information
relevant to the strategic vision along with the means necessary for them to do their jobs.
When needed, the leader may check that someone facing a big choice understands the
likely consequences of that decision. At ɹrst, this checking-up may have to be done
often, so that the liberating leader can verify both that he has provided the necessary
information and means to those employees, and that they have used it all in their
decision making. Davids spent those six hours with Curran reviewing her equipment list

not because he was looking for ways to cut costs, but to ensure that she had made her
choices with the right “why” in mind—“to make the best wine humanly possible.”
Once a liberating leader is convinced that his people have all that they need and are
making decisions that best fulɹll the vision, he leaves them to act on their own. And
even when they ask him to tell them “how” to act, he refuses to take their monkeys oʃ
their backs.
At other times, a leader may run into a questionable decision face-to-face, as Bob
Davids did when he encountered the used barrels into which Kennison and Curran were
getting ready to pour the Chardonnay. Needless to say, people can make questionable
decisions that run
contrary
to the company’s vision. This is no cause for despair, but it is
a signal that a leader has more work to do to make those employees own the vision. A
leader can’t
force
people to emotionally own the company’s vision; he can only seek to
create the conditions—freedom of action—in which they are
convinced
of it themselves.
As Zobrist explained, trying to impose the vision leaves a leader in the position of a
locomotive engine that has lost its cars because the cars don’t feel like going the
locomotive’s way.
A liberating leader’s ongoing role is to communicate relentlessly and “lavishly,”
7
constantly feeding people new information about the corporate vision. That vision,
though, is never static; markets, technologies, and the business environment
continuously evolve. Companies that don’t question and renew their corporate visions
are
bound to encounter rude shocks—especially during tough times. Even a shift in a
corporate vision, however, can’t simply be imposed from on high. Here, too, people
must have the freedom to question it and may or may not take ownership of it.
Resistance should be met with even more lavish provision of information—
telling
them
how to do their jobs
at this stage
is even more destructive than at the outset, because
people will feel betrayed by the denial of a freedom that they have by now come to
expect and enjoy. That said, if the opposition is strong enough and resists your best
eʃorts to communicate and explain the change in vision, there may be good reasons. If
you come to believe that your employees are right and that the change isn’t feasible, you
need to be prepared to change course or return to the former one. One of the great
advantages of a liberated company is that it doesn’t wait until customers, stakeholders,
or a downturn have called a vision into question—by the time that happens, it’s usually
too late. Free employees are free not only to act, but to question those big strategic
turns—and to do so while there is still time to change course.
Bob Davids seeks this kind of consultation when he goes out to the vineyard between
brand building and boneɹshing—which, he said, he does simultaneously. “I go out on
the Atlantic Ocean and go ɹshing for days and days and days. And I go out there with
my rod in my hand, throw in, and just think. What I’m thinking about is, ‘What are we
doing for long-term brand recognition?’ So I’m able to think about things three or four
years ahead while Victor is down [at the vineyard] clubbing the daily dragons.” Davids
then oʃers his new ideas, “from a free thinker who has time to think,” to Gallegos and

the team. He spends enough time to give them all the information he can on how these
ideas comport with his evolving vision for making and selling a world-class Pinot Noir.
Sometimes he gets his new ideas across internally right away; sometimes his in-house
experts need more time or more information to evaluate his bone-ɹshing branding
brainstorms. Even then, some ideas—such as giving away the entire production of
Chardonnay every year—are so contrary to a winemaker’s instincts that Curran and
Kennison resisted, no matter how clear the rationale was to Davids. This resistance to
link it to the company’s world-class vision, in turn, precipitated their attempt to save
money with the used barrels, which made Davids realize that he hadn’t fully explained
the thinking behind Gratis.
Sacriɹcing the power to tell workers “how” and sharing your world-class vision with
them are not easy to do. But they are also just the beginning—it takes more than that to
truly transform and liberate a company, as Davids can attest not just from his time at
the small Sea Smoke Cellars, but from his previous life at big companies.
We visited Smoke Sea Cellars in its eighth year and, so far, it has succeeded both in
cultivating its freedom culture and in fulɹlling its world-class wine vision. But then
Davids also succeeded in growing his previous start-up, Radica Games, into the third
most successful toy company in the United States, after Mattel and Hasbro.
8
Not only
did he continue not to tell his Radica employees—all eight thousand of them by the time
he handed over the reins—what actions to take during all that growth, even after the
company went public, he also did it with a workforce that lived under an oppressive
political autocracy—94 percent of Radica’s employees resided and worked in mainland
China. None of them had ever seen a liberated leader before in their lives. Later we’ll
explore some of the methods Davids used to instill this culture in a company that was
growing like mad and whose employees had even less experience with freedom—at
work or elsewhere—than most in the West enjoy.
A leader’s particular tactics for changing people’s habits and assumptions depends on
whether employees’ resistance or skepticism comes from work experience at other ɹrms,
cultural factors, or just plain personality. Diʃerent types of businesses likewise require
different methods. Bill Gore’s approach to his engineers was different from Zobrist’s with
his machinists or Davids’s with his wine experts. But one thing is always true: This
change has to start with the leader himself. It’s crucial for a would-be liberator to
completely refrain from telling because everybody watches to see whether he will “walk
the talk,” as it were. Liberating leaders must live the values they want to instill in their
businesses. What drove this group of leaders to start doing so is the subject of the next
chapter.

I
5
WHY THEY DID IT
Two Triggers of the Liberation Campaign
N THE PREVIOUS
chapter we described a leader’s ɹrst tasks in launching a liberation
campaign. However, before we discuss the next steps these leaders took to liberate
their companies, we want to focus on
why
they did it.
This issue is easily overlooked, but it is worthy of examination. It is exciting to follow
a story of achievement, such as becoming a great sports champion or even losing sixty
pounds. But unless one understands what triggered people to engage in their lengthy
eʃorts and stay the course, reading about what they accomplished will be of little help
for anyone wishing to replicate the feat. Seeking world-class performance and
possessing freedom values are both necessary conditions required in order to liberate
one’s company, but it was two speciɹc types of experiences—
exasperation
and
admiration
—that triggered our leaders to launch their liberation campaign.
World-class performance means nothing less than market dominance and ɹnancial
results that are the envy of one’s competitors. Aspiring to this level of performance is a
necessary condition for building a liberated company. This aspiration provides a vision
that people can emotionally embrace. True, most leaders, once they are in charge of a
company’s destiny, worry about its performance. However, there is an important gap
between worrying about performance and the desire to become world-class. Take an
example from the world of sports.
Some NBA coaches, even if they would never admit it, coach to have a good team—
and franchises that are merely “good” still make a lot of money for their owners. For
example, Lenny Wilkens, who has more wins—and more losses—than any other coach
in the NBA, “is known for his quiet, sensible, and optimistic coaching style.”
1
But “his
career was marked by consistent records rather than by championship cups.” Other
coaches, such as Phil Jackson, the Los Angeles Lakers coach who has won nine NBA
titles, want to build championship teams, to make basketball history—and they leave if
the owners or the team don’t share this goal. Jackson did exactly that in 2004, when he
walked away from his job with the Lakers. When he was ready to return to coaching,
several teams, including the New York Knicks, tried to hire him. But Jackson returned to
the Lakers in 2005—not out of sentimentalism, but because he believed that they were a
team that could win the NBA championship, even though they weren’t playing very well
at the time. In 2008, he nearly succeeded, going all the way to the ɹnals, and in 2009,
he won his tenth title—the most in NBA history.
Many good corporate leaders are like Lenny Wilkens. This is no insult—Wilkens won

one championship, in 1979, with the Seattle SuperSonics. They compile solid records of
achievement and do ɹne by their stockholders. This, however, is not the same thing as
world-class performance.
The desire to build a world-class company is only one of the two necessary conditions
required to launch a liberation campaign. The other is what we call “freedom values.”
Sure, a world-class-seeking leader could just as well apply other approaches and see if
those worked. Robert McDermott, who as CEO liberated the insurer USAA, tried
diʃerence tactics at the Air Force Academy, when he led that organization. And Jim
Collins’s book
Good to Great
describes several now-famous cases of leaders taking their
organizations from good to world-class. None used a radically free approach. But our
liberating leaders didn’t try to achieve world-class performance by trying to restructure
a “how” company. Though aware that “how” companies can be made world-class, their
freedom values made them lose faith in this type of culture. They believed that a
radically
diʃerent—freedom-based—environment was needed. What they lacked was a
particular experience to trigger their break with the “how” culture and drive them to
start the liberation campaign. Our research revealed two such triggering experiences:
One was exasperation with the consequences of trying to manage the “how;” the other
was admiration for other liberated companies.
KITCHEN-TABLE LESSONS IN LEADERSHIP
Jeʃ Westphal always believed in the importance of freedom but couldn’t envision how
to apply his values to his business, even after becoming, in the early 1990s, a senior
executive of a small tax software company owned by his father. An eager reader, he
familiarized himself with many approaches that questioned the “how” environment,
including Stephen Covey’s
Seven Habits of Highly Eʃective People
. But he didn’t apply any
of them to his company until, in 1993, a key software-development project turned into a
ɹasco. While preparing to use his executive power to tell the team that they had “to
redouble [their] eʃorts, step back, reorganize, and… go right back at it,”
2
Westphal
suddenly found a solution to a different, more personal, problem—with his wife.
At the time, he couldn’t understand why his wife never seemed to want to go on an
impromtu camping trip with him, just the two of them. He took it personally. He was so
exasperated that he even questioned her sanity to himself. But one night, sitting in the
kitchen with her, he remembered something Covey had written, and he tried it. He
attempted to set aside all judgment and just imagine himself in her place, to just listen
to her. “And then,” Westphal told us, “this huge epiphany hit me: She cares more about
the children’s safety than our romance.” Her reluctance had nothing to do with him or
their marriage and everything to do with her concern for their children. But Jeʃ had
been too wrapped up in his own interests and desires to see it.
“I realized I had never gotten it,” Westphal continued. “And it, literally, just totally
changed my world. Because I thought I understood
everybody, and I realized in that

instant that I never really understood anybody. I understood what I wanted to
understand about them, rather than who they really were and what their needs were.
And my second thought was, ‘Oh my God, how many times have I been wrong before?’”
This is not the way a typical CEO begins a conversation with visitors who have come
to learn about his company. But just as we began to worry that he’d mistaken us for
itinerant marriage counselors, he tied it all together. “The application to business was
this: ‘Whoa! I’m walking around thinking I get it. But I don’t get it. And other people are
walking around thinking they get it, but
they
don’t get it.’” With each person, or each
department, in a company operating from its own self-interest, conɻicts are inevitable
and unsolvable, so it
seems
natural to install someone above them—a boss—who can
referee disputes between these competing interests, calling it coordination. But the boss
is trapped within
his
own frame of reference, unable to listen and used to telling, giving
rise to gamesmanship and the interoɽce intrigue that we all know all too well. “Once
you know that basically everybody is walking around not really understanding the
people that they are relating to, you know that you
have
to do something about that,”
Westphal said. “You can’t
not
do something about it; you have to. Because now you can
imagine the superior business performance you could achieve by having people who
actually understand each other,” and who can, by working together, achieve things that
none of those involved could have accomplished while trapped in their own narrow
perspectives.
“The very ɹrst ‘program’ that we implemented,” Westphal continued, “was for me to
change
my
behavior. I started
listening
, I started actually involving people in my
decision making.” Westphal realized that it was his top-down approach, telling people
how to do their jobs, that made them stick to their individual perspectives and make
choices that ɹt their self-interests and breed conɻicts, instead of communicating and
deciding among themselves on the best action to advance the company’s vision. So,
instead of “tell, tell, tell,” he decided to try something diʃerent: “I came to work the
next day after the experience with my wife and I started listening.” It was not
so long
afterward that this ɹrst and, apparently, small step of building a free environment
delivered a huge result.
During a meeting to assess how to move forward with the failed software-
development project, one manager observed how the tax-software ɹeld seemed to be
moving in a diʃerent direction from the one their project was pursuing. Enterprise
resource planning, this person argued, was the future of their business. Westphal
recalled, “After this failed project I thought we should redouble our eʃorts… because I
tended to be goal-target focused. But then I started to listen. And Gerry Hurley, who is
our marketing VP today, had noticed that circumstances were changing in our core
sales-tax software business. And I said, ‘What should we do?’ We were a pretty small
company then, sixty or seventy employees. And he said, ‘We have to shift gears and we
have to put our priority over
here
, because if we don’t pay attention to this we are going
to be in trouble.’ I listened and agreed.”
Westphal accepted the idea that opened the path to the company’s growth. He admits

that if they had revamped the failed project as he initially wanted, Vertex would have
been ruined: “It’s a darn good thing we did, because we barely got ourselves into a
position in time to seize the growth opportunity in ERP that really put the company on
the map. Had we not done it, we probably wouldn’t be in business today.”
Of course, that insight came later. But at the time, how did he feel leaving a major
strategic decision to his team? “I was not diminished because it wasn’t
my
idea,” he
explained. “My measure is the net performance of the organization, so we can either get
an itty-bitty bit of leverage out of the incremental power of my little pea brain or we
can get a ton of leverage with the incremental power of six hundred brains. It’s not
about who has the best idea, it’s about
us
having the best idea. But it was hard at ɹrst
because you feel vulnerable.”
Note that listening, by itself, did not trigger Westphal’s decision to launch his
liberation campaign. Rather, it was the reality Westphal discovered after he started
listening that exasperated him and triggered his decision.
Seeing Vertex’s performance improve, Westphal—now emancipated both from the
telling “how” style and his ego—began to see clearly that the environment inside his
company was what he called the “rule of the jungle.” It encouraged people to stick to
their own perspectives, to push decisions favoring their own interests and thus create
permanent conɻicts, and then to go to the “boss” to resolve these conɻicts. It was a
hierarchical, conɻict-ridden environment with all the stress and disengagement that
entails. Similar to the exasperating issue at home, Westphal saw that the never-ending
conɻicts at the workplace stemmed from telling instead of listening. He decided to
transform the “how” company into a liberated one, encouraging people to listen to one
another, to agree on a common business purpose reɻecting the company’s vision, and to
come up with the best decisions and actions to achieve this shared purpose.
After ɹfteen years of eʃort, Westphal ɹgured that Vertex’s culture was more than
halfway to his ideal but needs “another ten or ɹfteen years” to reach it. Yet, despite this
severe self-appraisal, he was eager to provide an illustration of how far he had already
traveled on the road to freedom: “I remember feeling like I had to have…the right
answer all the time. And now … I know that I just have to have the right question. It
doesn’t matter where the answer comes from.”
Many of our liberating leaders experienced similar moments of exasperation with the
“how” culture. Stan Richards, the owner and CEO of the Dallas-based Richards Group,
the largest independent ad agency in the United States, reached the point of
exasperation with the way the environment in traditional agencies stiɻed creative ideas
and produced interdepartmental strife. The sectarian conɻict between “accounts” people
and “creatives” was so bad that Richards compared it to Northern Ireland, where
physical walls were built in the middle of streets in Belfast to keep Protestants and
Catholics apart. These ɹrms, Richards says, were like “Ulster, with regular business
hours.” That experience made him quit the world of traditional ad agencies and start his
own freedom-based company.

Bob Koski was the founder and longtime CEO of Sarasota,
Florida-based Sun
Hydraulics, a leading manufacturer of high-performance hydraulic valves. But he started
Sun only after he became exasperated by the antagonistic labor relations at his previous
job. Koski would spend a lot of time walking around the plant hearing the concerns of
the workers. When he predicted that the workforce would vote in favor of unionization
because the rank-and-ɹle had lost faith in management, he was laughed at. In the end,
the union won ten to one, and Koski struck out on his own—not because the union won
the vote, but because he was fed up with the rest of management’s denial about how
disengaged—in, fact, actively disengaged—the workforce was. Robert McDermott
became exasperated by a diʃerent consequence of “how” management: As CEO-in-
waiting during his ɹrst six months at USAA, he saw how the company’s bureaucratic
ways made it impossible for its customer service reps to serve USAA’s customers.
What sets these leaders apart from others is that they were not simply critical of their
companies. They actually could not stand it anymore. Not content to just criticize their
employers, or complain about what didn’t work while actually doing nothing, they were
moved to action. The distinction between being critical and being exasperated is not just
psychological hairsplitting. After all, when businesspeople are critical of something, they
quickly act to ameliorate it. Right?
Not so fast. We know one division head at a famous American corporation who loves
to tell internal audiences a story about his father, a crane operator. One night at dinner,
the story goes, his father told him that a new boss had come in and said that the
company’s goal was to improve productivity by 30 percent.
“Will you do it?” his son asked.
“Hell, no,” the father replied.
“But do you know how to do it?” the son persisted.
“Sure I do,” the father answered, showing his deep disengagement with the company
and its “how” bosses and his unwillingness to help them. If they want to tell him how to
do his job, well then, his attitude is, ɹne. But don’t ask me how to do it better. The
father in the story was resigned to the idea that management didn’t value his ideas
anyway, so he saw no reason to try to help them.
The executive who tells this story around his own company is convinced that people
have the golden keys to improve performance, and he is critical of the “how”
environment that prevents them from putting these keys to use. But he, himself, despite
being critical of his company’s performance—where the annual turnover among
salesmen has hit 40 percent—is not
exasperated
. Besides sharing this tale from his
childhood, he has done little to create an environment that frees people in his own
company. Telling people that they hold the keys to great performance is still, after all, a
form of telling. Liberation demands more.
Yet, like this executive, thousands of CEOs and key players who experience poor
performance and criticize their “how” environments, don’t change them. Instead, many
row twice as hard. They blame certain employees or certain corporate fads—or, worse

still, factors external to the company. Hence, the many periodic bloodlettings and fad
“diets.”
Others don’t even row harder. Instead, they spend time criticizing and waiting for
some instant alternative. Meanwhile, they don’t lead the necessary transformation so
that the right boat can be built to take the company to a world-class destination. As the
eminent leadership scholar and former executive Robert Greenleaf wrote:
So many… having taken their ɹrm stand against injustice and hypocrisy, ɹnd it hard to convert themselves into
aɽrmative builders
of a better society. How many of them will seek their personal fulɹllment by making the hard
choices and by undertaking the rigorous preparation that building a better society requires? … Criticism has its place,
but as a total preoccupation it is sterile…. If too many potential builders are taken in by a complete absorption with
dissecting the wrong and by zeal for instant perfection, then the movement so many of us want to see will be set back.
The danger, perhaps, is to hear the analyst too much and the artist too little.
3
What did this hard choice concretely imply when the “artists,” the “aɽrmative
builders” of the freedom-based companies, decided
to act, to take the ɹrst step of the
liberation campaign? For most, it was to restrain themselves from telling a subordinate
how to solve a problem that didn’t properly belong to them. Instead, they shifted to a
question: “What do
you
propose?” And if the subordinate had no ideas—though often she
does but won’t share them because she isn’t used to being asked—the liberating leaders
would say: “You’re the one who has competence in this matter. I’m sure that if you take
a bit of time you will find the solution.”
Even showing this restraint is hard. As Albert Camus once wrote, winning your own
freedom requires “accept[ing] whatever happens.”
4
And doing this leaves one
vulnerable—as Westphal acknowledged. Camus advised that we should “fear nothing.”
Still, the ɹrst time you leave your subordinates free to make $1.8 million decisions for a
ɻedgling company, you may have a knot in your stomach. And as Camus warned, there
is no one to help you with it.
FROM ADMIRATION TO EXECUTION
Exasperation with the consequences of the “how” environment has been a key trigger
for many liberating leaders. But simply doing the opposite of what you would have done
in a “how” company is a fuzzy action plan.
5
There are a few leaders—such as Zobrist—
who were inspired by the writings of management theorists. Much more common is the
case of Bob Koski at Sun Hydraulics, who translated his exasperation with “how”
companies into a plan for liberation based on what he had learned about alternative
management approaches at companies he admired.
“Starting Sun with three employees (John Allen; my wife, Beverly; and me) and
believing that the company would grow to employ several hundred people, I thought we
had a golden opportunity to minimize the destructive eʃects of politics and egos.”
6

That’s how Bob Koski described the initial trigger for starting the freedom-based Sun
Hydraulics in 1970, now publicly traded and repeatedly ranked among
Fortune’s
100
fastest-growing small public companies in America and
Forbes’s
200 Best Small
Companies. Bob Koski
wanted to create a company without those “destructive eʃects,” a
company where employees would feel respected and free to act as they choose. Koski
recalled one of the ɹrst meetings with his colleagues at his new business: “I said very
coyly, ‘I don’t know what to do but I sure know what
not
to do.’”
7
He thought of his
former company’s workplace and labor conɻicts, largely caused by the big-ego
managers telling people how they have to do their jobs, constantly controlling them,
and not listening to them—even after people voted, as mentioned earlier, ten to one to
unionize their company. But to launch this project, Koski needed to craft the appropriate
plan, because for him, as for other liberating leaders, the freedom he aimed for did not
mean anarchy but “a highly orchestrated, disciplined environment that sought to tap
into the strengths and intelligence of people.”
8
During a year of planning and reading, one organization attracted his attention: the
DuPont labs of the 1920s and ‘30s. These labs had no formal organizational charts or
titles. They were run by small, self-managed teams of scientists who shared leadership
and had the freedom to make decisions, accompanied by the obligation to inform other
team members. There was ɻuid movement of scientists from one project to another.
Koski noted how this freedom had led DuPont to world-class performance: “The DuPont
Chemical Company prospered. DuPont’s talent pool was highly regarded. DuPont’s
position in the chemical world grew rapidly.”
9
Without realizing it, Bob Koski was
describing exactly the same features that led Bill Gore to wonder why a whole company
couldn’t be organized along the same lines.
Inspired by the environment of DuPont labs, Koski designed the environment for his
own company and described it, along with his ɹnancial and business arguments, in a
thirty-four-page handwritten business plan (see its “soft” part on the next page). Only
then did he pull the trigger, sending it out to local banks and other potential investors.
Surprisingly, the banks didn’t throw out the plan, convinced by its hard data and
projections and, perhaps, skipping over the soft subjects. Bob Koski didn’t take offense—
he took the money from one of them, which was the most important thing at that
moment—and with some family and friends as other investors, launched the business.
But since the company’s ɹrst days, Koski never stopped emphasizing the importance of
the soft over the hard, that is, of freedom as a condition and a guarantee of continuous
outstanding performance:

Sun Hydraulics’ philosophy in the company’s original business plan.
10
A most useful way for shareholders to evaluate the quality of longer-term investments in companies like Sun
Hydraulics is to gather clues about how a company tends to think and behave … Personally, I think manufacturers
that manage solely with hard asset numbers are making a big mistake. Companies that manage by nurturing soft assets,
like corporate knowledge and relationships, will do better in the long Term … We believe that our competitive edge is
based in the creativity, skill and commitment of our employees.
11
These are the opening lines of Sun Hydraulics’s 2003 annual report for investors,

though the company called the report by a diʃerent name:
Observations from Bob Koski
and Clyde Nixon
(the chairman of the board at the time). Knowing that words are not
enough to convince potential investors, Koski asked them to come and see for
themselves: “If you are, or, might wish to be, a serious ‘investor’ in Sun Hydraulics, come
to Sarasota, Florida, Coventry, England, or Erkelenz, Germany, and meet your
investment: the people that are the heart and soul of our company.”
12
Personal
observation is what Koski believes to be the best way—as opposed to the cold numbers
—to evaluate his company’s soft assets. Admittedly, though, it is not easy for
shareholders scattered around the continent or even the globe to visit personally, which
explains the lengths and eʃort that Sun Hydraulics takes to describe these soft assets in
the company’s annual report.
Bob Koski did not experience the beneɹts of the freedom-based environment in
DuPont himself. He’d merely read about it. Like him, many other liberating leaders
learned about this environment from other companies, admired it, and used the lessons
to trigger their own freedom-building action plans. Bob Davids, for example,
befriended
Robert Townsend—the former CEO of Avis—and carefully studied his experience, which
he then used in liberating his own companies. Jeʃ Westphal visited Gore and Harley-
Davidson and used his observations to plan his liberation campaign at Vertex.
Harley’s Rich Teerlink, though, had an even stronger connection to a freedom-based
company than simply visiting one: He worked at one. While an executive at Herman
Miller, the furniture maker, he observed its freedom-based environment every day and
could discuss liberating leadership with Max De Pree—the CEO and an eminent author
on the subject. After Teerlink became Harley’s CEO and successfully transformed it from
an almost bankrupt company assaulted by Japanese bikes to a Wall Street darling, he
analyzed the reasons for his success. Armed with his freedom values, he determined that
it was not simply Total Quality Management or the Kaizen tools that turned the
company around but the freedom that its frontline people had to take quality and
improvement actions. We will explore how Teerlink liberated Harley-Davidson in
chapter 6
, but his ɹrsthand admiration for Herman Miller’s culture was instrumental to
his decision to build a similar environment at Harley.
Bill Gore’s case is more puzzling at ɹrst. The company that inspired Bob Koski—
DuPont—was the origin of both Gore’s exasperation and admiration experiences.
Exasperation because—as we mentioned earlier—after working for DuPont for
seventeen years in the 1940s and ‘50s and experiencing its dysfunctional bureaucracy,
he decided to leave to build his own company. But also admiration, because when
DuPont needed to spur innovation, it would set up a temporary freedom-based
organization similar to the one that Bob Koski had read about. So both exasperation and
admiration—in his case for the same company’s practices—triggered Gore’s decision to
build his own company around freedom.
13
But he also went beyond business
organizations and groups and read up on animal behavior, primates, primitive groups,
and tribes.
14
From the readings of Robert Ardrey’s
The Social Contract
, Gore learned how

friendship-based emotional interactions led to the highly eɽcient early human groups
that eventually evolved into
Homo sapiens
. And from thinking about the key roles of
communication, trust, and understanding within these
groups, Bill Gore developed the
most important challenge for “The Lattice Organization,” his “philosophy of enterprise”:
Cooperation between two people is relatively excellent …. With increase in the number of cooperators,
communication becomes more complex, less eɽcient, and limitations arise in the kinds of possible communications.
A precipitous drop in cooperation appears as the group size becomes large enough so that everyone no longer
“knows” everyone else. At this point one hears the “we” decided, or did, or believed, etc., become “they” decided, etc.
This precipitous drop in cooperation is diɽcult to forestall in groups larger than about 150 persons. Beyond some
such level, it becomes necessary to impose rules, regulations, procedures, and the like that dictate how the
cooperation shall be done.
15
Other principles of the lattice organization that Gore deɹned were: “no ɹxed or
assigned authority; sponsors, no bosses; natural leadership deɹned by followership;
person-to-person communication; objectives set by those who must ‘make them happen’;
tasks and functions organized through commitments.”
16
At the very beginning his
company had supervisors, but as Les Lewis recounted, the development of the lattice
organization principles triggered Bill Gore’s decision to build a more radically freedom-
based environment there.
PILGRIMS AND DOUBTERS
The decision to liberate is neither simple nor obvious—even to those who are aware of
and admire the performance of liberated companies. Hundreds of executives have made
pilgrimages to Harley-Davidson and France’s FAVI, which hosted them in meeting rooms
that employees have now jokingly dubbed the “chapel,” the “cathedral,” and the like.
They realize that, from the outside, FAVI is seen as cultlike and Zobrist as a savior of
their “lost souls.” So many people
visited Harley that it started charging visitors for the
time. But whether they’ve paid for the privilege or not, the vast majority of these
excellence seekers come back from these visits and don’t change anything in their “how”
environments, because they are not armed with freedom values. The visits become
merely a “benchmarking” exercise—they admire Harley’s performance but don’t
understand its freedom.
Bob Koski, surprised at the widespread faulty reasoning among businessmen, once
remarked, “I have to wonder what they teach at business schools.” In fact, among many
other things, they teach about
his
company and its freedom environment. Sun Hydraulics
is Harvard Business School’s primary case study on the freedom-based environment.
Despite Sun’s story being taught at one of the preeminent business schools in the
country, Richard Arter, Sun’s head of investor relations, is not aware of any company
that has been modeled on Sun’s “organizational structure—or lack thereof” as a result.
In fact, Bob Koski and other executives occasionally appeared in person at Harvard,

taking the stage in class to prove to skeptical MBA students that Sun was a real
company and not just some hypothetical case.
17
The Harvard case study is all about Sun’s values. But making the leap that connects
these values with world-class vision is the real intellectual breakthrough that a liberator
needs. In fact, only leaders who deeply valued freedom themselves could see during
their visits—or through their readings and studies—that world-class performance is the
consequence
of the company’s freedom, and use this understanding and admiration to
trigger freedom building in their own companies.
When asked about Sea Smoke Cellars’ outstanding performance both as a wine and a
business, Bob Davids said, “If the environment is right, then we do the product right and
we make a ton of money and have a blast. You can’t force making money and having a
blast.” He added, “In this culture, there is zero tension. And there is absolute trust. Katie
trusts Kris to make the wine. I trust Don to handle the barrels. Kris trusts Katie to do all
the right selling and make all the right decisions. Everybody trusts everybody to do their
job.”
18
Remembering the episode with Katie and the used barrels, we noted with
satisfaction Bob’s trust of the new assistant winemaker—Don—to handle the barrels,
which is one and the same with trust in Don’s ownership of the company’s world-class-
wine vision. The winemaker, Kris Curran, also connected freedom to world-class
performance: “We could have the best fruit in the world. But if you’re working in
miserable conditions, you’re not going to make great wine. It’s culture, it’s conditions,
it’s being able to make certain decisions on your own and have that freedom in order to
express your art, your craft, and your passion.”
19
Perhaps it’s the ɹrst time in wine
history that freedom has been linked so directly to wine greatness. But then, it’s the ɹrst
time in history that a winery—which made the best new wine in the United States in
2006, according to
Food & Wine—
made
Wine Spectator’s
list of the hundred best wines in
the world in its ɹrst year of its existence and then for four years straight—including in
2003, when Victor decided to drop $1.8 million worth of grapes. That vintage, in fact,
came out particularly well—
Wine Spectator
ranked it number ɹfty in the world, Sea
Smoke’s best-rated vintage. So far.
Unlike many of their counterparts in traditional companies, the liberating leaders
don’t believe that world-class performance can be forced. It results from the right
environment—a free one. But the ɹrst years of building a free environment are not
easy. Not all leaders who launch a liberation campaign succeed. How the successful ones
accomplish it, and—because they can’t do it alone—how they convince others to join the
liberation campaign, is recounted in the next chapter.

T
6
WHAT’S YOUR (PEOPLE’S) PROBLEM?
Building an Environment That
Treats People As Equals
All human beings are born free and equal in dignity and rights. They are endowed with reason and conscience and should
act towards one another in a spirit of brotherhood
.
—A
RTICLE
1
OF THE
U
NIVERSAL
D
ECLARATION OF
H
UMAN
R
IGHTS
, U
NITED
N
ATIONS,
1948
ODAY
, T
ELLURIDE
, C
OLORADO,
is a picturesque mountain resort, but in the early 1900s it was a
gritty mining town, wracked by the labor strife that was all too common at the time.
A plaque on the main street attests to this violent past, describing a deadly clash
between striking miners and strikebreakers.
Such times are a distant memory in the modern Telluride in which Rich Teerlink, the
retired CEO of Harley-Davidson, makes his home several months a year. But the lesson,
for him, is fresh. “Look,” he said, as we drove through town, “when management treats
people like dirt, they sometimes go to extremes.”
1
Teerlink knows something about management-labor relations. When he joined Harley-
Davidson in 1981, it was ɻoundering, bleeding market share and on the verge of
bankruptcy. By the time he stepped aside in 1999, it was back on top, earning more in
proɹts than it had total revenue when he came on board. Its market capitalization
surpassed that of GM, even before the car maker’s twenty-ɹrst-century
woes. Like GM,
Harley’s workforce was organized. But unlike those mine owners and workers a century
ago, Teerlink and his workforce found a way to turn the motorcycle maker around
together. This fact goes a long way toward explaining Teerlink’s surprising sympathy
with the miners commemorated on that Telluride plaque. He knows from personal
experience that when labor-management relations go sour, management often deserves
at least a share of the blame. He also knows that treating people as equals is one of the
keys to setting a liberation campaign in motion.
What happened in Telluride in 1901 and the following years was extreme, even by the
standards of the day. Beyond the shootout between the strikers and the strikebreakers,
management and labor had become locked in a vicious, self-destructive conɻict. Two
months before the shooting broke out, the miners had gone on strike to demand three
dollars a day in pay and an eight-hour workday. But when the Smuggler-Union mine
decided to play hardball, it hired strikebreaking miners—for the same three-dollar,
eight-hour days that it refused to concede to the union. The result was not just the

deadly shooting on July 3, 1901, but years of labor strife in Telluride. And it began with
a pay concession that the mine granted its own strikebreakers right oʃ the bat. More
than three years after the first strike began, the mine owners finally broke the union.
2
But to no end. In those days, there was no shortage of militancy on both sides of the
labor-management divide, and no shortage of violence, either. A century later, the
violence is a thing of the past and the right to strike and to organize is more widely
recognized. But the legacy of that old-time antagonism still haunts the labor relations of
many ɹrms, with unions and management alike falling too easily into a lose-lose trap of
trying to squeeze as much as each side can out of the other.
This is not unique to unionized workplaces, either. It is, in fact, depressingly common.
A company tries to goose performance and cut a bit of fat by implementing a set of
controls and norms of how people should do their work and how much work they have
to do. Those controls might be designed to act as a ɻoor on performance, but in practice
they become the ceiling. Everyone starts to “work to
rule,” in the union phrase. That
phrase, by the way, is extremely revealing. Technically, unions negotiate all those work
rules in order to have clear deɹnitions of how to do their jobs. But unions and
management both understand that “working to rule” can bring a business to its knees.
Both sides are negotiating over rules that neither side plans to honor except in a larger
dispute—and then the rules become weapons wielded against one side or the other.
Management and labor both know that, whether vindictively enforced or quietly
ignored, those rules are no way to run a business.
Even in less severe cases, it is all too easy for these rules and performance standards
to become, or be mistaken for, the business goals themselves. As Jeʃ Westphal of Vertex
put it, you need to ɹll the gas tank to get to Big Sur, but you don’t drive to Big Sur just
to keep ɹlling the tank. Or, to borrow another phrase, because you get what you
measure, your measurement becomes the performance. And before long, rather than
boosting your ɹrm to ever-faster growth and ever-higher proɹtability, you have people
busy “making the numbers,” a creative game that they love to play because it’s a great
outlet for expressing hostility toward a “how” company, as well as to undermine its
performance more subtly than a strike would.
Teerlink, in a way, was fortunate. When he ɹrst came to Harley in 1981, the company
was in dire straits. As he recounts in
More Than a Motorcycle
, most people he knew
thought he was crazy to take a job at a company that seemed doomed. By the time he
stepped aside in 1999, he and his colleagues could claim credit for one of the most
dramatic turnarounds in American manufacturing, although Teer-link, a mild-mannered,
Chicago-born man, is too modest to do so. Still, the facts speak for themselves: Within a
few years, Harley had gone from the brink of bankruptcy to 30 percent-plus proɹt
margins—performance you’re more likely to see at the best software and technology
firms than in American manufacturing.
One of the keys to Harley’s reversal of fortune was a total rethinking of labor-
management relations, which then transformed workplace relations overall. And it

began with an idea as radical, in its way, as the notion of an eight-hour workday in
1901. “Life is nothing more than a series of relationships,” Teerlink said. “Why
shouldn’t
you have a relationship with the head of the union? Not just a meaningless relationship,
but a true, human relationship?”
Thanks to Harley’s near-collapse in the late 1970s and early 1980s, the unions and the
executives worked closely together for several years after Teerlink’s arrival because both
sides knew that the company’s very survival was on the line. But after the crisis had
receded and Harley, now proɹtable and growing again, had taken its shares public in
1986, Teerlink began to worry. If the company slipped back into its old ways and a not-
my-job mentality, another crisis would be inevitable. He wanted to use the moment he
had to drive a permanent transformation of the company, one that would survive the
now-subsiding sense of crisis that had driven the earlier collaboration.
His ɹrst idea was to develop a gain-sharing plan, which was promptly rejected by the
union. After consulting several professors and experts, it appeared that much deeper
corporate transformation was needed, and it had to be done together with the unions.
Lee Ozley, a management consultant, told Teerlink and his team early on that people
will resist having things imposed on them—even if they’d willingly do those same things
if they felt it was up to them to decide. Teerlink would later adopt the idea and often
repeat “people don’t resist change; they resist
being
changed,” but it’s a permanent
truth. Recall how the Smuggler-Union mine had no problem paying three dollars a day
for an eight-hour day—but the owners didn’t like having those conditions imposed on
them by the striking workers.
So, in the same spirit, Teerlink and Ozley and the executive team did two things. First,
they reached out to the unions to try to explain what their goals were. Some of the
unions weren’t interested—the union at the York, Pennsylvania, plant, in particular,
wanted no part of the transformation.
3
So, for the moment, Teerlink let that go and
focused on finding willing partners at the plants in Wisconsin.
Teerlink took an additional step in 1988. In a few months, Harley’s current three-year
contract with the unions would expire. Rather than present the union leaders with the
traditional list of demands about changing the work rules here and improving
productivity there, Teerlink came to the negotiations with just one
request: Work with us
for a year on developing a joint vision for Harley-Davidson. Sit down with us, and let’s
try to ɹgure out what we all want this company to be and to do. Instead of negotiating
another three-year deal, he wanted to renew the expiring agreement for one year,
focusing in the meantime on how to start transforming the company.
This proposal accomplished two things: It broke the cycle of trading goodies for
sensible improvements in work rules—and it signaled to the unions that management
really wanted to try something diʃerent by working with them. By giving up its own
traditional demands at the start of a labor-contract negotiation, management showed
that it was prepared to pay a price itself to get the process started. Harley’s leadership
tried to break the competition for material goodies by, ɹrst, giving up some of its

traditional prerogatives voluntarily.
Rich Teerlink’s focus on building a “true, human” partnership with his unions was not
born out of a United Nations-like idealistic belief in the brotherhood of all men. His
focus is not universal, even in the corporate world. It reɻects the realities of a large,
heavily unionized organization in which a liberating leader usually can’t overcome
people’s mistrust, and develop genuine relationships with them, until he has done the
same with their unions. Conversely, in nonunion incumbents, not to mention small
companies and startups, a liberating leader can start building genuine relationships with
people by treating them as equals “in dignity and rights” from the outset.
THE LEADER AS BLOCKING BACK
Don’t print and circulate organizational charts. They mislead you and everybody else into wasting time conning one
another…. The head of the mail room or the chief telephone operator may hold your destiny someday. Figure out who’s
important to your effectiveness and then treat him (or her) that way
.
It wouldn’t hurt to assume, in short, that every man-and woman-is a human being, not a rectangle
.
—R
OBERT
T
OWNSEND,
1970
4
To convince people that they will be treated as equals, a would-be liberator must break
down the barriers of distrust and status that exist in most companies. We have already
discussed how important it is for the liberating leader to stop telling and start listening,
but that’s only the initial step. Bob Davids has started or run seven companies in his life.
When asked what is required of a leader in order to begin a liberation campaign, he
replied, “To be able to subordinate himself to his employees.” By this he didn’t mean
only listening. He also meant cleaning the ɻoors of his latest start-up, Sea Smoke
Cellars, himself because it needed to be done and because his employees had more
important work to do. It also meant literally getting down in the dirt and digging a
ditch alongside his fellow employees at his former company, Radica Games. In both
cases, Davids was applying the advice of Robert Townsend, a friend, mentor, and
eventual board member at Radica. The former Avis CEO held that a leader is like “a
blocking back whenever and wherever needed—no job is too menial to him if it helps
one of his players advance toward his objective,”
5
and a water boy “who carries water
for his people so they can get on with the job.”
6
Because subordinating oneself to one’s
people is the opposite of using one’s power and authority, it’s a way to build a genuine
—“egalitarian,” as Davids and Townsend call it—relationship with them.
Seen in this way, it becomes only natural that liberating leaders, the “blocking backs,”
the servants of their people, do not display the material signs of privilege.
7
Mahogany
executive ɻoors and big corner oɽces with expensive furniture, company limousines
and personalized reserved parking spaces are some of the symbols of unequal status that
they avoid.
Even doors can be wielded as a sign of status in a company. At Harley, for this

reason, they decided that even “open doors” wouldn’t do the trick of facilitating genuine
relations. So if you walk into their
legendary redbrick headquarters in Milwaukee, you
will ɹnd no doors at all—they removed all of them, except where privacy is truly
necessary: in the HR director’s oɽce and—understandably—in the bathrooms. These
gestures might seem purely symbolic. And if they are not accompanied by genuine
changes in how a company operates, they would be, and employees would quickly see
through them. Thus, when a leader says he will listen to his employees but routes all
correspondence through a dedicated mailbox separate from his main, “work” email,
people understand the fakery quickly. Likewise, a CEO who has several layers of “open
door” guards will get little credit when her door, if you can reach it, is actually open. In
neither case is this interpreted as “I listen to your ideas.” Bob Davids, when he built
Radica Games’ Chinese facility, installed his desk—“the oldest, crappiest one at the
company,”
8
in his words—smack-dab in the center of the oɽce. “Once our employees
could see I was dedicated to fairness and supporting them,” he told us, “I had gained
their respect and allegiance.”
But even the most concrete proof of intrinsic equality may not convince some people.
And they shouldn’t be blamed. We’re willing to wager that you might have been
skeptical at ɹrst that a company could aʃord not to
control
its people, not to tell them
how to do their jobs, and that all these “dressed-down,” “egalitarian” CEOs were not
hiding something up their rolled-up sleeves. Naturally, many employees don’t believe it
either, at least at the beginning. We mentioned earlier that for a whole year after
Zobrist removed the time clock at FAVI, employees would look nostalgically at the place
on the wall where it used to be. No doubt some of them were suspicious that, without the
clock, they were being underpaid. And Ricardo Semler—who transformed Semco, a
small “how” company he inherited, into a world-famous freedom-based poster child of
Brazilian industry—recounted that, in the early liberation days, after he ordered security
to stop searching people on their way out of the plant to check if they’d stolen
something, people asked him to restore the searches.
9
They explained that they
wanted
to be searched because that way they had proof of their innocence if something did go
missing. Clearly, they suspected that somewhere, controls—and
punishments—were still
intact. Indeed, people don’t believe and interpret what leaders
say
but what they see
them
do
—day after day, month after month. If everything a leader does satisɹes
people’s
need to be treated as intrinsically equal
, the leader will earn their respect.
DON’T SHOOT THE MANAGERS!
At Harley, the process of building trust was sometimes halting and often fraught with
diɽculty. At the outset, its centerpiece was what Teerlink called “the Joint Vision
Process.” This was the process he exhorted the unions to join him in during the 1988
contract negotiations to deɹne a “vision of the ideal future” through input from all
levels. It was essential, because it would ensure that everyone would row toward the

same, jointly agreed upon destination—that people would use their freedom to
implement the
jointly
deɹned vision. It was a
process
because it was important not to
foreordain the answer. If taken seriously, the process uncovers valuable information
dispersed throughout the company about what it should be doing. A so-called vision that
is simply imposed from on high—sometimes accompanied by a “buy-in” plan—won’t
become “theirs” without “their” input. In that case, the vision won’t be emotionally
embraced and owned by the people, who won’t, in turn, be committed to implementing
it.
But even if the liberating leader succeeds in involving frontline people, the task of
enlisting everyone is not yet accomplished. Indeed, companies are composed of more
than just top management and frontline people. Managers and executives—with whom
people interact much more often than with their CEOs—have to join the eʃort of
building genuine relationships for the company to succeed. Whether they will depends
largely on the relationship the liberating CEO succeeds in building with
them
.
For Rich Teerlink, developing genuine relationships with managers didn’t come
naturally. In fact, deeply involved in building relationships with the unions, he simply
forgot about them. The ɹrst warning sign that some managers were feeling neglected
came from
the unions themselves. On May 20, 1988, unions and top management met
for the culmination of the year-long process of hammering out Harley’s twelve-page
“Joint Vision” document. All went well until one union oɽcial said he had a question
for Tom Gelb, the vice president for manufacturing.
“What would happen if managers under your supervision failed to behave according
to the terms of the agreement?” he asked.
“Easy,” Gelb deadpanned. “We’ll just shoot them!”
10
But before any ɹring squads could be organized, the next step in the Joint Vision
Process demanded sharing the vision with employees, including frontline managers. A
top executive and a union representative were to make the presentations as a pair.
The ɹrst session, to a couple hundred workers at a town hall-type event, went
“magniɹcently”—Teerlink thought. One could barely distinguish between an executive
and a union representative—until he opened the ɻoor to questions. The ɹrst hand to go
up belonged to Tom, the head of accounts payable.
“Rich, that is really great,” Tom began. Teerlink braced himself—every time Tom said
that something was “great,” trouble came next. And it did: “But who represented people
like
me
in this process?”
Teerlink was stunned. They had been so focused on the relationship with the unions
that it hadn’t occurred to the executives that middle management needed representation
to provide its input. In fact, Teerlink had assumed that the interests of the top
management team and middle management were the same: “We didn’t include the
salaried [managers and the administrative personnel]; we had the answer for them.”
And in normal circumstances, the middle managers know this, limiting their need for

consideration to being elevated, as one large corporation middle manager expressed it,
from “cc: status” to “to: status,” in the emails sent by executives. Leaving middle
management out of the equation—that is, in cc: status—is a common mistake among
would-be liberating leaders. But without their cooperation, changing a company’s
culture is next to impossible.
Thanks to Tom’s question, the natural disregard of managers by top executives turned
into consideration, opening the way for the
former to join the campaign. More actions
toward them would be taken in the following decade, but the basis for their involvement
had been laid down.
Another group of key actors without whom no transformation would be possible were
executives. So Teerlink began to involve them early on.
From the moment Teerlink was appointed president and CEO of Harley’s Motorcycle
Division in 1986, he began sharing with two other executives—Tom “Shoot the
Managers” Gelb, and John Campbell, vice president of human resources—his vision that
Harley could “survive and prosper only if every employee took responsibility for leading
the company.”
11
After abandoning a gain-sharing plan for a full-blown transformation
of Harley, they all agreed that the traditional “how” structures in Harley led people to
avoid personal responsibility. The “not-my-job” syndrome caused employees to limit
their ideas and initiatives, and to comply—even with nonsensical rules about “how” to
do their jobs—instead of committing to act in the best interests of the company. As Jim
Paterson—the fourth executive to join the group—summarized it, in a “how” company
you “would end up with a lot of Indians who don’t know what to do without the
chief.”
12
Paterson himself oʃered one example of how Teerlink gradually pulled top executives
into the transformation process. “In March of ‘88, Rich took me aside and said, ‘I want
to name you president of the company,’” he recalled. “And a couple of weeks after that,
he said, ‘Oh, by the way—we’re starting this Joint Vision Process, and you’ve gotta help
make it work.’”
13
Together, they revived Harley’s former practice of town hall-style
meetings for all employees and conducted many of them, discussing and providing
everyone with the information on operational and strategic issues. Then, after Paterson
realized that a group of executives of the newly formed Operations Committee he
presided over did not behave as role models for the unfolding transformation, he
decided to involve them in the Joint Vision Process as well. Teerlink didn’t have to do it
alone—he had executives who started to share the transformation leadership with him.
With the help of consultants, the executives were trained to change their bad habits,
such as attributing intentions to people who aren’t present without ɹrst talking to them:
“I believe Jane is against this proposal,” someone might say, having never spoken to
Jane about it. In this way, an executive could use one absent manager’s imaginary
objection to kill a proposal
he
didn’t like. They were also taught to avoid the common
tactic of keeping silent about something during a meeting, only to raise objections later:
“Hey, I said nothing in the meeting, but this whole thing won’t work in my place.” This

is frequently used to avoid conɻict, but in eʃect it sweeps real disagreements under the
proverbial rug.
As executives and managers worked to change their own habits and lead the
transformation, more and more people noticed that Harley’s existing “how”
organizational structure got in its way by inhibiting people from having open relations
and working well with one another. In 1991 things came to a head with a two-week
strike at Harley’s plant in York, Pennsylvania—the same plant that, three years earlier,
had refused to engage in the Joint Vision Process.
Managers at the York plant had planned to impose a team-based work system along
the lines of those used at Toyota and some other top manufacturers. But as the unions at
the York plant were aware, there is a long list of companies at which this approach has
been poorly implemented. Self-managed teams can succeed only if employees—along
with their unions where they exist—and frontline managers have been involved from
day one in implementing the work system instead of just being told to use it, as often
happens in “how” companies.
Unsurprisingly, the union leaders weren’t happy.
Teerlink and his team listened. What’s more, they did their own review of the history
of the practice, which revealed a paradox that other leadership teams might have
overlooked: Executives in team-based companies almost never applied the approach to
themselves, despite its supposed advantages. If “leaders by their actions are known,”
14
as Teerlink likes to say, they weren’t exactly leading by example on the team-based
approach.
WORKING IN CIRCLES
After their investigation, Teerlink and his team agreed with the union and sought to
involve it and employees in building a team-based system. The group decided that ɹxed
teams could become a handicap, with each team pursuing its own interests instead of
the company’s. What Teerlink and his colleagues arrived at instead was what they called
a “natural work group”: “Getting the right people to come together, to do the right
work, and do it right.”
15
Every word of that description was important. A natural work
group would not be bound by lines of authority on an org chart or by divisional ɹefs
within the company. The right people were the people needed to get something done
that needed doing, regardless of their place in the former hierarchy. And groups were
not to be formed for their own sake, but because they were the natural way to do “the
right work,” which was whatever needed to be done.
Logically, they decided to use this structure throughout the company, from the shop
ɻoor to the executive room. This concept of
natural
, or self-organizing, work groups is
similar to one used at Gore, where two varieties of natural groups and their leaders
exist: business—operating the business processes, such as manufacturing, sales, and so

on; and functional—operating the support processes, such as training, development, and
so on. Without knowing this, Teerlink and his group came to a similar composition of
what they called a “circle structure” consisting of “create demand,” “produce product,”
and “provide support” circles.
Each circle was a cross-functional, large, natural work group with a common purpose,
all intersecting in a venn diagram. It was not clear how the circles would be organized,
and the group decided that it would need wise and competent counsel. From this, the
most dramatic and symbolically signiɹcant executives’ decision emerged: Totally
voluntarily, Tom Gelb, the executive vice president of manufacturing, and Jim Paterson,
who had earlier asked, for personal reasons, to move from the motorcycle division
presidency to be executive vice president of marketing, agreed to resign and become
coaches of their respective circles with no hierarchical “Indian chief” power whatsoever.
Teerlink, the acting president of the division, became the coach of the “provide support”
circle. To demonstrate that this reorganization wasn’t just another management fad that
the people could wait out, two of Harley’s top three executives eʃectively gave up their
jobs and the power that came with them to put the structure into practice. And within a
few months, Teerlink would follow them.
Between mid-1991 and the end of 1992, Teerlink and his group started to discuss the
new structure with others in the company. After the presentations, he’d ask, “What are
the questions?”
“Who’s in charge of the circles?” was often the first.
The ambiguity, he explained, was deliberate. Teerlink wanted a structure that was a
little nebulous, so it would evolve organically to meet the company’s real needs as they
developed, rather than force the company to work around a structure arbitrarily
imposed from on high. Teerlink would later describe the evolving, exploratory character
of the concept: “Here’s a way of organizing. Let’s try and see what happens. No, we
wouldn’t have a full-blown natural work group concept within weeks or months, or
maybe even years. But we’d be aiming toward that.”
16
Leadership would be shared, both
within the circles and among them, and would, hopefully, emerge where it was needed
rather than ɻow from the center. This experimental, provisional way of proceeding—
sometimes called “prototyping”—is typical of the liberating leaders we met. They decide
to act not because they think they have all the answers, but because they know they
don’t. Only by putting out diʃerent ideas and by soliciting help and feedback from
others will they discover what’s working and what isn’t.
When we asked Teerlink about the dramatic transition of the top executives to the
coaches’ roles, he got up and pointed at a statuette of three interconnected circles on the
shelf of his home office.
“See that up there? Released in February 1999 by the Functional Leadership Group at
Harley-Davidson? It simply says: ‘Rich Teerlink, Leadership is your legacy.’ I retired in
February 1999,” he said. Tears clouded his eyes.
We tried to continue but Teerlink couldn’t; he was so touched by these memories that

he had to take a little break. Once back, we asked why this was so emotional for him.
“Because here was the group that was living with this process that we had all
constructed together … [One day] Lee Ozley and I were sitting in the room saying
basically that operating all this boxes and lines stuʃ [on organizational charts] is really
inhibiting any kind of progress. And then, Lee says, ‘What should a business do? Well, it
should create some services and it should help.’ And we put these three circles there. And
looking at it we thought, ‘We have to get people working more in concert with one
another.’ And damn! Making a Venn diagram and when you look at that, automatically,
it says interdependence … it says we as a group are responsible. And let’s get rid of the
senior vice presidents.”
Harley-Davidson was a large, heavily unionized industrial company. Launching
liberation there, building an environment that treats people as intrinsically equal,
required, ɹrst of all, treating the
unions
as equal partners. But not all incumbent
companies are heavily unionized. FAVI, for one, wasn’t. This allowed Jean-François
Zobrist to build genuine relations directly with frontline people. The next chapter
describes how he did it.

L
7
LIBERATING AN
ESTABLISHED COMPANY
How to Reach Out Directly to Your People
ISTENING TO
J
EAN
-F
RANÇOIS
Zobrist’s fervor and irreverence puts one in mind of French
revolutionaries, perhaps even
hussards de la mort
. The
hussards
were a couple of
hundred of voluntary cavalrymen who, in the early 1790s, sported the impetuous
motto
“Vivre libre ou
mourir”—“Live free or die.”
Zobrist, as it happens, did have a military—and rebellious—past.
1
At seventeen, after
reading an article on paratroopers, he decided to enroll for training with a paratrooper
unit. The army’s age limit was eighteen, but Zobrist thought he’d be a good jumper and
could contribute, so he modiɹed his date of birth by one year on his identity card and
got accepted. Later, after having been admitted to the artillery oɽcer candidate school,
Zobrist came to know the power of the hierarchy above him when he learned that his
transfer was being blocked. “Your rank is a simple paratrooper, you aren’t an oɽcer
candidate,” his superior informed him.
So Zobrist did his
hussard
“ready, ɹre, aim” thing again. In the village in which he was
stationed, during the night, he broke into the town hall to get the
Journal Oɽciel—
the
French government’s periodic publication of all new laws and decrees, which included
the lists of all those admitted to governmental institutions of higher education, including
oɽcer candidate school. He tore out the page with his name and brought it to the
colonel the next day to show the colonel that he’d be breaking the law by refusing
Zobrist’s reassignment—fustice
achieved. Of course, when the colonel learned that
someone broke into the town hall, he understood who the
hussard
was.
“Was it you?” he asked Zobrist.
“Yes, it was. For ɹfteen days you took me for a fool. So I wanted to prove to you that
I’m not,” replied Zobrist.
We don’t know whether the colonel thought Zobrist was wise. But Zobrist did get his
transfer (he would eventually achieve the rank of second lieutenant in the ballistic
missiles unit). Zobrist told us this story to try to explain what he called his ɻaw of acting
ɹrst and thinking later. The subject came up after he told us how, at the age of twenty-
two, he met the owner of the company he had gone to work for after leaving the army.
The proprietor was a forceful but open-minded personality, and from time to time he
would tour his property, asking, “How’s everything, ɹne?” Most of the time, he received
—and in truth expected—only formulaic replies. When it was Zobrist’s turn, he replied

frankly, “Not at all, sir!” And then he explained all the ridiculous and badly functioning
things that he saw happening in the company. The owner listened to the maverick and
took steps to address the issues Zobrist identiɹed. Sixteen years later, on April 15, 1983,
this owner—as we described in
chapter 1
—ɻew him by helicopter over the FAVI plant
and announced, to everyone’s surprise, that Zobrist would be the new CEO. Zobrist
accepted the oʃer, although what he saw at FAVI was not to his liking. But this time, he
decided not to act first and think later.
Instead, for the ɹrst four months he was at the plant, Zobrist behaved, as he put it, as
a kind of “tourist.” He used this interim period to observe and listen to what was going
on in the company. Zobrist asked the incumbent CEO, who had to leave in July, not to
change anything during this transition. As a tourist he spent a lot of time on the shop
ɻoor talking with and listening to people about their families, where they lived, their
hobbies—actions he assumed would not threaten local “how” managers. That
assumption was only partly correct. Each time he walked into a manager’s area,
Zobrist’s every step was shadowed until he reached the “frontier,” where another
manager was already waiting to receive the “baton.”
This provoked Zobrist to action; he
saw in the surveillance a kind of primordial instinct to guard one’s turf. And this, he felt,
was incompatible not only with his own freedom, but that of everyone else at the
company. Those managers viewed Zobrist as a visitor, and moreover as one whose
intentions they did not trust. He called a meeting of the managers and said, “I
understood well that every one of you made a pee-pee around his station. But what you
haven’t seen is that, from the first day, when I stepped down from the helicopter, I made
a pee-pee around the whole plant. So, I’m at home all over this place.”
2
It was Zobrist’s
first warning to the managers that their turf was no longer secure.
The incumbent CEO made him meet all the company’s external stakeholders—from
the mayor to the local heads of social security and administration—and Zobrist saw that
everyone held his predecessor in high esteem. Zobrist also respected him highly. As a
man of strong ethical principles, he never allowed himself to inɻuence Zobrist’s opinion
of FAVI’s people or practices in any way. At ɹrst glance, FAVI looked to Zobrist like a
well-managed company according to the norms dominant in the 1970s. The CEO’s oɽce
had a window overlooking the whole shop ɻoor from above, and there were time clocks
and penalties that would dock people’s pay when they were more than ɹve minutes
late, which escalated for repeat oʃenders. There were two locked supply closets, a drink
dispenser—free only in the summer—and adjustable wrenches to save money on
maintenance tools. Then there was the bureaucracy. Every morning the CEO, in the
presence of some key managers, would preside over the opening—and browsing—of all
the mail that arrived at the company, no matter to whom it was addressed. There were
departments of purchasing, of personnel, of planning; there were machine setters,
foremen, workshop heads, team heads, and department heads.
And there were the meetings: of the executive committee, of managers, for planning,
for reviewing the past month’s quality problems. There was an annual lunch with
managers, monthly bonuses to everyone—for quality, for tons produced, for perfect

attendance, for when the temperature in the foundry got too high. And lastly, there
were routine end-of-the-month furloughs—workshop by
workshop—to keep pressure on
the workers. Zobrist commented that if he hadn’t started with this four-month
observation period, he’d simply have continued to manage the company in the same old
way, as it followed common practices used by industrial companies at the time. But he
had observed and listened to people. And during these four months a diʃerent reality
revealed itself to him.
One of his ɹrst epiphanies came with his encounter with Alfred and his gloves outside
FAVI’s storeroom, as we described in
chapter 1
. Armed with the accounting discovery he
made as a result, Zobrist applied it next to the coffee machine. He calculated that having
only one machine for the whole plant made an average refueling trip last three to ɹve
minutes. This made the
real
cost to the company of a cup of coʃee
one hundred times
more
than FAVI’s cost of supplying the coʃee itself. What’s more, the “free” coʃee
oʃered in the summer was even more expensive. Even when free, the machine required
special tokens, which had to be procured from the receptionist for each cup, making the
journey even longer.
Zobrist found similar false economies throughout the plant. The adjustable wrenches,
for example, which were used to save money on tools, rounded oʃ the corners of the
nuts and bolts on the machinery over time. This, in turn, required the use of pliers on
the damaged equipment, wasting still more time, worsening the condition of the nuts
and bolts, and accelerating wear and tear on all the equipment.
Most of the weekly “planning” meetings were spent making excuses about not
following last week’s plan and assigning blame elsewhere for these failures, leaving
little time for the ostensible purpose of the meetings, which was to plan for the
coming
week’s production.
The CEO devoted one full day a month to calculating monthly performance bonuses
with managers. These bonuses, moreover, were arbitrary. The bonus for tons produced
was unfair because a machine operator had no control over the size of a client’s orders
in any given month. As for the bonus given when temperatures in the foundry were too
high, he noticed that some workers responded to this incentive by closing the windows
in the summer to overheat the plant. Talk about unintended consequences.
Then there were the monthly furloughs when business was slow. In the ɹrst place, this
punished the workers on the foundry ɻoor for the performance of the salesman, which
seemed wrong. It also created a disincentive to work faster and more productively—
work expands to ɹll the time allotted to it, a law unknown to Newton and Boyle but
familiar to any office worker.
Zobrist then reflected that, though the salesman did a good job, having a single person
for that role for the entire plant was not suɽcient—saving money on sales staʃ was
another false economy. So Zobrist employed one of his bawdy metaphors: “I recalled in
my youth while dating that the most diɽcult thing was not making love to the girls, but
bringing them to bed. So I told myself that we’ll need more people to bring clients to our

company’s bed.”
3
Finally, he noticed that, at the end of the day, many of the employees raced for the
time clock. Some even gathered around it before the whistle blew to be the ɹrst out the
door when their shift was over.
At ɹrst, all these observations were just that—observations. He knew that they
pointed to something wrong, but like a lot of new executives facing a dysfunctional
culture, he was at a loss as to how to deal with it. His ɹrst reaction was typical—he
sought expert advice, traveling two hours to Paris to attend seminars on all the
management tools that promised to help. He learned about statistical process control,
Kanban, Toyota’s “total productive maintenance,” and even an esoteric theory of self-
organization taught by the consultant and business philosopher Jean-Christian Fauvet.
None of them seemed to be the answer. At the end of July, FAVI’s owner ɻew into town
to see oʃ the outgoing CEO, and after the obligatory speeches and toasts, everyone
went off for the requisite month-long French vacation in August.
By the last week of August 1983, Zobrist’s stomach was in knots—he still did not know
how he was going to confront the challenges facing FAVI, which by now had totally
exasperated him. Then, while mowing his lawn one day near the end of the month, he
had an epiphany.
OF LAWN MOWERS AND PROSTITUTES
The mower was misɹring. Zobrist, a tinkerer who does his own mechanical work on the
ultralight airplanes he likes to ɻy, took apart the mower, cleaned the spark plug, and
got it running again. As he returned to mowing the lawn, he mused over what he would
have needed to do to make a similar repair at FAVI, taking into account the rules,
procedures, and regulations the company imposed. The imaginary operation looked like
this in his mind:
The worker, having no right to touch the broken equipment, calls the machine setter, who, after tinkering a bit, says that
it’s not a setting issue but a maintenance problem. He then goes to see the workshop head, who in turn calls the
department head, who in turn calls the maintenance service. The maintenance head sends in the mechanic, who starts by
cleaning up the carburetor. Finding no improvement, he calls in the electrician, who ɹnally ɹnds the bad spark plug. The
electrician, like Alfred with his gloves, goes oʃ to the supply closet to exchange the old plug for a new one. He comes
back, puts in the new plug, and calls the setter. The setter starts the machine and calls in the controller, who veriɹes that
the mower does in fact now work. He then informs the workshop head that the mower has been repaired. Finally, the
shop head goes to ɹnd the worker—who has been assigned to another mower in the meantime—to instruct him to return
to work on his original mower
.
“Once I comprehended this sequence of events,” recounted Zobrist, “anxiety, and then
panic, overwhelmed me. My heart was racing. I stopped mowing, sat on the lawn, and
lit a cigarette, saying to myself that I will never succeed. I will never ɹnd a way to give
the worker the freedom to ɹx his equipment by himself, to have
his own
tools, and have

a spare spark plug handy in advance. And if I even was to succeed, what would I do
with all the setters, controllers, workshop heads, and department heads?!”
But his common sense forbade Zobrist from giving up: “What is right in the garden
should also be right in the plant.”
This common sense suddenly led him to his breakthrough conclusions of what to do in
FAVI:
For the company to be nimble, the decisions have to be made by the
workers, in real time, on the ground.
A good worker is one who takes initiatives.
At home, all workers take initiatives.
The current production structure had no justiɹcation other than blocking
initiative.
It is necessary, therefore, to dismantle this structure—or at least to orient it
to other missions.
This exasperation with the “how” structure triggered his liberation campaign. So the
morning of the ɹrst day back to work in September, Zobrist gathered his managers and
said:
First, I’ll never leave! We’ll either hit the wall together or we’ll evolve together … Second, I’ll oʃer you my resignation
every ɹve years, because I know that power makes one crazy—especially given the latitude our owner gives his CEOs
—and I want to give you an opportunity to save the company if this happens to me. In addition, my strengths and
weaknesses, which may be needed at one point of the company’s life, may become incompatible with its interests at
another moment. Third, I want to have nothing to do three years from now. Meanwhile, the plant works ɹne and I
don’t see any need to change anything right now.
This last remark was deliberately disarming. Although his training in Paris and
readings had not provided him with a road map for dismantling the existing managerial
structure, he became aware of the threat such a process would pose to many managers.
Familiar with the work of management theorist Douglas McGregor, Zobrist adopted his
advice on how to transform managerial structures: “It is
necessary, of course, to build as
many safeguards into the process as possible so that individuals can reject ideas and
implications that are threatening (i.e., to keep the freedom of genuine choice in the
open).”
4
Zobrist’s safeguards indeed reassured a quarter of the managers, mostly from
production, though they disappointed another group that
wanted
changes. The rest of
the managers seemed to remain neutral. At the same time, Zobrist proceeded with some
changes calculated to be unthreatening to “how” managers—but meaningful for the rest
of the people.
This time, he was inspired by Jean-Christian Fauvet and, through him, by the Chinese
Taoist military strategist Sun Tzu. Sun Tzu advised military leaders, over two thousand
years ago, to avoid confronting the enemy and instead go around it or under it, as a

stream would do with a rock, with the goal of occupying more and more of the terrain.
He gave the former CEO’s big oɽce to the accounting department and had its big
window overlooking—that is, constantly monitoring—the shop ɻoor walled up. He then
made the temporary oɽce he had been using during the transition into his permanent
one. The door to his new oɽce, which was opposite the men’s bathroom, was always
open, which gave him the opportunity to have a quick exchange with almost any male
employee at some point during the day. He also eliminated the daily ritual of opening
all the company’s mail—an intrusion into everyone’s privacy under the pretext that the
mail is professional—and the weekly “planning”—that is, score-settling and ɹnger-
pointing—meetings.
In addition to these little “nothings,” there were some “little things” that he did
change, being careful to leave the managers’ prerogatives in place. He noticed that an
order that would take one day to ɹll spent several weeks languishing in the oɽce of the
sales assistant, so Zobrist had orders routed to the production department ɹrst, and only
then sent to sales to be recorded. At that time, pricing decisions were in the hands of an
accountant, who could take two weeks to get a price to the salesman, so he gave the
salesman authority to set prices himself.
One other little thing he did concerned a manager who stomped around the shop ɻoor
with a sour look on his face, terrorizing his
subordinates and blowing up at least once
every day. So one day in front of a crowd, Zobrist gave the sourpuss a dressing down of
his own. “Are you cuckolded?” Zobrist asked. “Or ill? Is your child ill? No? So, what is
wrong? Nothing? Then stop being huʃy. It’s cowardice.” Zobrist knew even then what
the studies cited in
chapter 2
have shown: that being badly treated by one’s superiors is
a key cause of stress—and hence, underperformance—for subordinates. He also knew
that the opposite—treating people as intrinsically equal—was needed in the company.
In recalling this story, Zobrist simply remarked that no employee can do a good job if
his manager is always glowering. “Being in a good mood” would later become one of
the company’s four values.
After this confrontation, Zobrist went back to Sun Tzu’s strategy of occupying the
terrain by small, unthreatening steps. Now on his list was trying to get people to do
what they wanted to do, instead of simply what they were assigned to do. So he’d move
around the company of several hundred people asking them questions such as, “How
long have you worked at this job? Aren’t you tired of doing it for so long?” And a couple
of weeks later: “If you had to start over, what kind of job would you like to do?” He’d
then move people around according to their inclinations.
“Otherwise, I changed nothing,” Zobrist recounted.
Faithful to his approach of not confronting the “how” managers, the “rocks” in the
stream, he left in place many of the managerial practices and decisions he had found
there—the monthly bonuses, the quality meetings, the locked supply closets, the coʃee
machine, the time clocks, even the adjustable wrenches. But he knew that these things
were bad for the company.

FAVI’s organizational chart looked liked any other company’s—it showed you who
tells whom how to do their job, which way the lines of authority ran, and so on. While
looking at it one day, Zobrist realized that it contained a second, very diʃerent kind of
information. Written into the very structure of the company was the message
Man is not
intelligent
. Otherwise, why employ supervisors and industrial engineers to tell others
how best to do a job that they perform hundreds of times a day?
The chart also said
Man is irresponsible
. Otherwise, he would not need controllers, who
were, in turn, controlled by others, and so on.
Man is lazy
, the chart said. That’s why he needs someone above him to dictate the pace
at which he works.
It even suggested that
men are thieves
, and so everything needs to be kept under lock
and key, with guardians employed to protect company equipment and supervisors to
review requests for new items.
In short, Zobrist concluded, “the organizational chart was built on the assumption that
man is bad.”
He decided the time had come for the stream to ɻow under the “how”
managers’ practices, and he called a meeting. The force of the stream, Zobrist explained,
was the force of his convictions, which he hoped would erode the managers’.
“And what if we consider that man is good?” he asked the group.
An uproar ensued. One manager summed up the group reaction: “A good foundry
worker is an idiot with muscles!” Perhaps he was inspired by Frederick W. Taylor, one
of the world’s ɹrst management theorists and consultants, who once qualiɹed a steel-
mill worker as “sufficiently phlegmatic and stupid to choose this for his occupation.”
5
Zobrist concluded then that the rocks would not easily be washed away. He would,
instead, go around them and appeal directly to the frontline people. At 11 a.m. on
December 24, 1983, Zobrist convened a company-wide meeting to present his Christmas
wishes. Standing on the shop ɻoor on a little podium made of a couple of palettes, he
addressed his employees. His Christmas speech is worth quoting at length.
“It has been nine months that I have been among you … During these nine months, I
have observed you and seen people of courage, great professionals who love their job
but who are prevented from working eɽciently. I have arrived at the conclusion that
people of your qualities need neither carrots, nor sticks,” Zobrist began. He noticed a
couple of production managers immediately turning pale. “Carrots and sticks are
unworthy of professionals, which you are. That’s why, once you come back from
Christmas, the time clocks will be dismantled …. There will be no time clocks
because
you’re not paid to make hours but products, and good products. That’s why the bell will
also be gone. There won’t be bonuses anymore either…. [Instead,] we’ll take the
average bonus everyone received over the past two years and will add it to your
salaries. There are no thieves among you, so the doors of the supply closets will be
removed … We’ll put up a board and a pen, and everyone will mark what he took—no
names—so we can reorder supplies at the appropriate time …. There won’t be any paid

drink dispensers, but for each workshop we’ll provide two free cold water dispensers
with syrups and two coʃee dispensers. The adjustable wrenches are out. Each machine
will have its own complete set of maintenance tools. And to allow everyone to equip
himself as he desires, every employee will have a budget of up to [$100] to buy
whatever he wants—on the condition that it is related to his work.”
Zobrist paused to observe the stupefaction. The room was silent. “There will be no
more furloughs. If we are pushed to such measures, I’ll apply them ɹrst to managers,
myself included. There won’t be any managers’ lunches. We’ll either eat all together or
we won’t eat!” Then Zobrist turned to the managers, who had huddled together, as if to
protect one another against the clear threat to their professional ways, and continued.
“How will we function in the future? I do not know. I’m sure that we will function
diʃerently but I don’t have a replacement model. We’ll learn by doing,
6
being people of
good faith, of common sense, and of good will.” With this last nonthreatening gesture
toward the managerial rocks, Zobrist pushed ahead.
“If there is something we could inspire ourselves by it’s the functioning principles of
the world’s oldest profession: prostitution! If this profession has survived thousands of
years, its principles can inspire us too.”
Here Zobrist was being deliberately provocative, even by French standards. Many of
the liberating leaders we met were fond of precisely this tactic—putting their listeners
oʃ guard in order to convey to them something that they otherwise would not be willing
to learn. That said, his chosen provocation in this case had a very French ɻair. In 1983,
the erotic ɹlm
Emmanuelle
had been showing
in France continuously for a decade and
had been seen by millions. Having delivered the desired shock to his audience, Zobrist
continued.
“The prostitute’s ɹrst operating principle is to display herself. If she stays in her room,
she won’t get new clients. So, we will display ourselves too: to our clients of course, [but
also] to our prospective customers, to our families, our friends, to the mayor, to the
governor, to everyone who may be useful to us.” Later, this principle would lead not
only to having a sales leader for every twenty-something-member production team but
to encouraging everyone to be in touch with clients and other stakeholders, including
going to see them without anybody’s permission—even abroad—if an operator deemed
this necessary.
“The prostitute’s second functioning principle,” Zobrist continued, “is to use makeup
excessively to draw the eye to her. We’ll do the same. We’ll clean up our equipment and
paint it in red, green, yellow …” This principle led FAVI to wash and paint its
equipment—something not done in the early 1980s—as well as to become the ɹrst in
France to introduce the Japanese “5S” method, which creates a self-sustaining culture of
a neat, clean, safe, and efficient workplace.
“Her third functioning principle,” continued Zobrist, beginning to sound like
The
Office’s
Michael Scott, “is that she specializes. If she doesn’t oʃer anything better than
what one gets at home, nobody will visit her. We’ll do the same. We’re currently only

casting brass. We’ll also machine it, assemble it, and deliver it as well as design,
optimize, and test it. In sum, we’ll make more and better [products] for our clients.”
According to Zobrist, this third principle served as FAVI’s corporate strategy for years.
As a result, specialized products rose to 97 percent of sales, from 4 percent when he took
over.
“Finally, her fourth principle is not to transmit diseases to her clients … We have
three illnesses we must heal. One is being late on delivery. If we promise delivery
Monday, we have to honor it. Otherwise, customers won’t believe that other, less visible
things we have promised, like quality or price, will be also honored.” FAVI would go on
to sport a
perfect on-time delivery record for the next twenty-ɹve years—and counting,
as of this writing.
“The second illness is our pricing. How can we prove to our clients that our price is
right? There is only one solution: never raise it again.” FAVI and Zobrist would keep this
commitment, too, even refusing to raise prices to account for inɻation. As a result,
FAVI’s prices actually fell in real terms every year, year after year, for nearly three
decades, right up to the present. Its prices are consistently the lowest in Europe, which
has allowed the company to weather challenges—whether from the rise of China or
global recession—that have devastated its Continental competition. In fact, today FAVI
is so eɽcient that it actually exports some of its products
to
China. And as the global
downturn rocked the auto industry and its free cash-ɻow suppliers in 2008–09, Zobrist
was looking forward to seizing market share during the turmoil. What’s more, FAVI has
consistently kept its cash-ɻow margins comfortably in the double digits in a business—
automotive parts supply—that is notorious for being squeezed by its customers, big car
manufacturers.
“The third and last illness is poor product quality. And I have no cure for it. But it’s
you workers who can do everything. We in the offices, what we can do is to listen to you
and try to help you. But note: It’s you and only you with your equipment who can do
everything.” Zobrist concluded, “I’ve been watching you working for almost one year.
Your mastery has convinced me that you hold in your hands the solutions to our
problems.” Zobrist then left as abruptly as he had arrived.
He was addressing FAVI’s frontline people and using a powerful metaphor to convey
a vision of the company he wanted to build, but he knew that much of what he said was
a direct threat to his “how” managers. Although his ideas would likely occupy the minds
of frontline people, the time had come to deal with the managerial rocks. Later he
recounted that he felt as if he had just jumped with a parachute—a sensation he knew
well—because of the irreversibility of the measures he took and the tension of nine
months of “flowing around and under” the company’s managerial practices.
NOT DELEGATION, BUT
BACKWARD
DELEGATION
Zobrist called his ɹrst-ever oɽcial managers’ meeting and used it to announce that the

traditional managerial role of telling people how to work, controlling, rewarding, and
sanctioning was over. From now on, managers would facilitate, guide, and help others
to measure their own results. He also announced that his ɹrst managers’ meeting would
be his last.
In place of the middle-management layer, he broke up the plant into some twenty
self-directed, single-product, client-focused “miniplants,” each of which was responsible
for every aspect of its own business, from hiring and training to purchasing, budgeting,
and, of course, production. Having done that, he abolished the human resources and
legal departments, too. He left one person in place in IT. That done, he ditched FAVI’s
traditional budget process and controls. In their place, he instituted a single annual
meeting between the leaders of all the mini-plants. There, they would agree to a
business plan for the coming year. As in Gore’s 150-person plants, the duplication of
support activities—since each unit had its own—was wasteful only on the surface. In
reality, once the hidden costs of the centralized bureaucratic processes are taken into
account, moving the support activities to the frontline led to dramatic increases in
efficiency and, therefore, to cost savings.
By making each mini-plant responsible for its own costs, Zobrist reversed the
traditional bureaucratic incentives. In a traditional ɹrm, all departments—especially
“support” departments that are cost centers, not profit makers—strive, first, to maximize
their share of the budgetary pie. Then they make sure they spend it all before the year is
out—so they don’t see their budgets cut the following year. Under Zobrist’s new
organization, each mini-plant was judged by its results, as if it were a stand-alone
business. And because most of the support functions had been pared back or integrated
into the miniplants themselves, the plant leaders’ incentive was not to maximize
resource extraction from the company, but to show the best results for their unit at the
end of the year.
Three further principles guided Zobrist as he liberated this traditional, bureaucratic
“how” manufacturer. The ɹrst was “backward delegation,” inspired by Jean-Christian
Fauvet, one of Zobrist’s intellectual mentors. His book,
Understanding Social Conɻicts,
7
written in 1973, analyzed why top-down company organization inherently leads to
conɻicts and underperformance. Like Townsend, who was writing at the same time, and
McGregor, writing a decade earlier, he believed in management “by the people” and not
“by the procedures.” He recognized that some rules are necessary but insisted that they
have to be invented by the people on the ground, and he proposed ways for companies
to self-organize. Zobrist ɹrst came across his theory while attending Fauvet’s seminar in
Paris, but now these self-organization ideas connected to what he was trying to do at
FAVI.
In fact, “backward delegation” was new only to the corporate world. Saint Thomas
Aquinas, the thirteenth-century theologian—who, among other things, was interested in
the methods of government—had espoused the same principle seven hundred years
earlier under the name of a “subsidiarity.” Translated to companies, it means that all

authority starts with the frontline people, not those at the top. The frontline people then
pass authority for certain decisions or actions they deem uncritical to their work up the
chain. This leaves the CEO with the decisions and tasks that no one below him was
willing or able to do. Note that this is essentially the same as Robert Townsend’s idea of
the CEO as a blocking back or water boy, for whom no job is too menial if it helps other
players to advance toward their objectives. It also dovetails with Zobrist’s initial
intention of not having to make decisions after three years.
The mini-plants assumed authority for all the roles they deemed essential for getting
their job done right. This meant not merely the manufacturing itself, which had
traditionally been their only sphere of authority, but also purchasing, ɹnance,
recruitment, training, and more. Existing and newly hired engineers in FAVI were
simply asked, as at W. L. Gore & Associates, to ɹnd the areas where they’d like to
contribute. This, naturally, ended up being the areas left out of the
production teams,
such as R&D or initiating continuous improvement methods.
This is radically diʃerent from a traditional delegation model, in which the
you-know-
what
rolls downhill, and each layer of management takes whatever piece of authority is
available and attractive to grab, leaving what remains for those at the bottom. It is also
quite diʃerent from some periodically popular forms of “decentralization.” Most of these
begin with the assumption that all power resides in the center, to be doled out
strategically
by the center
. But under this approach, people may be given authority or
responsibilities that interfere with their jobs, while being denied freedom of action in
areas vital to their work. Most important, “delegation” and “decentralization” don’t
question the “how” managerial practices, but, perhaps, legitimize them by making their
impact less harmful. “Backward delegation,” by contrast, lets the frontline workers
decide for themselves which pieces of authority they need to do their jobs before the
higher-ups can do it. In that, it’s a radical departure from traditional managerial
practices, so radical that it may not
need
traditional managers at all.
The second principle concerned not so much the transformation of managerial
practices as the role of the CEO in them. Zobrist—an avid student of ancient China and
history in general—opens his book,
La belle histoire de FAVI
, with the following mantra,
inspired by China scholar François Julien: “The good prince is one who, by eliminating
the constraints and the exclusions, allows everyone to blossom as he wishes.” Zobrist
dramatically eliminated everything in the old structure that he felt treated people as if
they were “bad” and prevented them from “being good,” from “doing a good job” by
making the customer happy, and from achieving personal happiness and high
performance for the company. As Zobrist said in his “prostitute” speech, he can’t do the
work, so the ultimate quality of the product, and the success of the company, is in the
hands of the workers. He sees his job as eliminating barriers to their doing their jobs as
well as they can. This almost always means destroying constraints—not tightening
them.
The last principle was that transforming a command-and-control company is a radical
undertaking—a break, as Zobrist calls it. He compares some would-be reformers to Louis

XVI, the last French king. Like him, they are very intelligent, cultivated people, but they
fold every time their reforms face opposition from the ruling class. Zobrist did try many
nonthreatening ways to involve—and evolve—his “ruling class” of managers by
“ɻowing around them” with his ideas. But unlike Louis XVI, he never folded to this class
when they resisted and openly challenged the transformation. Instead, Zobrist charged,
because frontline people needed to be treated well so that they would act freely for their
own betterment and for FAVI’s.
It will not do to be a cautious radical, and Zobrist’s “ready, ɹre, aim” character was
well-suited to swift action and decision making. Indeed, his ɹrst nine months at FAVI
had been perhaps the longest period of inactivity that he had experienced in his life. His
quick trigger ɹnger was so well-known there that some of them would enter his oɽce
and place their hand over the receiver of his phone before they started speaking.
“Please,” they would say, “hear me out to the end before you call anybody.” But Zobrist
also saw his inclination to act in haste as a virtue of sorts. “It’s the risk-taking issue,” he
told us. “Many people want to control it completely, so they analyze scenarios: ‘If I do
this, then the other may do that, then I can do this….’ They have too much respect for
intelligence … [so] they never actually act. I respect common sense and intuition. I act
ɹrst and then deal with the consequences. If my action was ill-suited, I then simply
change my course.”
To put this another way, Zobrist no more expected perfect decision making from
himself than he did from his people. Many leaders, when they think about letting go of
the “how” structures, can only picture the things that might go wrong.
What if some
employee does X? Or calls some client and costs us an account? Or crashes a company car
while on a personal errand?
One can come up with an inɹnite number of these imaginary
disasters if one is determined to think about them. And mistakes happen—in fact, they
happen all the time, even in the most tightly controlled companies. Top managers are
not
immune from making them. Zobrist’s willingness to accept mistakes and missteps by
himself was reɻected in his ability to let others take risks, too. Just as Bill Gore, on a
diʃerent continent, was fond of saying, “If you haven’t made any mistakes, you’re not
taking enough risks,” Zobrist accepted his own mistakes as the price of action. And he
had the wisdom to expect no more—or less—from his people.
“Life is risk,” he used to say. “Once you wake up every day you’re at risk. There is
only one state with zero risk—and it happens when you’re dead.” Talk about “live
free”—with risk—“or die.”
TREATING PEOPLE WITH GRACE
SO THEY ACT BOLDLY
Changing the CEO’s behavior from talking to listening, removing bureaucratic symbols
and practices that treat people as intrinsically inferior, and radically transforming
managers’ “how” habits into “why” questions, is a hard, often risky, and always lengthy

process. A
hussard
“ready, ɹre, aim” style may help to break a couple of hard rocks, but
trying to transform people’s behavior takes a long time. Zobrist spent nine months
trying to transform the incumbent managers’ practices before giving up and eliminating
that layer of management altogether.
In some companies this transformation took months—as at FAVI. At others, such as
USAA, Vertex, and Harley, it took much longer. But in all of them the change in the way
people were
treated
by the company and its managers—now leaders—led to a change in
how people
acted
. Instead of complacency in executing bosses’ orders of how to do their
jobs—which frequently led to ill will if not outright conɻict—people erupted in free
action, brought about by the satisfaction of their key universal need: to be treated as
intrinsically equal. With this mistrust overcome, people felt the conɹdence to express
their other—formerly suppressed—needs of growth and of self-direction. So they set out
to satisfy these needs in the new environment, striving both for their personal well-
being and the company’s success. That’s why our liberating leaders started with
satisfying people’s need to be treated as equals and proceeded to transform every aspect
of the corporate environment—behavior, practices, and symbols—that denied this need’s
satisfaction. Until this need was satisɹed and people were no longer treated as
“resources,” other important needs that people had could not manifest themselves, and
all managers would hear from the “resources” would be their desires to get “goodies.”
We were looking for a word to best characterize the environment that continuously
satisɹes people’s need to be treated fairly and as intrinsically equal. Bob Koski, Sun
Hydraulics’ liberating leader, we think, had the best word for it
—grace
. Grace, he said,
was a guiding principle of everything he did in his company. We think that grace—
deɹned as a disposition to kindness and compassion, benign good will—is a perfect
characterization of all the aspects of environment we observed in liberated companies,
from the behavior of people with larger responsibilities, to the various business
practices, and to the physical working conditions, all aimed at treating people fairly and
as intrinsically equal.
An environment that treats people with grace is not merely nice to have. It translates
directly into the way employees relate to everyone around them: colleagues, partners,
suppliers, and, of course, customers. One day, a FAVI operator at the mini-plant
producing gear forks for Volkswagen noticed a defect on one piece—a rare case, since at
the time of our visit the company had produced more than twenty million pieces without
a defect. He stopped the production and checked to see that there were no other
defective pieces in the assembly or in the delivery stock. Having found none—but not
yet satisɹed—he consulted the mini-plant’s sales leader, and together they decided to
drive for more than six hours to Volkswagen’s Kassel, Germany, plant. Once there, the
pair simply asked to check if, by any chance, a defective piece had slipped into the
recently shipped inventory. They found none. The local Volkswagen managers were
astounded by the visit, and made it known to their head of purchasing, who elevated
FAVI to a preferred European supplier. Yet, the operator did it simply because, at FAVI,
one treats customers with fairness.

Many companies ask their employees to treat customers “well.” But they get neither
this behavior nor the business performance they expect because they haven’t done their
homework. As Koski wrote in his business plan for Sun Hydraulics, treating people with
dignity and courtesy within the company is a key to doing the same outside the ɹrm,
leading to repeat customers, growth, higher margins, and other factors of world-class
performance.
There are even more ways of demonstrating how treating people as intrinsically
equal, with respect, dignity, consideration, trust, fairness, equity, courtesy, grace—
whatever words one prefers—contributes to their individual and company performance.
Indeed, satisfying this need leads people to trust the company enough to express their
other fundamental needs. Satisfaction of these other fundamental needs within the
company then leads to an array of behaviors aimed at what psychologists call mastery
and happiness—well-being and vitality—and, in its turn, translates even more directly
into a company’s outstanding performance. What these needs are, and how their
satisfaction translates to exceptional behavior, is the topic of the next chapter. But
before you turn to it, consider for a moment a more literary take on the importance of
being treated as a human being.
Vasily Grossman (1905–64) is often called the Leo Tolstoy of twentieth-century
Russian literature for his novel
Life and Fate
. The nearly one-thousand-page epic depicts
life during and after World War II on the Eastern Front, under German occupation, in
the Nazi concentration camps, in the Soviet Gulag, and in the Soviet era. Because of
Grossman’s denunciation of Soviet totalitarianism and of the anti-Semitism of the Soviet
population that fell under the German occupation, the Communist regime banished his
book’s publication in the early 1960s and made Grossman an eʃective dissident. The
book’s manuscript was smuggled out of the USSR and ɹrst translated and published in
French in 1980. The Russian version came to light only in Mikhail Gorbachev’s era.
Grossman started his writing career before World War II, but it was his four years as a
war correspondent and his consequent
research on crimes against humanity that
allowed him to witness and gather the material for the book. While Grossman was
engaged as a volunteer for the Red Army, his mother was trapped in July 1941 by the
advancing Nazi troops in their native Ukrainian town of Berdichev. Herded into the
ghetto, she was shot, along with tens of thousands of other Jews, in the town several
weeks later.
In
Life and Fate
, the main hero, Victor—nicknamed Vityenka—receives a letter from
his mother, a physician trapped in the ghetto. She describes what she believes will be the
last days of her life, because she’s sure she’ll be killed. Here is an excerpt describing her
leaving her apartment for the ghetto and how she has been abandoned by almost
everybody—with the exception of a yard-dog and one man who continued to treat her
as a human being.
An announcement was soon made about the resettlement of the Jews. We were each to be permitted to take 15
kilograms of belongings. Little yellow notices were hung up on the walls of houses: “All occupants are required to

move to the area of the Old Town by not later than 6.00 p.m. on 15 July, 1941. Anyone remaining will be shot.”
And so, Vityenka, I got ready. I took a pillow, some bedclothes, the cup you once gave me, a spoon, a knife and two
forks. Do we really need so very much? I took a few medical instruments. I took your letters; the photographs of my
late mother and Uncle David, and the one of you with your father; a volume of Pushkin;
Lettres de mon moulin;
the
volume of Maupassant with
Une vie;
a small dictionary… I took some Chekhov—the volume with “A Boring Story”
and “The Bishop”—and that was that, I’d ɹlled my basket. How many letters I must have written to you under that
roof, how many hours I must have cried at night—yes, now I can tell you just how lonely I’ve been.
I said goodbye to the house and garden. I sat for a few minutes under the tree. I said goodbye to the neighbors. Some
people are very strange. Two women began arguing in front of me about which of them would have my chairs, and
which my writing-desk. I said goodbye and they both began to cry. I asked the Basankos to tell you everything in more
detail if you ever come and ask about me after the war. They promised. I was very moved by the mongrel, Tobik—she
was particularly affectionate towards me that last evening.
If you do come, feed her in return for her kindness towards an old Yid.
When I’d got everything ready and was wondering how I’d be able to carry my basket to the Old Town, a patient of
mine suddenly appeared, a gloomy and—so I had always thought—rather callous man called Shchukin. He picked up
my belongings, gave me 300 rubles and said he’d come once a week to the fence and give me some bread. He works at
the printing-house—they didn’t want him at the front because of his eye trouble. He was a patient of mine before the
war. If I’d been asked to list all the people I knew with pure, sensitive souls, I might have given dozens of names—but
certainly not his. Do you know, Vityenka, after he came, I began to feel once more that I was a human being—it wasn’t
only the yard-dog that still treated me as though I were.
8

T
8
FROM MOTIVATION TO
SELF-MOTIVATION,
PART ONE
Beyond Grace and Intrinsic Equality
Whenever the people are well-informed, they can be trusted with their own government
.
—T
HOMAS
J
EFFERSON
1
HOMAS
J
EFFERSON WROTE
these words to a Welsh political philosopher, articulating both the
possibility
of self-governance—and its conditions. While the sentence served as a
defense of and a supplement to the Declaration of Independence Jeʃerson had
penned thirteen years earlier, it was also a seed for Jeʃerson’s vision, still decades in
the future, of “a system of general education, which shall reach every description of our
citizens from the richest to the poorest.”
2
How important this project was to him is
attested to by Jeʃerson’s request that his three greatest achievements be mentioned on
his tombstone: the Declaration of Independence, the Statute of Virginia for Religious
Freedom—and the University of Virginia, the fruit of his educational ambitions.
Creating a university should have been an easy project for a political genius and a
former U.S. president when Jefferson started it in 1814. Let’s see.
3
It took ɹve years, but Jeʃerson managed to get the Virginia General Assembly to pass
the laws needed to charter the university. Funding the school would be a separate
struggle. In the meantime, Jeʃerson, with his passion for architecture, helped to design
the
famous rotunda and Colonnade Club. He spent four hours a day for several months
assembling a 6,860-volume library for the ɻedgling university, an impressive collection
for the time. With the help of fellow Virginian and U.S. president James Madison,
Jefferson defined a political curriculum for the school. Finally, he recruited the first eight
professors, five of whom came all the way from England.
Perhaps the most distinctive of Jeʃerson’s undertakings was the self-governing
organization he designed. To begin with, all the rules and procedures that were in place
at other American colleges were completely abandoned in Jeʃerson’s plan. No courses
or programs were required, leaving students totally free to choose what they wanted to
study.
4
To reinforce this freedom of choice and the competition among professors to
oʃer compelling courses, Jeʃerson designed an incentive scheme with a base $1,500
annual salary, plus $25 for every enrolled student. The distinctions between freshmen,

sophomores, and upperclassmen—seniors—were abandoned. Moreover, the whole
hierarchy of a traditional university—the president, provosts, and other positions of
authority—was eliminated. The university was to be totally self-governed by the faculty
with a rotating chairman, overseen by a board of visitors: Jeʃerson, Madison, Monroe,
and a few more cool names. And regarding the students, “Jeʃerson had worked out a
plan for student self-government for he believed that young men from the best families
could be counted on to govern themselves and remain reasonably well-behaved.”
5
In March 1825, after many years of eʃort, he assisted at the opening of the University
of Virginia’s idyllic Charlottesville campus, welcoming the ɹrst 40 students, a number
that grew to more than 116 during the year. Happy and at the age of eighty-one now,
Jeʃerson retired to his mansion at Monticello. There, a mere ɹve miles away, he would
host small groups of students for dinner on Sunday, and at other times would observe his
young university with his spyglass, taking advantage of a hole he had had cut through
the trees. Until …
Less than one month into that ɹrst academic term, Jeʃerson received devastating
news. A group of fourteen drunken, masked students had gathered on the lawn after
dark with a cry of “Down
with the European professors!” When two professors arrived
to investigate the riot and tried to unmask one student, they were welcomed by
profanities and worse. The ɹrst was attacked with a cane and the second had a brick
thrown at him. To add insult to physical injury, sixty-ɹve students signed a resolution
the following day condemning the two professors for daring to unmask the student. The
last straw: Jefferson’s own great-grandnephew was one of the fourteen rioters.
Rising in the famous rotunda in the presence of the current and former U.S. presidents
James Madison and James Monroe, and facing the “drunken fourteen,” Jeʃerson began
by declaring that what had happened was one of the most painful events of his life. But
then, overcome with emotion and with tears in his eyes, he couldn’t continue and had to
sit down. The others took over, the meeting proceeded, and the “rioting fourteen” were
expelled, including Jefferson’s relative.
On Jeʃerson’s recommendation, strict regulations were adopted: Every student must
rise at dawn, stay in his room after 9 p.m., wear a uniform, and deposit his funds with
the proctor, who would provide small sums. Gambling, smoking, and drinking were
prohibited. So much for freedom and self-government.
This is the kind of story that haunts liberating leaders. Here are people ɹnally treated
as equals, but instead of assuming the freedom and responsibility that goes with it, they
revolt.
6
The self-governed freedom the leader envisioned turns into anarchy, and he who
wanted to make no more decisions is called back to assume the role of the authoritarian,
which he loathes. If even Thomas Jeʃerson could not succeed in building a freedom-
based organization, is it possible that the whole idea is utopian?
Yet Gore, Zobrist, Koski, Teerlink, Westphal, and Davids launched their liberation
campaigns without plunging their organizations into anarchy. Their visions were
dubbed as utopian by some, too—but they succeeded. All of them did more than simply

build an environment that treated people as intrinsically equal. They went further and
built an environment in which people became motivated to assume freedom and
responsibility; in fact, they became self-motivated.
We will return to UVA to ɹnd out
what went wrong for Jeʃerson there. But ɹrst, let’s look at what exactly our successful
liberating leaders did to get people to take part in their liberation campaigns instead of
revolting or resisting them.
IS IT
POSSIBLE
TO MOTIVATE PEOPLE?
Since at least 1943, when Abraham Maslow published a famous article on human needs
and motivation, psychologists have been engaged in a passionate debate over this
question. But in the business world, most companies have considered it settled for
decades. Motivating people, they say, is not hard once a company ɹnds the right mix of
tangible rewards to align people’s material interests with the company’s goals. The
problem is, the more closely psychologists look at the motivation—or engagement—
levels of people in organizations, the less tangible rewards seem to matter. Instead, it’s
the things people do
themselves
that matter most.
Consider the following “natural experiment.” A psychologist found himself disturbed
by a group of kids that one day had come to play football under his window, making a
lot of noise. So he went out and said, “You guys are really great. I enjoy watching you
so much that every time you come to play here I will give you one dollar each.” And he
gave a dollar to each kid. The next day, when the kids were again enthusiastically
playing football, he came out and said, “I really enjoy watching you but the thing is that
I have no bills, just coins today. I can give you two quarters each.” The kids were not
delighted with this pay cut, but took the money and continued to play. The story
continues until after two days, the psychologist oʃered them just a penny each, which
one of them proudly refused and said, “We are not going to play here for a damn
penny.” And the kids never came back, much to the satisfaction of the psychologist.
Many psychologists think that this story is apocryphal, but it continues to circulate
because it reɻects what they know from hundreds of real experiments: If you take
people who are deeply engaged in something because they enjoy it and you oʃer them
tangible
rewards for doing it, a shift happens. Mentally, people establish a causal link
between these rewards and the activity—something psychologists call a perceived locus
of causality—and this link will undermine the initial, intrinsic reason for doing the
activity, such as considering it enjoyable or important.
Companies call these tangible rewards “bonuses” or “perks” and ɹrmly believe they
motivate people.
One famous Silicon Valley company that hires thousands of bright, enthusiastic young
techies was known for providing great free food for all, including visitors. The young
techies would wax lyrical in the blogosphere about how they enjoyed their work—and
the great free food. Then business slowed down and a big boss wrote a memo to all that

the free food was being abused by some and that measures of economy would now have
to be taken. That—unsurprisingly to psychologists but surprisingly to the management—
sent shivers of disappointment up and down the blogosphere. Paradoxically, as soon as
a perk becomes established, it loses its motivating power and becomes a potential
liability.
Besides the tangible rewards given independent of speciɹc activity engagement—such
as a salary—or unanticipated rewards—such as an unexpected bonus—all other forms of
tangible rewards signiɹcantly undermine people’s willingness to engage in an activity
for its own sake. This, arguably, does not pose a challenge to “how” companies.
7
There,
tangible rewards are one more system to make people do what they are told to do. But it
posed a big diɽculty to the liberating leaders. Bob Davids expressed this unequivocally:
“It’s absolutely impossible for one human being to motivate another.”
8
Yet, they
continued to seek ways to get people to join the liberation campaign instead of resist it.
The breakthrough came when they adopted a
creative
approach of trying to solve a
different—
redefined
—problem.
GETTING CREATIVE
Creativity research is a burgeoning multidisciplinary ɹeld, of which the major focus is
how creative insight, the “Eureka!” phenomenon,
occurs: the apple falling on Isaac
Newton’s head, Alexander Fleming spotting mold killing the bacteria in the petri dish,
Spence Silver of 3M intrigued by a weak adhesive leading to the invention of Post-it
notes. To untangle this puzzle, researchers view the phenomenon of creative insight as a
pair: problem + solution. Ultimately, insight is an original and useful solution. But
quite often, a lot of creativity goes into finding the right
problem
or in redefining the one
at hand. As the early twentieth-century philosopher John Dewey said, “A problem well
put is half-solved.”
9
Thus, the “Eureka!” of creative insight often occurs by redefining the
problem one is desperately trying to solve, in particular when one is under time
pressure.
10
Consider the following true story reported by two leading creativity scholars,
Todd Lubart and Robert Sternberg.
A high-level executive in one of the Big Three automobile firms in the United States was faced with a dilemma. On the
one hand he loved his job and the money he made doing it. After all, high-level executives in Detroit are well paid,
whether or not their cars are selling. On the other hand he absolutely detested his boss. He had put up with this
would-be ogre for a number of years and now found that he just couldn’t stand it anymore. After carefully considering
his options, he decided to visit a head-hunter—a specialist in ɹnding high-level executives new jobs. So the executive
made an appointment, not knowing exactly what to expect. Fortunately the head-hunter indicated that there would be
no problem in placing him somewhere else.
The executive told his wife how the appointment had gone and that he was conɹdent he would ɹnd another job.
After he described his day, his wife described hers. At the time she happened to be teaching Intelligence Applied,
11
a
program for teaching thinking skills to high school and college students. She described the particular technique she

had gone over that day—redeɹning a problem. The basic idea is that you take a problem you are facing and turn it on
its head. In other words, you look at the problem in a totally
new way—one that is diʃerent not only from how you
have seen it in the past, but that is also diʃerent from how other people would be likely to see it. As she described her
lesson, the executive felt an idea sprouting within him. He saw how he could use the technique his wife was teaching
in her class to his own personal advantage.
The next day he returned to the head-hunter and gave him his boss’s name. He asked the head-hunter to look for
another job—not for himself this time but for his boss. The head-hunter agreed and, before long, found something.
The boss received a phone call oʃering him another job, not realizing, of course, that the oʃer was the result of the
teamwork of his subordinate and the head-hunter. As it happened, the boss was tiring of his current job and in short
order accepted the new position.
The icing on the cake was that, as a result of the boss’s accepting the new job, his old job became vacant. Our high-
level executive applied for it and ended up with his boss’s job.
12
We don’t necessarily suggest that you try this gambit yourself. We’ve heard personally
—so far—of two such successful attempts in companies, but we presume that at some
point bosses will start to suspect something ɹshy about the unsolicited job oʃers,
especially after it inspired an episode of
The Oɽce
. Even so, the story shows how a
creative insight, redefining an otherwise insoluble problem, can lead to a great solution.
Our liberating leaders had this type of creative insight while facing the motivation
problem, which they initially believed had no solution. So they redeɹned it into a
different one:
“How does one build an environment where people self-motivate?”
This redeɹnition allowed them to immediately set aside all the traditional corporate
solutions, which are not aimed at self-motivation but rather at controlling the
motivation externally through tangible rewards, such as bonuses, promotions, perks,
awards, distinctions, and “president’s clubs,” and through the threat of punishments. Our
liberating leaders ɹrst dismantled many of
these “carrots and sticks” incentive systems,
then found a host of solutions through the newly redeɹned problem. Each solution was
speciɹc to their people, companies, and industries, but all helped to build
corporate
environments
conducive to letting people motivate themselves to take part in the
liberation campaign.
We don’t know how all of our liberating leaders came to the creative insight of
redeɹning the “how to motivate people” problem into “how to build an environment
where people self-motivate.” We do know, though, that some—such as Bill Gore, Robert
Townsend, and Jean-François Zobrist—were familiar with the work of Douglas
McGregor, whose one key focus was on motivating people—not only to join corporate
transformation eʃorts but also, to act in the best interests of the company. McGregor
wrote: “The answer to the question managers often ask …—How do you motivate
people?—is: You don’t. Man is by nature motivated…. His behavior is inɻuenced by
relationships between his characteristics as an organic system and the environment …
Creating these relationships is a matter of releasing energy in certain ways rather than
others. We do not motivate him because he
is
motivated. When he is not, he is dead.”
13
McGregor also contrasted the traditional “manufacturing” approach with what he

called an “agricultural” approach: “The individual will grow into what he is capable of
becoming, provided we can create the proper conditions for that growth.”
14
Robert
Townsend translated these ideas into his own agricultural approach to encouraging self-
motivation: “Provide the climate and proper nourishment and let the people grow
themselves. They’ll amaze you.”
15
In other words, if the environment is properly
nourishing, people will motivate themselves to take part in the transformation eʃorts or
perform their regular activities. The question is, What is this properly nourishing
environment?
THE RIGHT NUTRIMENTS
Man is but a reed, the most feeble thing in nature, but he is a thinking reed. The entire universe need not arm itself to
crush him. A vapor, a

drop of water suɽces to kill him. But, if the universe were to crush him, man would still be more
noble than that which killed him, because he knows that he dies and the advantage which the universe has over him; the
universe knows nothing of this. All our dignity consists then in thought. By it we must elevate ourselves, and not by space
and time which we cannot fill. Let us endeavor then to think well; this is the principle of morality
.
—B
LAISE
P
ASCAL
16
The seventeenth-century French philosopher Pascal used this metaphor to contrast the
fragility of our organism with the force of our mind. But there is another piece of
Pascal’s metaphor: the reed in its natural environment. Most reeds, of course, are not
crushed by nature but get from it what they need to grow and develop to their
programmed potential. If, on the other hand, a reed does not get from nature what it
needs—water, light, minerals—it will not develop to its potential, and if its needs are
severely denied by nature it may even perish.
This extension of Pascal’s metaphor reɻects the view of
human
needs developed by the
University of Rochester psychologists Edward Deci, Richard Ryan, and their associates
for the last three decades in, perhaps, the most ambitious contemporary theoretical and
empirical research on motivation.
17
In the ɹrst half of the twentieth century,
behaviorists and drive psychologists viewed man as naturally seeking
peace
(of body)
and hence motivated to eliminate the tension of unsatisɹed physical needs. To
caricature, man is like a python who will move in search of prey, but his ideal is to lie
under the sun immobile and simply digest the poor mouse. In 1943, Abraham Maslow
extended this view to man’s seeking not only peace of body but also of mind and thus
being motivated to eliminate the tension of unsatisɹed psychological needs—belonging,
esteem, and self-actualization—too. To caricature again, our python, after eating, would
seek out the company of other pythons, where he is likely to hear, “Good job, great
catch!” Then, having found this company and received his approbation, he’ll continue
his quiet digestion under
the sun. Unlike these earlier psychologists, Deci and Ryan—
and our liberating leaders—view people not as aiming at peace of body and mind but
programmed for mastery—of activities and areas of study, not people—and
happiness

(vitality and well-being).
18
As child psychologists Jean Piaget and Lev Vygotsky have shown, we engage from a
very early age in all kinds of play in order to master diʃerent aspects of our
environment. We enjoy doing it to the point of ignoring hunger, fatigue, and the risk of
being hurt—like those young football players outside the psychologist’s window.
19
Similarly, as adults, we seek mastery and “fun” in many of our leisure activities. Given
an
appropriate
corporate environment, we seek the same at work. But the
appropriateness of the environment is not a minor point. As with Pascal’s reed,
naturally seeking to develop its potential, the ongoing natural human activities aiming
at mastery and happiness demand what Deci and Ryan call
nutriments
. The reed’s
fundamental needs of light, minerals, and water have a counterpart in the human
fundamental needs: “relatedness,” “competence,” and “autonomy.”
20
If the nutriments
are present, a person will reach mastery and well-being. But if they are lacking, she will
not fully develop. For this reason, Deci and Ryan argue that these needs are as
fundamental to human development as the reed’s light, minerals, and water. According
to this account, other candidates for fundamental needs, such as
power
, which have been
postulated by earlier motivation scholars, are ruled out: Their nonsatisfaction does not
prevent human mastery and well-being. (It’s not because one lacks power over others
that one cannot master a subject and become happy, as mountain climbers and other
sportsmen prove.) And as with the reed, if one of the three nutriments is lacking, even if
the other two are fully available, the person will still develop deɹciently. As part of
their research, Deci, Ryan, and their associates analyzed people’s diaries. They found
that the “good” days for people were those when they reported having experienced
relatedness, competence, and autonomy—all three of them.
Deci and Ryan looked for these three needs/nutriments in people across a variety of
cultures. They found them everywhere,
even though they are interpreted diʃerently in
diʃerent places. In the West, for example, the need for autonomy is satisɹed
individually, in opposition to others, while in the East Asian tradition it is satisɹed
within harmonious relations with others. These ɹndings led Deci and Ryan to argue that
the three needs are innate and universal.
Overall, in their numerous laboratory and ɹeld studies, these researchers have
discovered that the properly nourishing environment—with practices aimed at satisfying
people’s three universal needs—leads to self-motivation. When people are treated with
consideration, when they are provided with support for growth and self-direction, they
self-motivate and take initiatives, leading to increased performance and enhanced
personal well-being.
21
When, on the contrary, the environment is controlling and
deprives people of their universal needs satisfaction, then motivation becomes
externally controlled and people do only what they are rewarded or punished for. This
does not lead to increases in people’s well-being, and creates only short-term
performance benefits, if any.
Deci and Ryan’s extensive empirical work led them to a conclusion similar to

McGregor’s: Human motivation does not need to be controlled; people are self-
motivated to act in search of mastery and well-being when
provided
the “nourishing”
environment. McGregor redeɹned the “How does one motivate people?” problem into
“How does one build an environment where people self-motivate?” Deci and Ryan
advanced this redeɹnition further still:
“What is in the environment that prevents people
from getting the right nutriments and what has to be rebuilt in it so they get them?”
Liberating leaders make a similar redeɹnition. Methodically, they listen to employees
to understand what in the work environment is depriving them from satisfying their
needs of being treated as intrinsically equal, growing, and self-directing. Then, they
start to transform this depriving environment into a nourishing one, which we’ll explore
in further detail in the next chapter. But now, back to Thomas Jefferson.
WHAT WENT WRONG—BEFORE IT WENT RIGHT
It’s 1824. Jeʃerson is satisɹed with how the university project—which, recall, he
considers essential for the United States as a self-governed country—is advancing. He
has compiled an outstanding library and devised the departments and courses, which
include ancient and modern languages, philosophy, mathematics, law, and medicine—
Jeʃerson hired the ɹrst full-time medical professor in the United States—but no
theology, of course. The Jeʃerson-designed campus, which then Harvard professor
George Ticknor called “a mass of buildings more beautiful than anything architectural in
New England, and more appropriate to a university than are to be found, perhaps in the
world,”
22
has been essentially ɹnished, thanks to a $180,000 loan and a $50,000
appropriation Jeʃerson obtained from Virginia. And though the rotunda is still in the
process of being completed, he entertains there a visiting revolutionary hero, the
Marquis de Lafayette, at a lavish dinner. As the university was rushing toward its
opening day, all the pieces seemed to be put in place except one—the professors.
To the dismay of John Adams, who teased him for his lack of patriotism, Jeʃerson
wanted only European professors for his university. But the big European names refused
to come to what at that time looked like an academic desert. Concerned that his envoy’s
“return without any professors will completely quash every hope of the institution,”
23
Jeʃerson had to settle for ɹve younger professors. The bigger compromise, however,
was these professors’ lack of regard for the university’s unique principles of self-
government and respect for the students. The worst of them was George Blaetermann, a
professor of modern languages, whose lectures involved heated altercations with
students. He once knocked a student’s hat off, upon which the student punched him.
Recall that Jeʃerson wanted not only an aesthetically beautiful and academically
ɹrst-rate university. He also wanted a self-governed institution—an environment
opposite to that of Yale, Harvard, and others, which he called “despotic seminaries.”
24
Well, what he got by
overlooking the European faculty’s authoritarian tendencies was
worse than the New England colleges’ culture—he got the hierarchical culture of

European colleges, of which the New England schools were only a copy. The heavy
atmosphere maintained by professors, together with draconian restrictions imposed on
students after the “drunken fourteen” riot, bred a resentment that soon started to show
up in ways much more extreme than the routine soiling of their rooms.
In 1831, another riot broke out. In 1836, students smashed the windows of professors’
residences with sticks and stones and ɹred numerous muskets, leading the faculty to arm
itself and flee, along with their families, to the upper floors. In 1838, students attacked a
professor’s residence yet again, smashing windows and battering down the door. The
following year saw more unrest, as two students assaulted the faculty chairman and
horsewhipped him in the presence of more than one hundred other students, who did
nothing to stop the brutal abuse.
Then came November 12, 1840. On that day two masked students were shooting and
making a ruckus on the lawn. The faculty chairman, John A. G. Davis, came out to
intervene. When he tried to remove the mask of one of the students, the student shot
and fatally wounded Davis. The shock was tremendous—not only within the university
but in Virginia and beyond—and the university descended into turmoil.
Jefferson wasn’t around to do anything about it—he had died on July 4, 1826, about a
year after the university’s inauguration and exactly ɹfty years after the United States’
birth. We can’t know whether, faced with the evidence that self-government wasn’t
working, he would have judged his own choices for the university critically. But with
hindsight and armed with recent psychological insights, we can say that the institutional
environment Jeʃerson built did not provide nutriments for people’s universal needs and
thus, students were not self-motivated to take part in the freedom-based project.
Sure, this environment treated faculty as intrinsically equal. For the ɹrst time in
America—and perhaps in the world—professors had
no one above them. Until 1904,
when its ɹrst president was ɹnally named, the University of Virginia remained self-
governed. To this day, UVA’s president enjoys much less authority than his counterparts
in other universities. The environment Jeʃerson built also provided all the nutriments
for the young professors to grow and to self-direct. As a result, although this self-
government was a very unusual way to run an academic institution, the professors
supported it fully. Indeed, they even used their freedom of action against one
institutional aspect installed by Jeʃerson they considered unjust—the incentive that tied
their salary to how well they succeeded in attracting students into their classes. For
reasons we now understand, they rightly perceived this tangible reward as a controlling
scheme. They fought against it and, in 1850, got it abolished. But unlike the professors,
the students did not find the institutional environment nourishing.
From day one, their professors—used to the authoritarian European universities’ ways
—did not treat them as equals. And after the “drunken fourteen” clampdown, students
were practically infantilized. Throughout this period, students were forced to wear
uniforms and to conform to a 6 a.m. wake-up and a 9 p.m. curfew. The pocket money
they were allowed was too meager even to aʃord “a little chicken supper.”
25
As we now

know, when the need to be treated as intrinsically equal is denied, people can’t be self-
motivated even if their other two needs—growth and self-direction—are satisfied.
Regarding education and growth, in 1838, facing a lack of instruction in English
composition, a group of students launched
The Collegian
magazine, which, under a
variety of names, has survived until the present day. And regarding self-direction,
although Jefferson founded the university on complete separation of church and state, in
1832 students initiated a movement to raise funds for the employment of a chaplain.
The faculty and the board of visitors approved the initiative, and the faculty elected a
chaplain each year, but he was paid by the funds collected by the students and had no
oɽcial connection to the university. Overall, from what we understand today about the
appropriate environment for nourishing people’s
universal needs, the University of
Virginia did not succeed at inspiring self-motivation.
But this story is not only an illustration of how a project for a freedom-based
organization may fail to get people to join it and make them revolt instead. It’s also an
illustration of how such a project can be turned around. Because it did eventually
succeed—although Jefferson did not live to see it.
Soon after the 1840 killing of the faculty chairman, a distinguished judge, Henry St.
George Tucker, was appointed to succeed the slain law professor. Gradually, Tucker
became aware of the students’ festering resentment toward all the restrictions of their
personal freedoms and successfully led the eʃort, with the faculty, to abolish them.
Then, after dismantling the hated rules, Tucker started to build a diʃerent basis for
relationships between professors and students.
He noted that the faculty always presumed that students were cheating on
examinations (and some indeed did). But instead of reinforcing the surveillance, Tucker
proposed a revolutionary measure that was very much in the spirit of Jeʃerson’s
original vision of student self-government. This measure became known at UVA as the
honor system.
26
On a symbolic July 4, 1842, Tucker oʃered to build trusting
relationships with the students: “Resolved, that in all future examinations…each
candidate shall attach to the written answers…a certiɹcate of the following words: “I,
A.B., do hereby certify on my honor that I have derived no assistance during the time of
this examination from any source whatsoever.” The students quickly embraced the
principle and assumed total responsibility for the protection of this self-government
freedom, and not only in the classroom. Following the Civil War, for example, the honor
system expelled students caught cheating at cards, defaulting on payments of debts, and
insulting ladies. More than one and a half centuries later, the honor system is still in
place, self-governed by students, who, like their ancestors, continue to drink, play cards,
and—of course—date, but who respect certain limits that
they—
not the university
authorities—impose on themselves.
Tucker’s actions oʃer us two lessons. First, he rebuilt an environment
that nourished
students’ universal needs, and they responded in a way that would make Jeʃerson
proud. Second, failing to build such an environment—something, alas, Jeʃerson did—

leaves people unmotivated to take part in a liberation campaign. For a modern business
parallel to the early years at UVA, consider the Danish hearing-aid maker Oticon.
A DANISH MIRACLE
A century and a half after Judge Tucker breathed new life into Jeʃerson’s vision for the
University of Virginia, Lars Kolind decided to launch a liberation campaign of his own.
His target seemed ideally suited for the purpose—an old, quiet company of medium size,
set in its ways yet with tremendous potential for expansion and growth, if only it could
shake off the shackles of its past.
27
Kolind was appointed CEO of Oticon in 1988. Oticon was a leading European maker
of hearing aids, but it was threatened by competition and technological change and
reluctant to do anything to shake up its comfortable existence. When Kolind arrived at
the headquarters on September 1, the company’s clubby culture quickly became
apparent. He had no trouble ɹnding a parking space: His assigned space, right next to
the entrance, was prominently marked by a sign with his name and title already on it.
The chairman and the outgoing CEO were waiting by the front door to lead him to the
management dining room, where several dozen senior managers welcomed him with
champagne, snacks, and speeches.
Kolind soon learned that since its founding in 1904, this family-owned company had
had only two CEOs. In order to ensure that Kolind became fully immersed in the
company’s traditions, the board of directors wanted him to serve as CEO-in-waiting for
six months. Kolind didn’t think tradition and the old ways were exactly what Oticon
needed, so he managed to talk the board down to a one-month transition. And on his
way home, he took down the sign that marked his parking spot.
Oticon was in trouble when it brought Kolind in. In 1987, the
company had lost $7
million on $52 million in revenue. It was the high-cost manufacturer in its market and
yet was still churning out outdated products. Its competitors—Sony, 3M, Philips,
Siemens, and others—were quickly moving to digital hearing-aid technology while
Oticon was stuck in the analog age. According to Kolind, Oticon’s people viewed
themselves as the BMW of the industry, but their products looked more like old
Volkswagen Beetles in the marketplace. This state of denial was a serious problem, but
it wasn’t the only one. Oticon’s corporate culture was “steeply hierarchical,
conservative, and almost aristocratic, with a strong resistance to change,” as Kolind
described it.
Yet Kolind had come to Oticon to change it. He’d become exasperated with the
bureaucratic cultures of other places he’d worked and believed that a company could be
rebuilt along radically free lines. He’d vowed to realize his vision if he ever got the
opportunity, and this was that opportunity. But ɹrst, Oticon had to stop losing money.
So, on October 1, 1988, his ɹrst day as full-ɻedged CEO, he announced that all future
expenditures—expense reports or any ɹnancial commitment besides planned buying of

necessary manufacturing supplies—would have to be personally approved by him. Not
exactly a liberating ɹrst step, to be sure, but even while taking this draconian measure,
he added a twist: If he didn’t deny an expenditure request within twenty-four hours, it
would automatically be approved. In this way, he tried to bring costs under control
without creating a huge bureaucratic backlog—the onus would be on him to clamp down
on unnecessary expenditures. Even with this liberalizing proviso, the order quickly had
an eʃect. The requirement to apply to the CEO for new spending, together with a few
denied requests, produced enough discipline on costs to turn the negative cash ɻow
positive before the year was out.
Simultaneously, Kolind visited audiologists and hearing-aid dispensers to get insight
about Oticon’s bad image and misguided products. On November 18, 1988, he called a
two-day management seminar to devise a new company vision. The old “Leader in
hearing technology” turned into “Helping people (with impaired hearing) to live as they
wish with the hearing they have.” This new vision—
admittedly not very inspirational—
nevertheless helped refocus the company, leading to the closing of several departments
and the laying oʃ of 10 percent of the staʃ. Sales soon started to grow, the company
returned to proɹtability, and both the board and employees seemed to be happy. But
not Kolind.
He performed a thorough analysis of the company’s operations, which conɹrmed his
initial intuition: Oticon’s “rule-based, departmentalized, hierarchical engineering
culture” had to be changed. Kolind wanted a self-directing, innovative company that
would stun the world with world-class products.
So, on Christmas Eve 1989, he sent out a four-page memo titled “Think the
Unthinkable!” His managers thought it was a joke. But Kolind was serious. He got the
board—which perhaps didn’t read it too carefully—to approve his plan in principle,
then he expanded it to a six-page manifesto and sent it out to all 150 employees in the
head office. Its key part is worth quoting at length:
We will change the concept of a job to better match the talents of each individual. Everyone will have to do more than
one job, including something he is not formally qualified to do (multijob).
We will discontinue the current hierarchical departmental structure and replace it with projects. There will be
project leaders to run projects, gurus to ensure a proper professional standard in everything we do, and mentors to
help support every employee to do his best. All current job titles will have to go.
Ninety-ɹve percent of all paper should go as well. We will install a state-of-the-art computer network that will allow
every one of us to freely choose where to work every day. We will stimulate oral dialog and avoid writing e-memos to
each other. Talking is more fun.
We will create an open and inspiring work place with no walls or partitions. There will be plants and trees on
wheels, perhaps 500 or 1,000 of them, to move around when we move from one project to another. We will create the
most
exciting and creative work place in the country. It will be nothing like an ordinary office.
We will all need to understand not only what we do, but also how this ɹts into the overall picture. If everyone
knows that, we will need less conventional management and control. This allows us to spend more time on tasks that
benefit the customers.

To sum up: we will all do more of the things we like to do and we are good at. We will get rid of all barriers, and will
work as one big team. That will make us more valuable and in turn justify a higher salary.
28
Then, late in the afternoon on April 18, 1990, he convened a voluntary, unpaid
meeting to discuss the note—and 143 out of the 150 employees showed up. After a brief
explanation, Kolind asked for questions. A long silence ensued. Finally, one secretary
stood up and suggested that they hold a vote on the transformation. Kolind, who
probably held his breath at the time, would later write: “Some 80%…raised their hands.
Senior management just sat there. Paralyzed.” Over beer and sandwiches, the ambience
was euphoric. People wanted to make the change happen. It wasn’t easy.
Many in senior management were not happy. As Kolind later explained, “The only
reply I could give was to invite those that were against the project to work full-time on
running the existing business…and to leave the change project to the rest of us.”
29
Former middle managers weren’t happy, either: “They continued to manage, plan,
control, and direct their former employees; but the employees did what they wanted
to.”
30
Faced with all this resistance, Kolind decided to spend some time establishing a
common set of company values and management norms. After several days of meetings,
the senior management team agreed on eight values. By now, the ɹrst three will sound
familiar to readers. They were:
Employees want to be treated as independent individuals who are willing
to take responsibility;
Employees want to develop within their jobs and gain new experience
within the company; exciting and challenging tasks are more important
than formal status and titles; and
Employees desire as much freedom as possible, yet accept the necessity of a
clear and structured framework.
31
Senior managers also agreed on speciɹc practices through which they would live by
these values. Even so, many did not adhere to them, still believing that the whole thing
would just blow over and Oticon would return to being a “normal” company. So Kolind
summoned them to his oɽce one at a time and issued an ultimatum: “Choose whether
you want to be part of the game or quit.” Naturally, the senior managers all agreed—
nominally—to play their boss’s game.
The next challenge was ɹnding a new head oɽce in which Kolind’s vision could be
realized. His initial dream was to construct a world-class building right alongside the
company’s main plant, at the edge of a dramatic and picturesque fjord. The Danish
government would even have helped fund the project to promote development on this
remote land. It was the sort of idea of which Jeʃerson might have been proud—except
Oticon’s employees were less than enthusiastic about moving to the middle of nowhere,
250 miles from Copenhagen. Kolind’s next architectural inspiration was a beautiful
Renaissance castle already equipped with a modern conference center and, again,

support from the regional government. It was, in addition, cheap, but it didn’t ɻy with
his staʃ either: At ɹfty miles from Copenhagen, it was still too remote from the capital
for Oticon’s urbanites. Pressed for time, Kolind turned to the classiɹed ads, found an old
Tuborg drink factory in a suburb of the capital, and leased it for ten years. The next
challenge was information technology.
Every IT vendor said that building a totally paperless oɽce—with all computers
linked and all incoming and internal documents electronically stored—was impossible.
But like USAA’s Robert McDermott two decades before him, Kolind succeeded: Hewlett-
Packard and Andersen Consulting (now Accenture) took up the challenge. And to make
sure people would use all that technology—only 10 percent to
15 percent of the staʃ
were familiar with PCs—the company bought a computer for each one of them for
Christmas in 1990, complete with oɽce software and games, to be used both for work
and for leisure. From there, things really got rolling.
People were allowed to organize their own work schedules. The new oɽce furniture
consisted of identical drawerless desks that could be used by anyone and rolling caddies
to hold a few ɹles and personal items, which could easily be moved to any desk (and to
a storage room if a person was traveling). To make the furniture changes easier, the
company’s old furniture—in particular, senior managers’ desks, sofas, lamps, and
antique clocks—were put up for auction internally. All were bought up cheaply by
employees on one summer day in 1991. Other design features included conference
rooms without chairs, and meeting spaces—such as around a coʃee bar—also without
chairs. A survey had shown that development engineers spent 75 percent of their time
on administrative tasks—and meetings. So making people stand for meetings—or at
least, not staring at the table but at their colleagues—promised to reduce the time spent
in them.
Then, like Jeʃerson, Kolind decided to show oʃ his project, unɹnished though it was.
He dubbed it “The Company of the Future” and invited in the media and fellow
businessmen. In the week following Kolind’s press conference, Danish newspapers and
magazines all ran articles on Oticon’s “spaghetti organization.” Oticon was still several
months away from even completing the construction on the oɽce, but the stream of
visitors was constant—eventually they would reach five thousand a year.
In the meantime, however, as at UVA, the unɹnished project ran out of money. But
unlike Jeʃerson, who successfully appealed to the government of Virginia, Kolind found
his reception before Oticon’s board unsympathetic—they had begun to question the
wisdom of the whole enterprise. So Kolind proposed a diʃerent solution: He would raise
the money to ɹnish the construction from the employees. It worked: Even the union
representatives, after consulting with their base, invested. Most of them, including
Kolind, took out personal loans to do so.
Then came the grand opening. On August 8, 1991, to the surprise of Oticon
employees, the event was covered not only by the Danish media, but by major
international news outlets, too, including CNN. All of them ɹlmed the new building’s

most spectacular feature: a big glass tube descending from the ɹrst ɻoor mail room
through the ground ɻoor company restaurant and to the basement recycling container.
In the mail room, all incoming mail was scanned and then shredded, “feeding” the glass
tube. Through it, the bits of paper fell like snowɻakes as a constant reminder that the
paperless company of the future wasn’t an impossible dream.
But Kolind’s vision wasn’t manifest only in the almost total absence of paper. In the
coming years, Oticon employees would spontaneously launch dozens of new projects
and potential new products—at one point, Oticon had seventy such projects under way
simultaneously. And in an echo of W. L. Gore & Associates’ ɻuid structure, people could
often ɹnd themselves leading or participating in three or more of them at the same
time. To manage this profusion of innovation and activity, Kolind put in place a
Products and Projects Committee to review and monitor everything that everyone was
suddenly doing.
The time to market for new products was reduced by 50 percent, and Oticon started to
churn out one innovation after another. Just two years after the inauguration of
Kolind’s oɽce of the future, Oticon was generating half of its total revenue from these
innovations. In the summer of 1995, Oticon launched DigiFocus, the world’s ɹrst all-
digital in-ear hearing aid, despite having given its competitors an eight-year head start
on digital technology. Sales, which had already doubled between 1990 and 1994, had
doubled again by 1999—a 400 percent increase in revenue in one decade, accompanied
by double-digit profit margins.
Kolind began to feel that he had succeeded. In 1995, Oticon took over a big Swiss-
owned competitor and conducted a successful IPO. At the same time, he spearheaded an
international expansion, expanding branch oɽces in half a dozen other European
countries as well as in the United States, Australia, and New Zealand.
But all was not well back at home, despite the short-term
successes. Unbeknownst to
Kolind, the Products and Projects Committee had become a major source of discontent
and frustration within the company. People felt that the committee was micromanaging
projects, suspending them or holding them up arbitrarily, and in general not upholding
the values propounded by Kolind and parroted by the management. Kolind had created
the physical ediɹce he desired and he had gone some of the way toward freeing Oticon’s
people. But he absented himself too much from maintaining the new culture. And as a
result, he didn’t get the early warning signals about simmering employee discontent.
So one day in 1995, the pot ɹnally boiled over. Oticon’s employees called a
spontaneous meeting to voice their anger. At the meeting, they loudly denounced the
constant violation of Oticon’s values by the top management. The Products and Projects
Committee was singled out for its intrusiveness and seemingly arbitrary behavior. It was
viewed by the rank and ɹle as tyrannical and capricious. Employees who had been told
they would be trusted believed that they were not being treated as equals, and they
demanded changes. The former middle managers who had lost their managerial
prerogatives saw their opportunity and joined the calls for change. And the senior

managers to whom Kolind had issued his ultimatum—“You’re with me or against me”—
saw an opportunity to lash out as well. All of them got the changes they were looking
for, but these only accelerated the erosion of the culture Kolind had wanted to build.
Following the confrontation, Oticon was divided into three parts according to market
segment: mass-market, mid-market, and high performance. This stratiɹcation, Kolind
would later comment, turned the spaghetti organization into lasagne. The Products and
Projects Committee was replaced by the Orwellian-sounding Competence Center. This
group of senior managers, far from addressing the complaints directed toward the old
committee, doubled down on them, taking upon itself the authority to start new projects
and so killing whatever initiative still lay with frontline people. It also started
appointing project leaders and constrained their earlier ability to negotiate
compensation for project members. The liberation campaign was effectively over.
During this period, according to the people who knew him, Kolind himself became
disenchanted, even bored, with the company he had tried to transform. He lingered on
for a few years, but shortly before the tenth anniversary of his arrival, he quit.
WHAT WENT ROTTEN IN THE
KINGDOM OF DENMARK?
Oticon’s case is widely studied in business schools around the world. Whether that’s
because traditional managers ɹnd comfort in the failure of Kolind’s grandest ambitions
is hard to say. But like Sun Hydraulics—another company popular in business schools—
Oticon is more studied than understood. So let’s take a closer look at what went wrong.
At the beginning, Kolind did a lot of things right. Indeed, Oticon’s liberation campaign
has striking similarities with many others in our book. For example, its organization
around projects initiated by “natural leaders” is much like Gore’s. Its elimination of the
middle-management layer is similar to FAVI’s approach. Its paperless oɽce is
reminiscent of USAA’s, and its oɽce layout and design resembles Richards Group and
the Finnish company SOL, as we’ll see later. Yet, its most fundamental similarity is not
with all other liberation campaigns that succeeded but with one that initially did not—
UVA.
Like Jeʃerson, Kolind tried to launch his liberation campaign with senior managers
(or professors) who were not convinced of the project or of the need to change their
ways. Kolind had seen from his ɹrst day that Oticon’s senior management enjoyed a
clubby, comfortable existence. Even in hard times, they had clung to their privileges. But
he did not remove them from their positions of authority. Instead, he made them “an
oʃer that they couldn’t refuse,” at least openly. Then, as members of the Products and
Projects Committee, those same managers didn’t behave like the sponsors they had
supposedly committed to being, but as the same old “bosses” under a different name.
What’s more, they made their decisions with ever-changing criteria and without
bothering to explain them to the people aʃected—like too many “how” managers, they

didn’t feel that they owed their people those explanations. This was not only
disheartening, but it led people to wonder what the company’s vision was and what
their “charge” was in pursuing it. Moreover, Kolind was oɽcially a member of the
Products and Projects Committee, and so some of the blame for its actions was directed
at him personally.
In other words, the culture Kolind built had many—even most—of the characteristics
of a liberated organization, but it was missing some features that are critical to
maintaining freedom in the workplace. Oticon’s vision was neither suɽciently clear nor
owned by everyone. And critically, neither the CEO nor other key leaders in the
company took it upon themselves to ensure that people both understood the company’s
vision and understood their role in pursuing it—their “charge,” in other words. The
result was both natural and expected: People started to pursue their
own
goals. This
often led to pushing one’s project at the expense of others for no better reason than it
was one’s own project, lobbying the Products and Projects Committee for resources and
visibility, and the rest. Kolind had wanted projects to compete but what he got instead
was the “rule of the jungle,” as Vertex’s Westphal called it. The Products and Projects
Committee, which was supposed to help orient activity toward the company’s goals,
instead became the locus for lobbying and internal competition—the inevitable higher
bureaucratic layer to resolve lower-level conɻicts. And the more power it wielded, the
more it attracted people’s eʃort and attention, and so distracted from the work they
were supposed to be doing. People began to measure their success by their ability to
commandeer resources from the committee, rather than by their impact on the
company’s business or bottom line. As one employee put it, “You end up in situations
where you act in some sort of anarchy and steal resources that others control.”
32
Employees knew that something had gone wrong, but without a management that was
ready to listen instead of tell, they lacked an outlet to express frustrations that could
have resulted in a mid-course correction.
It is possible, by the way, that some senior managers
were
listening. However,
remembering Kolind’s rough treatment early on, they were more likely to hide problems
from him than to bring them to his attention—nobody would want to be branded as a
“problem” manager. And Kolind himself had been taken up with other things too often
to listen to his people and to act as an eʃective culture keeper. So tensions and
frustrations built until the people rose up in open revolt. The culture was discredited.
Kolind understood this danger perfectly, in theory. He even wrote, “The more freedom
… we as a company want to give to staʃ, the more clarity we must create about
mission, vision, strategy, and values.”
33
And yet he still failed to maintain this clarity.
The backlash was predictable. Oticon’s employees had been promised freedom, but the
hierarchy that was shown the door sneaked back in through the window—of the
Products and Projects Committee. This loss of control naturally produced a counterstrike
against the perceived source of stress—the top management.
People at Oticon had certain trappings of freedom—they could set their own work

schedules and move their desks—that is, caddies—anywhere in the company’s open
space. But when it came to the most important aspects of their work, managers had
continued to exercise the power of life-and-death authority over the projects that, in
theory, frontline people were supposed to organize their work around.
It is curious, but true, that people who are promised freedom but then denied it—
whether they worked at Oticon or were enrolled at UVA in its earliest days—perceive
the lack of freedom much more strongly and so behave unpredictably when confronted
by it. A person who has no expectation of freedom may, in fact, see their situation as
normal and prove more docile than one who has had it oʃered with one hand and taken
away with another. Kolind had, in a sense, released his own monster by promising more
than he, as leader, delivered in the end.
Kolind’s story is important because a liberation campaign isn’t easy to pull oʃ, and
Oticon’s case shows how even subtle mistakes can grow into serious problems down the
road. Of the three universal
needs discussed earlier, Oticon fell short most clearly when
it came to self-direction, and as with Jeʃerson’s faculty, it was the layer of management
between the visionary and the frontlines that short-circuited the nourishing
environment. It was Kolind’s responsibility, as it was Jeʃerson’s, to listen for the signs
of this before they blew up. He failed to act as Oticon’s “culture keeper”—a concept
we’ll explore in
chapter 13
—and so he left his employees feeling betrayed.
But now let’s turn to building an environment that does nourish those needs. Done
right, this will lead people to act both on their own initiative and in ways that serve the
company’s vision. The leaders in the following chapters show that it can be done.

R
9
FROM MOTIVATION TO
SELF-MOTIVATION,
PART TWO
Work and Management Practices That Nourish
OBERT
T
OWNSEND MAY
have been the ɹrst liberating leader to transform a needs-depriving
corporate environment into a nourishing one. In 1962, when he became a CEO of
Avis, he already had one liberation campaign under his belt from his time as an
executive at American Express. There, he had put into practice his radical approach to
removing everything that stiɻes employee initiative. But that was on a smaller scale in
American Express’s investment and banking division, where essentially everyone
worked in the same building in New York. At Avis, he faced a diʃerent reality, with
about one thousand rental oɽces—each with several branches—scattered all over the
continent. He also faced a sleepy company that had struggled to make a proɹt for
thirteen years without success. Making Avis proɹtable thus became Townsend’s ɹrst
priority. To make it the top priority of Avis’s thousand or so oɽces as well, he turned
each one of them into its own proɹt and loss center. In itself, this is not an unusual
measure. It put the ultimate responsibility for proɹt making in the hands of the frontline
managers and led Avis out of the red—which was Townsend’s initial goal and condition
to start the company’s full liberation. This devolution of responsibility was the ɹrst step
in making clear who owned which monkeys. But it did not immediately resolve the
question of who should get credit for success.
“When Avis finally broke into the black for the first time,”
Townsend recounted, “our management developed a severe case of ‘us’ versus
‘them’—‘us’ being the geniuses at headquarters and ‘them’ being the people in the ɹeld
in the red jackets who were renting cars and paying our salaries and doing an enormous
amount of hard work.”
1
That didn’t sit well with Townsend’s “agricultural” approach—
which, to begin with, treats people as intrinsically equal. So he made his ɹrst move to
build a liberated environment.
At one Monday meeting, he casually made the following announcement: “By the way,
we’re all going through the Avis school for rental agents at O’Hare Field.”
“There were great screams of rage from these busy executive geniuses,” Townsend
recalled, to which he said, “Listen, it’s not necessary. I’m not ordering you to do it. All
I’m telling you is, until you go through it with a passing grade, you’re not in the

incentive compensation plan.”
2
And to prove how important he felt this was, he added,
“I’m going through it next week.”
It wasn’t easy. The executives lived in a motel, studied in the afternoon, were tested
every evening, did their homework at night, and rented cars to real customers, wearing
their “I’m a trainee” buttons all morning. Townsend recalls:
One morning, I was renting a car at O’Hare and this customer came to the counter. I was taking a long time getting the
keys right, processing the car control card, checking the credit card, smiling at the other people in line so they
wouldn’t drift over to our competitor. And he said, “Will you please hurry up? I’m in a hurry.”
And I said, “Give me a break, I’m a trainee.”
“Would you tell me how on earth a training program could pass somebody as clumsy and as ignorant as you seem to
be?” he said.
And I said, “Well if you want to hear something really sick, I’m the president of the company.”
Whereupon he forgave me completely, and said, “Hey, at least you’re out here ɹguring out what’s going on. My
president never leaves his office.”
3
This—not entirely voluntary—training program for executives transformed the
corporate environment. “When we got through that course,” explained Townsend, “we
were wearing red jackets at headquarters. The ‘us’ and ‘them’ thing was history.”
4
Forcing his executives a bit to go through the course—with the threat of withholding
tangible rewards—was necessary for Townsend. If he wanted to build a free
environment, he
had
to transform the executives’ arrogant attitude toward Avis’s front-
line people: It wasn’t optional.
You might doubt that simply training executives to do others’ jobs would transform
their attitudes and, with it, the corporate environment. And you’d be right to be
skeptical. Building an environment of equality requires the elimination of
all
of the
symbols and practices of “us” versus “them”—reserved parking spaces included. But at
the same time, treating people as intrinsically equal is not enough to get them to self-
motivate and embrace their freedom and responsibility. Other parts of the environment
—its many
work practices—
have to be transformed, too, so that they nourish people’s
needs for growth and self-direction. At Avis, this work-practice transformation was
jump-started by the training program.
While in training, Townsend and the other executives realized that they were asking
rental agents “to do an impossible job.” Filling in rental agreements by hand was
cumbersome and stressful—especially with long lines of clients waiting for their cars
(this was in the 1960s). The agreements could not be eliminated—they were an essential
component of the car-rental business. But, just as rowing gave way to sails and motors,
handwriting gave way to computers. And Avis became one of the ɹrst in the car-rental
business to install them—in order to reduce the stress on their rental agents. This, in
turn, allowed the agents to focus more on their customers’ needs and do their most
important job, which was to keep the customers coming back.

This was followed by a systematic eʃort by Townsend and his thousand managers to
identify every other work practice that prevented people from doing their best. They
created a comprehensive list of questions that left no stone unturned: “What made you
mad today?” “What took too long?” “What was the cause of any complaints
today?”
“What was misunderstood today?” “What costs too much?” “What was wasted?” “What
was too complicated?” “What’s just plain silly?” “What job took too many people, and
what job involved too many actions?”
5
Townsend explained that you don’t ask all
people all those questions. You try one on one person, then move to another area and
try another question on another person. Then, Townsend and his managers got busy
removing the ropes and barnacles that prevented people from showing how fast and
how far they could go in their boat. This freed them, too, to adjust their sails on the ɻy
when the wind changed.
It is easy to ask for these improvements. It is not easy, but it is necessary, to be
rigorous about implementing them. If your company can’t remove
all
the work practices
that deprive people of growth and self-direction, if it knowingly leaves in place even
one—say, mandatory buying from a single, centrally chosen supplier—employers will
point to this work practice as an excuse for underachievement. Instead of being self-
motivated they will be resistant. That way lies the game of dangling extravagant
tangible rewards to motivate—bribe—people to do what they are not willing to do or
don’t believe is possible because of obstacles put in their way.
The good news is that leaders don’t have to take care of removing obstacles and
solving problems by themselves all the time. They have to cut the ropes and clean the
barnacles to get the boat going. Once people see the change, see the boat
really
moving
with no one at the helm telling them how to do their jobs, the
natural leaders
will emerge
to overcome the new and inevitable obstacles and challenges. Later in this chapter we’ll
meet a few of these natural leaders.
But what about the boat’s helmsman, or company management? It may be objected
that, however annoying the helmsman can be, he cannot be simply removed, because
the management fulɹlls the vital role of coordinating business activities, of keeping the
trains and boats running on time. This line of thinking would seem perfectly reasonable
if we hadn’t already seen—at Gore, FAVI, and Harley—that the commanding helmsmen,
the “how” managers, are not the only way to fulɹll this role. Beyond the alternative
work practices—
how one accomplishes a task and in what conditions—there also
exist
alternative
management practices—
how one leads. In order for people to join a liberation
campaign, management practices must be rebuilt. And Jacques Raiman, the chairman of
GSI, the European leader in outsourcing payroll services, was more aware of that than
anyone in France.
FROM HELMSMEN TO NOURISHING LEADERS
Or maybe he wasn’t. In 1979, Raiman was not yet thinking of how to transform his

managers’ practices. Inspired by Townsend’s book
Up the Organization
, he dismantled
and rebuilt dozens of GSI’s work practices—including the ɹling of ɹnancial reports and
expense bills. But changing
managers’
behavior was not on his mind back then. Instead,
he was busy with a big issue: the conɻict-ridden labor relations he had inherited in two
newly acquired midsize companies. Jean-François Cottin, GSI’s human resources director
—who was opposed to “managing human resources” and kept his “HR department” to
one person, himself—introduced Jacques Raiman to Yves Tillard, a consultant whose
approach appealed to Raiman. Tillard analyzed the labor situation and identiɹed a
common cause for tense union-management relations: the “how” management practices.
In March 1980, he shared his ɹndings with Raiman and together they developed a plan
to change GSI’s managers’ habits through a series of two-day seminars.
That’s right. A seminar. Yes, we’ve all been to some pointless seminar or “oʃ-site” at
which we had to catch one another falling backward to build trust and talk about
feelings while secretly thinking a thought that we’d previously believed impossible: “I
wish I was back at my desk.” Or, as they say in France: “If seminars changed something
in everyday practices, it would have been known loooong ago.” You’d be fully justiɹed
to think the same about the GSI seminars, too—if it was not for all the little ways that
they were different.
For starters, Raiman hadn’t simply agreed to let Tillard facilitate the seminars at GSI:
Raiman, the chairman, also agreed to do his best to help out at each one of them
himself. He didn’t assist at all of
them—just about half, but people expected and were
bracing for his presence every time. And the number of those he assisted in—in France,
Italy, Spain, Switzerland, the Netherlands, Belgium, Germany, the United Kingdom, and
two U.S. states—amounted to 150. That, multiplied by two days, is equal to more than a
full year of the company chairman’s work time—travel excluded. So there was not much
talk in GSI about the chairman who doesn’t care about the “pointless” seminars. And
when Raiman could not assist at a seminar, either the CEO, Jacques Bentz, or the head
of a relevant division went in his place. Plus, there was always a head of the local
business unit present. This was the second important diʃerence in GSI’s seminars: They
were never imposed from on high. Seminars were only organized when the head of the
business unit asked for it
and
committed to participate himself. The third special feature
is even more impressive. Altogether, during a ɹfteen-year period, GSI put on three
hundred seminars dedicated to changing managers’ practices in its diʃerent business
units and departments.
That last feature shows that Raiman and Tillard did not expect that they could change
management practices instantly or even quickly. People’s habits don’t change overnight,
and they never change if people don’t want them to. As Rich Teerlink put it, “People
don’t resist change; they resist
being
changed.”
6
GSI’s two-day seminars always ended
with the participating managers choosing for themselves what practices they would
commit to change. They were not forced to commit to any, but if they did it was made
public and followed up on later at another seminar—again with the presence of the
head of the business unit and, usually, Raiman or his CEO—to assess the progress.

Though some managers chose not to change their ways—and some heads of the business
units declined as well—most transformed their “how” habits that were depriving
people’s needs into leadership practices that nourished them. It wasn’t simply the
seminars that accomplished this; it was also the extraordinary dedication of the
chairman and the CEO—in actions, not in words. It was also the choice given to the
heads of the business units to initiate them, the choice given to managers to decide
whether to change their practices, and the outstanding scale—in quantity, time,
and
geography—of these seminars in the company. Raiman retired in 1995 when the
company was acquired by ADP, the leading American payroll and human-resources
outsourcing ɹrm. But the seminars are still running at ADP-GSI for new managers and
employees.
Harley-Davidson used diʃerent sorts of seminars to modify its “how” culture, ones
facilitated by consultants who taught top managers to stop pretending to listen, stop
being manipulative in debates, and so on. In both companies, the format was dictated
by their size and their preexisting organizational structure. At smaller companies,
managers can be educated directly by their superiors—even over dinner—to adopt
nourishing habits. That’s what Bill Gore did in the early days of his company.
DEVELOPING NOURISHING LEADERS
RIGHT AWAY
Although Bill Gore’s inspiration for his start-up’s freedom environment came from
DuPont’s R&D Skunk Works, he wasn’t looking simply to create great working
conditions for researchers and engineers.
7
W. L. Gore & Associates was a small industrial
company facing the typical challenges of production, sales, recruitment, growth, and
proɹtability. But Gore knew that success would come from self-motivated people taking
daily initiatives to meet these challenges—not from supervisors. Management’s role—as
he envisaged it—was to act in the service of the rest of the people and to nourish their
needs. It wasn’t easy, though. Some Gore supervisors didn’t care about the universal
needs of people but rather about drafting policies or skimping on work conditions and
equipment. But unlike most companies—including DuPont—Gore did not translate these
challenges into a problem such as, “What is the optimal
managerial structure
to run and
coordinate all these business activities?” Instead, he stuck to its creative redeɹnition:
“What kind of leaders should we have to get people to self-motivate to run and coordinate
these business activities by themselves?”
Bill Gore knew that “how” managers’ and supervisors’ practices do not make people
self-motivated to build a freedom-based
environment and do their best, day in and day
out. After Gore stumbled upon manager Les Lewis’s “formula for failure” of
not
caring
about people’s needs, he started monthly Socratic dialogue dinners with his supervisors.
Once it appeared that supervisors were changing their habits, Gore abandoned both
managerial titles and the authority attached to them. Supervisors became nourishing

leaders. But that was not enough.
In 1961, as the company’s sales of their only product at the time—Teɻon-coated wires
and cables—was picking up, Gore looked for ways to expand their sales network. This
was not long after the company had moved from Gore’s basement into a small plant up
the road, where it still operates. That same year, Burt Chase joined the ɹfty employees
at Gore. Right out of college, he didn’t know what he wanted to do and started as a
product inspector checking that the cables’ and wires’ insulation was sound. He hadn’t
been at that long when Bill Gore approached him and said, “We’re interested in trying
our own salesperson. Would you be interested in going to California?”
“I don’t have any experience in California. I don’t know the customers. I don’t have
any sales experience,” Chase started to reply.
“Well, you know, you can learn, you can ɹgure it out. The question is, Are you
interested in this kind of an opportunity?” Gore said.
“OK. That sounds really great to me,” said Chase. “When do you want me to go?”
“That’s kind of up to you. Why don’t you ɹgure out when you should go,” replied Gore
in his typical, never-telling-what-one-should-do style.
“What else do I need?” Chase continued to probe.
“You’ve got to ɹgure out what else you need and how you’re going to go about this,”
was all Gore provided as an answer or, rather, nonanswer.
8
And Burt Chase—because he liked sales and was supported by the company’s
nourishing environment—indeed went to California “to ɹgure out” his own answers to
his own questions.
“That’s a formula for failure,” you may think. Sending out a rookie—in sales and in
management, a couple of years out of college,
to a big region, remote from
headquarters, to “ɹgure out” his answers sounds like an irresponsible decision on the
part of Bill Gore. But there’s more. Bill Gore knew that Chase had an interest in sales,
but his credentials in the ɹeld were something short of stellar. When he’d joined Gore,
he’d let it be known that he’d previously applied for a salesman position at several
insurance companies—and failed the sales tests.
With all that in mind, “formula for failure” may not do justice to Gore’s assignment
for Chase. “Recipe for disaster” might seem more like it. But Gore was not, primarily,
concerned with building a managerial sales structure in California, and so he wasn’t
seeking an expert manager to put on top of it. No, whether it was sales in California or
production in Delaware, Bill Gore was looking for nourishing leaders, not managers who
would tell people “how” to do their jobs. As he didn’t have many such leaders in his
small start-up, he had to cultivate some himself. He was ready to accept the risk and
demonstrate the patience needed to develop them. Burt Chase soon tested both.
After he succeeded in getting the sales business oʃ the ground for the western half of
the United States, Chase realized he needed more people to keep it growing. So one day,
he phoned Bill Gore.

“I have no experience at all [in ɹnding people]. What should I do? Help! Send me
somebody,” Chase said.
“Well, you know, I don’t have anybody to send you. Why don’t you just hire
somebody,” Gore replied.
“How do you do that?” Chase wondered.
“Why don’t you ɹgure it out? You know how people get jobs and such things. Figure
out how to hire.” As you may have noticed, “ɹgure it out” was a favorite refrain of
Gore’s.
There’s no question that Gore was taking a risk on Chase, especially given his
discouraging results on the insurance sales tests. He could have botched the whole
project (he didn’t). The alternative—taking Chase’s “monkey,” telling him how to hire
and, how to run operations—would have traded the risk of Chase’s making mistakes for
the certainty that he would neither grow into his new role nor take ownership of it.
What’s more, if Bill Gore practiced “how”
management with Chase, that would show
Burt Chase how to treat the team he was to assemble out west. According to Chase, in a
future leader, Bill Gore was expecting “the capability but not experience.” Gore did not
oʃer leadership roles to people he did not think capable of assuming them. Yes, Chase
had failed those insurance company tests, but Gore no doubt felt that they were
measuring the wrong things. The fact that Chase had taken them showed that building a
sales team was something he
wanted
to do, which Gore likely saw as more important
than Chase’s thinking he knew how to do it (especially since he didn’t). Gore, according
to Chase, was “giving you conɹdence, and saying ‘You’re going to get a new experience,
it will help you grow, help you be stronger and if you have to hire somebody else, you
will learn how to do it more eʃectively, more eɽciently…. Figure out how to train them
and get them some experience.’
“And,” Chase clarified, “there was an expectation, ‘Please communicate with us, tell us
what you’re doing, tell us what’s happening out there. We need to know, because if
there is help [required]…we need to know about it. We need to know when we should
come out and visit, and when one of our technical people should come out and visit the
customer with you… Use us to help gather the information you need, but then you make
your decision; don’t turn it over to us.’” In other words, Gore didn’t want to feed Chase
answers, but he didn’t want him “out of sight, out of mind” either. The headquarters was
there to provide help—but not to take his monkeys off his back.
As Chase developed into a leader within Gore, the business that he’d been sent west to
build grew. At a certain point, Chase got the idea that many of his prospects and clients
expected to see the magical word “manager” on his business cards instead of the simple
“associate” that was on everyone’s cards at Gore, in accordance with Bill Gore’s
prohibition on titles in the company. On his next trip to headquarters, he explained the
situation to Bill Gore, outlining why he believed his lack of a title hurt sales, and asked
for help: He wanted Gore to allow him to put the title “regional manager” on his cards.
That request exhausted Bill Gore’s patience. Chase received a
rare lecture from Gore—

which lasted half an hour, according to Chase—about titles and how most of the time
they exaggerate one’s capability.
“The word ‘manager’ just doesn’t tell you anything,” Chase recalled Gore telling him.
“What do you manage, where are your strengths? Is it leadership, administration,
organization, planning, analysis?” Bill Gore continued to grill Chase. “You’re telling me
you’re good at all of those if that is my expectation of you as a manager?” Receiving no
argument from Chase, he concluded, “I have other people that I need that are good at
some of these things,” and he named people that he had to rely on to do certain aspects
of “management.”
In the end, despite the clear demonstration that he “didn’t like the word ‘manager,’”
Gore said to Chase: “You can do what you want, just … don’t … bring that card around
here. If you decide to put that stuʃ on your card, I don’t want to see the card. I don’t
want anyone else to see the card. It’s for the marketplace only.”
“And so,” Burt concluded, “I put ‘regional manager’…on the damn cards.”
Help received and case closed? Not so fast.
What about that “damn”? It hinted that Bill Gore’s lecture had had an eʃect. Chase
still thought he needed the cards, but now he wasn’t any happier about it than Gore
was.
“‘Regional manager’ seemed kind of harmless,” explained Chase. “But then … as an
experienced person now, I was helping to articulate the culture…. As a role model… I
wanted to practice the culture. I wanted other people to practice what we want to do
and I’ve got a title on my card [that got] in the way.”
That was the solution Gore hoped Chase would ɹnd by himself, the type of nourishing
leader he hoped Chase would develop into. And though Gore took a risk and needed
plenty of patience, Burt Chase proved he was worth it. “We were a no-titles
organization by Bill Gore’s deɹnition and it took this example to really prove it to me,”
Chase explained. But then Chase delivered the real punch line: “I realized that it wasn’t
just as an associate [for my colleagues] that
I shouldn’t have this title; it really didn’t
serve me well in the marketplace anyway.” A “manager” title, Chase explained, didn’t
just make others feel inferior. It also prevented him from nourishing their growth
“because the way you develop relationships, truthful, honest, open, frank relationships,”
Chase continued, “is to get to know somebody, get to know them for what they know, so
that they can take advantage of your strengths and what they know about you; you’ve
got to talk to each other, so it’s not the title on the card that gives them that
information, it’s the conversation that gives them that information.”
Bill Gore’s nourishing leadership had won Chase over and made him enthusiastic not
only about taking part in building a freedom-based environment in the company, but
also about developing into a nourishing leader himself. From a “simple associate” Chase
became a
nourishing leader
who practiced in his new job the management practices that
fully satisɹed his own people’s needs to be treated as equals, to grow, and to self-direct.
But this was also an illustration of something else: Chase’s story is also one of a “simple

associate” who became a
natural leader
, who took responsibility for solving problems
that business situations demanded.
Bill Gore’s approach for growing natural leaders was “to take a chance and give
somebody an opportunity” to lead, said Chase. If you took that opportunity out of a
person’s hands, he wouldn’t be self-motivated to take part in building a freedom-based
environment—or for leading the business.
It worked out ɹne for Burt Chase. He spent all forty years of his professional career at
Gore, assumed more and more leadership responsibilities, became a self-appointed
theorist of Gore’s culture, and eventually wrote a book on it. It was Chase—though he
has been retired for some time already—whom Gore’s PR person appealed to in order to
explain to us the company’s culture and its emergence. Not a bad career for a person
who failed sales tests before joining Gore.
Here, by the way, is one test Chase failed to pass in an insurance company, as he
recounted:
“If you walked into a potential client’s oɽce and the receptionist
said he’s busy right
now, but you could see through the door that he was in there, sitting at his desk, would
you find a way to skip the receptionist and talk to this person?” he was asked.
“No way,” answered Chase. So his interviewers concluded that he was not aggressive
enough.
Bill Gore saw something in Chase that the insurance salesmen didn’t. Chase would
prove him right in spades.
All organizations, from start-ups to
Fortune
100 companies, have business issues that
require attention. Most formulate a response by asking, “Which manager should we
assign to take care of the situation?”
Not liberated companies. Wary of managers who—perhaps—will grab the helm, “take
care of the situation,” but forget to satisfy the needs of the people who are part and
parcel of a sustainable solution, liberated companies creatively redeɹne the problem as:
“How can we help a person concerned with a business situation to take the lead in it
naturally?”
THE COMING OF THE NATURAL LEADERS
Harry Quadracci, Quad/Graphics’ CEO, and his brother Tom—a cofounder and Harry’s
eventual successor—also understood how to nourish natural leadership. Quad/Graphics
was started in 1971 as a small, Pewaukee, Wisconsin-based magazine printer. After a
slow ɹrst decade, the company began to grow quickly. To ensure high-quality printing,
it invented sophisticated equipment of its own over the years. Rather than keep its
innovations to itself, Quad set up its QuadTech division to sell this equipment, even to
its competitors. Harry Quadracci believed in the beneɹts of feeling your competition
breathing down your neck.

Tom Quadracci served as QuadTech’s ɹrst CEO. In the early 1990s, Karl Fritchen was
Tom’s young manager of Asia-Paciɹc sales operations. Fritchen’s leadership opportunity
came in Japan, where QuadTech had always worked with local distributors to sell their
products. One day, on the eve of a trade show, Fritchen discovered in
a local English-
language newspaper that their distributor had gone bankrupt. The show’s organizers
promptly closed the QuadTech booth with yellow tape, fearing nonpayment. The ɹrst
thing Fritchen did was wire money from the United States to the show organizers so he
could gain access to the booth. Then, during the weeklong show, Fritchen met with
diʃerent companies willing to represent QuadTech printing equipment in Japan. But he
was not convinced. So Fritchen picked up the phone and called Tom Quadracci, his boss,
in Pewaukee, Wisconsin.
9
“Tom, I think we should put our own oɽce in here,” he said. “What happened with
our distributor happened to a lot of people caught ɹnancing projects when the bubble
burst and they were unable to pay. I think that others may be in the same situation.”
Fritchen then added one more argument against local distributors: “Here, if they sell one
of our products to Mitsubishi, they can’t sell it to Toshiba. So if you link up with one,
you’re missing a whole other part of the market.”
“OK,” replied Tom. “Speak to a couple of business consultants, and ɹnd out what’s
involved.”
Fritchen did, and every single consultant he talked to advised him against establishing
an independent distribution network in Japan. Fritchen put together a report, sent it
back to Pewaukee, and called his CEO again to debrief.
“What do you think?” asked Tom Quadracci.
“I still think we should start up our own oɽce,” replied Fritchen. “I know that all the
data says the opposite of speaking directly to our customers. But I’m convinced that
they’ll support us. We should do this. We’ve got a great reputation of Quad/Graphics
knowing the print market.”
“Hang on a minute,” said Tom Quadracci, and put Fritchen on hold. A minute later, he
said, “Karl, I’ve got Harry on the phone. I want you to outline to Harry what you just
told me.”
Being in sales for the past four years and therefore constantly on the road, Fritchen
had never met Harry Quadracci. Yet he repeated his arguments in exactly the same way.
“OK, sounds like a good idea,” said Harry Quadracci. “I want you
to stay in Japan,
ɹnd oɽce space, hire staʃ, and then when you’re all done, come back to the board and
explain why we did this.”
“He didn’t say, ‘Put together a plan, present it to the board, get approval, then go
back and do this,’” Fritchen later told us. That was the reaction he would have expected
at another company. “My previous employer was so radically diʃerent that I just fell in
love with this place immediately when I walked in.”
Unlike the quiet Bill Gore, whose discontent seldom translated into lecturing, Harry

Quadracci was extremely—and frequently—temperamental. One of the things that
would set him oʃ was when, instead of helping leaders to emerge naturally, an outside
person would be called in. Steve DeBoth, a relatively new plant manager, found this out
the hard way.
10
Soon after he had hired an outside candidate for a customer-service-
representative job, he got a call from Harry Quadracci.
“I heard you think you hired someone,” his boss said.
DeBoth explained that he needed an experienced person and found a woman who had
already resigned from her previous company.
“How could you?” Harry Quadracci asked angrily. “Do you know that that job is one
of the most coveted in the company by all the folks who are working on the
manufacturing ɻoor? How could you take that opportunity away from them?” Then,
after he calmed down a bit, Quadracci explained, “Do you know how many tens of
millions of dollars I have spent in lost productivity because I didn’t hire an experienced
pressman and let a second pressman learn how to run the press? Don’t you think I know
what it costs me? Here, you go ahead and take an opportunity away from them. Don’t
do it again.”
DeBoth never repeated the mistake, and later said, “He was so angry because what
drove him was providing opportunity for people. He really got his joy from seeing
someone do something they couldn’t do years or months before, watching them grow.”
Bill Gore and Harry Quadracci had diʃerent—even opposite—temperaments. But they
both created environments that helped people closest to a business situation develop
into natural leaders.
These environments also helped natural leaders develop into nourishing leaders who
enhanced others’ self-motivation. We saw this with Burt Chase as well as Karl Fritchen:
Since the Quadracci brothers helped Fritchen become a leader, he was willing to do the
same for others: “I’ve lived those experiences [of being trusted to take the lead]. The
feeling you get as an employee to have that happen to you, you want all your
employees to have that same type of feeling and commitment to your organization.”
Today Fritchen is the CEO of QuadTech himself.
Of course, what liberating CEOs like Gore and the Quadracci brothers do is only one
way to facilitate the natural emergence of leaders. At Gore, experienced associates—
called sponsors—direct younger colleagues to areas whose needs are a good ɹt with
their skills and inclinations; it is then up to the individuals to prove to the people
working in that ɹeld that they can be useful. “When I sponsored them,” Burt Chase
recalled, “I gave them a list of names, and I said, ‘Why don’t you go meet these people
and talk to them about your experience, where you’ve been, and ɹnd out what they’re
doing, what their business is. Take a couple months to do this. And I’ll hear from them,
and I’ll hear from you. And maybe we can then decide where you might make a
commitment, where you might start.’”
11
At FAVI, work team members simply decide among themselves whom they deem best

to become their next leader. Back at Gore, anyone who’s interested in initiating and
leading a project can start doing so while continuing in his current role. If he succeeds—
as a leader—in attracting enough followers, he can gradually migrate to that new role,
as we saw Dave Myers do in developing Elixir guitar strings in
chapter 1
. At FAVI again,
it goes even further. If nobody emerges to lead an opportunity, the company will not
convene a meeting to search for an interested person. Instead, because no leader has
naturally emerged, the opportunity will be deemed not worth pursuing. Here is how
Rich Teerlink summarized a similar approach at Harley-Davidson: “I have a very simple
philosophy: If a decision has to get made, it will get made. [I often heard] ‘We’ve got to
get this thing done.’ Why? … If we [the leaders] just let things go,
it might solve itself.
We don’t have to intercede. Whose problem is it? Is it my problem or is it someone else’s
problem?”
12
You may say that this laissez-faire attitude is all well and good in ɻush times, but can
this approach possibly be maintained in a crisis? If there is no person concerned with
the situation and emerging as a natural leader to take care of it, shouldn’t the people
ultimately responsible for the company grab the helm and tell others what to do? A
crisis presents a sore temptation to reassert control and “do something.”
But recall one of the reasons you gave up control in the ɹrst place: Those who have
the best information to judge the severity of the situation and the best available
solutions are the men and women
on the spot
. In “how” companies, their knowledge is
ignored because the upper echelon believes it knows better. But in a freedom-based
company these people and their knowledge are trusted. If they think their eʃorts and
company resources are better spent elsewhere, their opinion is highly regarded and most
often followed. Recall Vertex. Jeʃ Westphal ɹrst grabbed the helm and wanted
everyone to redouble their eʃorts to salvage a failing project. But then he changed his
management style and listened to people who had superior knowledge about the ɹeld.
One of them emerged as a natural leader and helped to reorient the company’s resources
toward a new, ERP-based software project. This saved Vertex and formed the basis of its
continuous sales growth for years to come. Top managers in a crisis do not suddenly
become omniscient. Indeed, grabbing the helm and trying to right the ship may well
exacerbate the problem by cutting the leadership off from vital information.
AN OPPORTUNITY NO ONE SAW
Perhaps the most dramatic illustration we’ve heard of a person who saw a business
opportunity—to win a huge client—and took a natural leadership role in it happened at
GSI, whose liberating leader, Jacques Raiman, you’ve already met. In this situation,
nobody in the
company thought to grab the helm simply because nobody—except one
employee—ever saw this opportunity.
One day in the early 1990s, Jacques Szulevicz,
13
a salesman for GSI, learned by
chance—through friends at other companies—that Disney, which was building their

European theme park and resort just outside Paris, was organizing a bidding contest to
outsource their information systems. Szulevicz immediately thought that this could be a
huge opportunity to win a client with a worldwide reputation—a ɹrst for GSI. He told
Jacques Raiman about it and got strong encouragement. However, while trying to
obtain the bidding details, Szulevicz received disappointing news: The deadline for
submission was over. Annoyed at having just painted the great prospects for the deal to
Raiman, he decided not to give up.
Szulevicz learned that Price Waterhouse was organizing the bidding for Disney. After
several calls, he tracked down Robert N. in London, who was in charge of organizing the
bidding, and gave him a call to explain.
“You sound very nice, Jacques,” Robert replied. “But the deadline has passed.”
“Look, you have nothing to lose,” Szulevicz continued. He turned the conversation to
London and the life there. Quickly learning that Robert loved great food, Szulevicz
oʃered a proposition: “I’m coming. I’m coming to see you and to invite you for lunch.
You have nothing to lose and you’ll have at a minimum a good lunch.” Robert agreed,
perhaps forgetting the famous adage most often attributed to Milton Friedman: “There is
no such thing as a free lunch.”
14
So, without asking for anybody’s permission or authorization, Szulevicz arrived in
London and hosted Robert for lunch. Szulevicz was pleasantly surprised that Robert
spoke very good French and was married to a French woman. The small talk was going
nicely as they enjoyed good appetizers and wine. And then came the main course.
“Look, Robert,” Szulevicz said. “I’m doing this not only for me but also for you.”
“How’s that?” asked Robert, surprised.
“You organized an international bidding, right?” began Jacques. “You invited all the
biggest companies, including the French leaders, right? There are three leaders in
France: EDS, IBM, but”—Jacques paused—“you forgot the third: GSI.”
“Yes, but we took the biggest European companies,” Robert replied, in an attempt to
justify his choice.
“You are right,” Szulevicz continued. “But may I add that we are number one in
Europe in payroll outsourcing?” After allowing this information to sink in, he concluded:
“So you see, Robert, we are in the same boat now. Disney is a major client for you. You
can’t do this to them.” Szulevicz’s call for help didn’t go unnoticed by Robert, who by
now had realized Milton Friedman’s wisdom.
“Look, Jacques,” Robert started. “I’d like to help you, but you know how rigorous the
Americans are. I will give you the name of the head of the Euro Disney Project. Only he
can reopen the bidding.”
Szulevicz thanked him, of course, but asked Robert to phone the Disney executive in
advance and prepare him for his call. Back in Paris, Jacques called the man responsible
and explained his case.

“Look, I’d like to help you,” the executive, briefed by Robert, began. “But this type of
decision is very serious at Disney. Only the Euro Disney president here in Burbank can
do that. You should get hold of him.” And he gave Szulevicz the name.
Reaching the top guy wasn’t easy, of course, but after several calls Szulevicz got him
on the line.
“Sorry for my French accent,” Szulevicz said, and proceeded to explain his case.
“I appreciate your perseverance,” replied the president, perhaps forewarned about
Szulevicz’s determination. “But I don’t think I can help.”
“You know, I know Disney very well,” Szulevicz continued, not giving up. “It would
really be a dream for us.” And to prove his knowledge of Disney, he added: “Make a
dream a reality! I implement your slogan.”
“I can’t see how,” said the president.
“Mr. President, I propose a deal to you. If I teach you things you don’t know about
Disney, will I earn credit in your eyes?” Szulevicz
asked, only to hear hearty laughter
from the man, who had a twenty-five-year career at Disney.
“OK, you got it,” said the president.
“Great. Mickey was not called Mickey at the beginning,” Szulevicz offered.
“How was he not called Mickey?” replied the surprised president.
“No. He was not called Mickey,” Szulevicz started to explain. “You know that Walt
Disney was working in advertising?”
“I know that,” said the president.
“And I will tell you even more. It was then, in the 1920s, when he did this mouse
drawing. It had no ears, no shorts. And the ɹrst mouse was named Mortimer; it was
called Mickey much later,” said Szulevicz.
“You’re sure?” asked the president, increasingly excited.
“It’s our deal, Mr. President,” Szulevicz replied.
“Jacques, I’ll verify this point, and if you’re right, you’ll hear from me,” said the
president, ending the conversation. Soon, Szulevicz’s telephone rang.
“Jump on the plane. We’ll ɹgure out how to meet,” Szulevicz heard from the other end
of the line. From this, he understood that the president envisaged reopening the bidding.
Szulevicz booked the next ɻight to Los Angeles, then ran to announce the good news
to his chairman, Raiman, who was in a meeting. Raiman listened, erupted in applause,
and then turned to the others and said, “He’s a great salesman!”
Szulevicz left for Disney’s Burbank, California, headquarters and came back with an
opportunity to bid for Euro Disney’s information systems business. For GSI, this meant a
huge investment simply to compile the RFI (request for information) and show how
great GSI was in a preliminary “beauty contest” before it would even be oɽcially
invited to bid. This demanded signiɹcant resources and at that moment, the company’s

executives split into two groups. One faction declared it a folly; GSI had absolutely zero
chance of winning against EDS or IBM. The others said, “Why not?” Chairman Raiman
sided with the second group and gave Szulevicz his support once again: “We’ll do it. It’s
worth a try.”
Thus, Szulevicz was back on the ɹeld, though this time he needed a team. He gathered
twenty IS specialists from the toughest project he had won for GSI: operating IS for a
steel giant in the French smokestack industrial north. “They would start every day at 6
a.m. and lived in a region where there was nothing to do but work and work,” Szulevicz
said later. “I couldn’t help with this situation, and when visiting them would take them
for a good meal, to have a good time, to provide moral support for them. So I decided
that all these guys who had sweated there would now go to Florida for three weeks. As a
salesman, I had no formal authority to pick them but I just did it. And they became
strongly dedicated, with a real will to fight for this contract.”
Despite having no formal authority, Szulevicz became not only a natural leader of a
business opportunity to win a big contract but also a nourishing leader of the people he
enlisted into the effort.
After the U.S. beauty contest, Szulevicz rolled out the decisive—though unoɽcial—
contest in France. He soon learned that Euro Disney had a lot of diɽculties,
unsurprisingly, with the Kafkaesque French local political authorities and government
regulating bodies. So Szulevicz organized a cocktail party in a fancy hotel and, using his
personal network, invited all the concerned mayors, administrators, and Euro Disney
executives. “Imagine,” he commented, “the surprise of the Disney executives, who for
months had tried to get in touch with this or that French oɽcial, and here I am
introducing these guys to them? Don’t ask the cost of the event!” Why would he do that?
“I wanted to show them that if we worked together I could help with the most intricate
challenges of running their company here in France.” The sideshow can sometimes be
more important than the main show, particularly if the sideshow is French.
Running against EDS, the uncontested number one provider of IS outsourcing, GSI was
like a 180-pound French NBA rookie (say, Tony Parker, drafted in 2001) defending
against the 330-pound Shaquille O’Neal, the most dominating center in the NBA.
Szulevicz had to ɹnd something other than a frontal challenge. A huge fan of cartoons—
recall his knowledge of Disney history—he had his “Eureka!” moment: Instead of writing
a formal document, he would
make a cartoon in which the viewer discovers GSI and its
proposal like a visitor to a Disney theme park. When he announced his plan to the
executive board, the head of ɹnance, who until now had put up with all of Szulevicz’s
extravagant expenses, exploded. He was now convinced that all this fuss would never
lead to a contract with Disney. But Szulevicz persevered and found a great creative
cartoonist—whom he paid only his costs, with a promise of a share of future revenues if
GSI won the contract, in order to appease the head of ɹnance. He got what he believed
was a really great film, sent it to Disney, and waited.
Soon, the verdict came: As expected, Texas-based EDS won, getting 75 percent of the

$300 million a year contract; but second place went to…GSI, which got 25 percent.
Szulevicz later learned that his assistance in France and the creativity of the cartoon
proposal convinced Disney that GSI could be both a valuable and resourceful partner.
So, exhilarated and extremely proud of himself, Szulevicz ran to announce the great
news to Raiman. The chairman listened calmly, lighting—as he often did—a cigar.
And then Raiman said,
“I want it all.”
Not in French—“
Je le veux entier”—
but in
English, so that the symbolic impact wouldn’t be missed. Szulevicz couldn’t believe his
ears. Here he is, announcing the biggest contract ever for GSI with the biggest client the
ɹrm had ever landed, and his chairman was not happy. But there was an even
unhappier player in this story than GSI’s chairman: EDS. And the giant showed its
frustration. Imagine if the slam-dunking Shaquille O’Neal was blocked by rookie Tony
Parker and fell on the floor in front of his hometown crowd.
“EDS was extremely pretentious,” Szulevicz said later. “Great technicians, huge
resources, but very bad salesmen. In fact, they never won a bidding contest against
GSI.” But that was later. In the meantime Szulevicz was back in the game looking for a
way to “win it all.” Being a Frenchman, he continued to oʃer Euro Disney executives his
vast connections to help with any problems they experienced running their activities in
France, something EDS was not able to do. Moreover, having built a strong relationship
with Euro
Disney’s key executive assistant, he’d learn about the problems and oʃer help even
before the executives asked for it. He then expanded his assistance to “concierge”
services. A big follower of the theater and music scene in Paris, he helped the Americans
get tickets to the best shows and tried to spend time with them so that “they didn’t feel
lonely in Paris.” Through his exchanges with these executives he also learned that there
was some discomfort between Euro Disney and EDS, because EDS insisted on imposing
its preferred technical solutions on its client. Then, big news broke: Euro Disney’s chief
operating oɽcer in charge of IS outsourcing, Larry Sullens, had been short-circuited by
EDS, which had been unhappy with Sullens’s choices and had complained to his
superiors. Moreover, knowing that Sullens was under pressure to ɹnish everything
before opening day, EDS was pushing him to drop GSI in order to accelerate and
simplify certain clauses of the contract, which was still in negotiation. The COO was
both furious—“cuckolded,” according to Szulevicz—and pushed to the wall, which made
Szulevicz’s day.
Szulevicz quickly invited Sullens to lunch. Somewhere between the main course and
dessert Jacques touched upon the sensitive issue.
“I’ll be honest with you: EDS is our competitor so I’m talking as an interested party.
But you won’t be able to work with them,” he said.
“Why?” asked Larry, intrigued.
“Because, one, they behave badly with their French suppliers,” Szulevicz said, planting
the ɹrst doubt. “For example, they had a serious row with all the hotels in the [Euro
Disney] resort. I don’t know if you realize what it takes to work well with French

suppliers. Two, EDS will have to hire and manage French people here. It’s not simple to
deal with French labor.”
“You’re right, but what can I do?” asked Sullens, giving Jacques an opening to detail
his suggestion.
Lunch ended. Sullens called his Burbank headquarters and explained to his superiors
that he was experiencing serious diɽculties and delays with the main contractor, EDS.
On the other hand, the second contractor, GSI, was doing a great job, always helpful
and
resourceful. It could be useful to reopen the bid and allow GSI to run for the whole
project. The American boss asked to see GSI. Sullens swiftly passed this news to
Szulevicz, prompting him and another colleague to jump on yet another Paris–L.A.
flight.
Once there, Szulevicz met a group of executives and explained, “You asked us to come,
but I want to say that you have nothing to lose.” Szulevicz began with his favorite
opening: “The fact that you show EDS that you’re meeting another supplier proves that
you are not stuck, that you have leverage over them. So it will make them more ɻexible.
But, as far as GSI is concerned, we’ll ɹght with all the energy you know we have. You’ll
receive a great proposal. At a minimum, you’ll get better prices and better conditions,
but most important, you won’t have your hands and feet tied.”
“This is ɹne, but it’s impossible that in one month you could catch up with the
contract clauses already negotiated with EDS during an entire year,” the U.S. boss
countered.
“Well, you don’t know me. I’ll make it work,” Szulevicz replied. He picked up the
phone and called Chairman Raiman, putting the loudspeaker on.
“Hello,” Szulevicz said. “I’m here with our Disney colleagues who have a question: Do
you think we’ll be able to make up the backlog in the negotiation process we have with
regard to EDS? Can GSI dedicate the resources so that in one month we catch up?”
“Sure. We can do that,” Raiman replied, and wished everyone good luck.
The Disney executives were clearly impressed that Szulevicz could call his chairman at
home late in the evening Paris time and get a response like that. Seeing their reactions,
he added, “We’ll book a suite in Prince de Galles in Paris for one month and will iron
out everything there.”
“This would really surprise me,” the U.S. boss replied. He liked this posh Parisian hotel
on the Champs Elysées very much but was always frustrated when trying to book there;
the hotel was full months in advance—a frustration Szulevicz was aware of from his
Euro Disney sources.
“Yes, we’ll start with booking you at Prince de Galles and move
from there. We’ll
work day and night and get it done,” Szulevicz repeated confidently.
Back in Paris, Szulevicz dropped by his chairman’s office.
“We have a chance if we do this and that and that,” as he detailed all the things he
envisaged to nail down the contract with Euro Disney, Prince de Galles included.

“You’ve got some nerve, haven’t you?” reacted Raiman.
“We have to go for it,” Szulevicz said, and got his chairman’s nod.
“He’d always accept my initiatives,” Szulevicz later told us. “He trusted me. And it was
damn important. It redoubled my energy when he’d say ‘I trust you’ with committing the
company, so much of its money and all. You fight then with such energy.”
So after booking the Prince de Galles through a connection, Szulevicz and his two
colleagues arrived every morning at 7 a.m. and worked with their Disney counterparts
in a suite till 2 a.m. They even decided to eat only sandwiches when hungry, a
revolutionary initiative for French businesspeople, though easily accepted by their
American counterparts. Szulevicz made a point of calling Raiman every time there was
any doubt in the eyes of the Americans so they could hear the full support he had from
his chairman and the authority he enjoyed.
In reality, Szulevicz did not have full authority on every detail and would coordinate
some contract elements behind the scenes with Raiman and a special task force at GSI.
And Szulevicz, like any other GSI employee, had to behave according to the company’s
“rules of the game,” which had been in eʃect since Tillard’s seminars in the early 1980s.
One of these rules was
the duty to consult
for any decision with serious impact on the
company (recall Gore’s similar
waterline decision
principle). However, after the
consultation, it was up to Szulevicz to make a decision, to inform the consulted persons
about it, and to assume responsibility for the outcome—good or bad. But the fact that
Szulevicz could decide many things by himself and get an OK by a simple call to his
chairman not only moved things along quickly but also made a big difference in the eyes
of the Euro Disney negotiators. Compared with the slowness of EDS,
which had to refer
every single point up through their hierarchy and wait days for an answer, GSI’s
nimbleness was impressive.
The month ended and the contract was ready, with the stamps and signatures on all
the clauses validated by both parties. GSI became eligible to bid for the whole Euro
Disney IS business. In the end GSI “won it all,” just like Chairman Raiman had asked
Szulevicz to do—all $300 million a year. The contract continued years after both men
had left the company.
Could Szulevicz have failed? Of course he could have. But this story would still be
valuable because it illustrates the kind of initiative and risk taking that is possible for a
natural leader in freedom-based companies but unthinkable in “how” companies. It is an
example of a business situation in which an opportunity was felt by only one person in
the company, the salesman Jacques Szulevicz. And it was felt at the gut level, not
through calculations. As he remarked to us later: “From the management control point it
was a fundamental error and if a controller had said to me, ‘Jacques, you’re completely
crazy’ he would have been right; I would never be able to rationally convince him. All I
had was just a feeling.” Yet at freedom-based GSI he could act on his intuition and give
it a chance in the sales game where—as the saying goes—“One has to fail often in order
to succeed fast.” And the fact that he was operating essentially outside of the company,

as a salesman, didn’t change much. EDS’s sales staʃ was doing the same, but they still
had to call and get approval through their hierarchy for every single move they wanted
to make. That stiɻing environment made them ultimately lose not only this but every
future bidding contest they had against GSI.
Szulevicz knew all that. When EDS ɹred their sales staʃ for losing to him, the
company called Szulevicz and oʃered him a “treasure”—as he put it—to come to EDS as
a salesman. He refused. “I love money. I love it very very much,” explained Szulevicz. “I
collect beautiful objects. But here, I didn’t hesitate a second. Morally, when I shave in
the morning, I like to be able to look myself in the mirror.” He added, “I never had any
trust in EDS,” reminding us of his earlier observations about the company’s stiɻing
hierarchy, which he used against them. “You accept a double or a triple salary—and
others
besides EDS oʃered them, too—but then you leave after one year because
culturally you’re diʃerent and it can never work. It’s like, you know, me willing to
spend a night with Miss World. But from that to marry her?”
In fact, Szulevicz’s decision to decline the oʃer, as well as his overall natural
leadership, ɹt into the “rules of the game” followed by everyone at GSI. GSI’s CEO at the
time, Jacques Bentz, once commented that at GSI “There are as many bosses as there are
employees.”
15
Jacques Szulevicz’s company provided him with an environment where he
motivated himself to become such a “boss,” a natural leader in an objectively hopeless
business opportunity. Indeed, GSI’s environment constantly satisɹed his universal needs:
full respect and trust by the company’s leaders, for example, to engage big GSI resources
if he believed in an opportunity; the possibility to grow, such as allowing him to work
on the company’s biggest deal ever; and self-direction, such as allowing him to make
essentially all the project decisions—including the decisions to spur others to self-
motivate, as he did with the team that was working in the north of France and followed
him to Florida to fight for the Euro Disney contract.
“I couldn’t justify rationally why this opportunity was worth pursuing, but I had the
full trust of [Raiman] and a few other top executives,” Szulevicz said. He also added that
when he felt disrespected, he let his chairman know.
Raiman had a habit—when thinking deeply about something—to puʃ his cigar, stop
talking, and look at the ceiling—instead of at his interlocutor. “You’d feel despised,”
Szulevicz said. “So, one day I told him about his habit, and he was really sorry. He never
thought that it might cause others to feel disrespected. He excused himself and changed
it.”
Despite that—or perhaps, thanks to that and all the other experiences they had
together—the two remained friends many years after both their careers ended at GSI.
Szulevicz had a real admiration for his former chairman: “I venerate him totally because
he’s somebody whom I love like my father, even if we sometimes disagreed,” he told us.
“If he called me right now and asked me to do something for him
I’d do it immediately. First, I owe him a lot and then it’s a duty, because everything he
did was not for his personal interest. He could have become a [government] minister, he

could have done anything he wanted. But simply when he learned of something that
seemed right to him, enriching for others in almost a biblical sense, well, he just did it,
that’s it. He didn’t ask himself many questions.”
Raiman, in fact, does call Szulevicz from time to time to ask for help, for example, in
gathering donations or sponsors for his foundation. And every time Raiman ɹnishes
explaining his request to Szulevicz, he adds, “I want it all!”

I
10
IN SEARCH OF LOST
BOOTS
The Big Payoff from Letting
People Self-Direct and Grow
F
D
ANTE WERE
alive today, a customer-service call center might have been one of his
circles of hell. To this underworld he would have consigned CEOs who had condemned
their employees to long hours of answering calls, deɻecting customers’ requests, and
being measured not by the problems they solved but the volume of calls processed each
hour. It is unenviable, thankless, high-turnover work—at many companies. USAA’s
Robert McDermott called it “the most boring of all work.” And yet, in many ways, the
insurance giant is one big call center.
A call center is also one of the unlikeliest places, you would think, to ɹnd a liberated
workforce. It’s one thing to think of talented salesmen such as Burt Chase, Karl Fritchen,
and Jacques Szulevicz, when freed to act on their own initiative, seizing the opportunity
and becoming natural leaders. But what about the majority of “ordinary” people, who
are less prepared to do so by training, disposition, or current occupation? Whether these
people can also become natural leaders is a critical question for a liberated company. In
these companies, there are no bosses to grab the helm, so it falls on whoever is closest to
a problem or opportunity to deal with it. And call-center operators are as “ordinary” as
it gets. But at USAA, McDermott was convinced that if he provided employees with the
right conditions for growth and self-direction, they would
reveal their talents for natural
leadership no less than the “extraordinary” people do.
Most of us cringe at the thought of calling “customer service”—even the most helpful
operator at the other end of the line is usually powerless to address our problems. Savvy
veterans of call-center battles know that they have little hope of more than a
perfunctory “I’m not authorized to do that” unless they can get their call bumped up at
least one, and possibly two, levels above the frontline employee who ɹrst took their
call.
USAA is diʃerent. The San Antonio, Texas-based insurer has the kind of call center
that customers actually like to get on the phone with. Not only are the customer service
reps happy to help, but they are
able
to. Many claims are settled and problems resolved
on the spot, on the ɹrst call, with the ɹrst person a customer talks to. This, by the way,
is their key performance measure—not the number of calls answered.
There’s no arguing with the results. In McDermott’s twenty-ɹve years as CEO, USAA

grew its owned and managed assets four hundredfold, with only a sevenfold increase in
the number of employees. In 1995, it was named the Best Bank in America by
Money
magazine for its outstanding ɹnancial services. And in 2007, it topped
Business Week’s
ɹrst-ever customer-service rankings as number one in the country, a feat it repeated
again in 2008. Today it is the fourth-largest home-and car-insurance company in
America, despite voluntarily limiting its core insurance business to current and former
military personnel and their families.
But it wasn’t always like that.
When Robert McDermott took over as CEO of USAA in 1968, the insurer was bloated,
ineɽcient, and underperforming. The hapless employees, many of them wives of
servicemen, were tightly controlled—it took no fewer than ɹfty-ɹve separate steps to do
even routine tasks, such as add a child to a policy. McDermott explained the routine:
“The ɹrst person would open the envelope and pass it onto the second person, who
would take it out, and so on—like the assembly lines in Detroit for the automobiles.”
Employees were controlled down to the length of their pencils—literally. Much of the
work was done in pencil in those days, and you couldn’t get a new one until your old
one was shorter than an inch and a quarter—and yes, they measured them. Alfred’s
latitude in exchanging his old gloves at FAVI looks like freedom in comparison to this.
It’s little wonder, then, that employees were leaving in droves. “Attrition was high at
USAA,” the retired general told us when we interviewed him one warm late-winter
Texas night.
1
That was putting it mildly. Employee turnover “was 41 percent, while in
the insurance industry as a whole it was about 8 percent.” McDermott saw at once that
all these things—the bureaucracy, the stiɻing rules, the high attrition, and the poor
business performance—were linked. USAA was founded in a San Antonio hotel by a
group of military oɽcers. Their idea was to create a mutual insurance company aimed
at serving officers like themselves who had trouble finding insurance elsewhere. It would
later expand to all servicemen and -women and their families, but when McDermott
arrived, it could only convince three-quarters of America’s troops to join. The solution,
for McDermott, began with the employees.
Nobody dreams of working in a call center. But USAA has always depended on it. It
has to, because its customers—many of them active servicemen and -women—are
scattered all over the world. So McDermott couldn’t dispense with this thankless job, but
he could make it more satisfying and—who knows?—maybe even enjoyable. “I had to
make the jobs more meaningful,” he said. That meant ditching the bureaucracy and
giving his people the authority to do what their job title implied—serve their customers.
In place of a multilayered, slow, and bureaucratic claims-approval process, he
authorized the people answering the phones to settle claims up to a certain amount on
the spot.
“I would approve anything that made the job easier,” he said. That meant automating
the most tedious, repetitive tasks. It also meant training—as much as sixteen weeks
before a representative would get online. Training his people to do more than read a

script to a customer with a problem would help them do their jobs and take advantage
of their newfound freedom.
But McDermott had a deeper motive for empowering his people
with tools and skills.
“If you enrich the jobs,” he said, “you enrich the people.” McDermott talked a lot about
people’s “God-given talents.” His view was that everyone was good at something—was
good
for
something. And if their job allowed them to pursue that talent and that interest,
it would be fulɹlling. It would make them happy. Answering phones doesn’t need to be
dreary if your job is not just answering the call, but helping the person on the other end
of the line—sometimes with life-size issues. For some USAA employees, helping people
in this way might be just what they were after. Others would ɹnd satisfaction in
something else, and so McDermott’s campaign to remake USAA into the best customer-
service organization in the country had another element—freeing his employees to move
around within the company. If their interests and talents ran toward information
technology, he’d train them in that. If they had a mind for the law but no legal
education, he’d train them in that and send them oʃ to claims processing. Like Bill Gore
at W. L. Gore & Associates and Jean-François Zobrist at FAVI, he actively encouraged
people to break out of what they were doing if they felt stuck or inclined to try
something else. Instead of pinning people down, he gave them the tools to grow and,
with that growth, the freedom to choose what they
wanted
to do inside the company—or
in some cases, anywhere else.
In many traditional companies, this kind of mobility is discouraged. After all, it takes
time and money to train someone to do a job, and the last thing an employer wants is to
waste those resources when an employee wants to move on, unless, of course, her unit is
trimmed down—which is unfortunately how “mobility” is often practiced in companies.
Well, it turns out there is something worse than that—keeping people in jobs they don’t
want to do. We mentioned in
chapter 4
that Jeʃ Westphal of Vertex likes to tell new
hires, “Welcome to Vertex; you’re free to leave.” Westphal’s point is that he doesn’t want
anyone to feel trapped into working there if she’s no longer happy. Zappos’s Tony
Hsieh, recall, takes it a step further and oʃers new hires a quitting bonus of $2,000 if
they quit during their paid training.
The freedom to leave is the ultimate form of mobility—especially
when it’s subsidized.
But if you’ve got nowhere to go, this freedom is worth no more than the freedom to
sleep under the bridges of Paris. McDermott didn’t exactly pay people to leave, the way
Hsieh would forty years later. But he did train his employees in whatever ɹelds they
chose—giving them real opportunities to
grow
and to
self-direct
their career choices—
even if those opportunities eventually took them away from USAA.
And so, the training programs McDermott implemented became an employee-
education project. Most of his employees had never been to college, so he partnered
with local universities to teach classes at night—at the company’s expense and in
whatever subjects captured his people’s imaginations, provided it was related in some
way to work. It all came back to this one thing: Satisfying people’s needs of fairness,
growth, and self-direction made them happy and they, in turn, made customers happy.

And if you kept the customers happy, the business would take care of itself.
It’s not every new CEO who would come into an underperforming, sluggish company
and begin by rewarding its employees with fairness—including equal pay for men and
women—education, and greater freedom of action. Many, in fact, would do exactly the
opposite—embark on a program of cost cutting, including beneɹts, and a more rigorous
set of controls over employee performance: the proverbial tightening of the thumb
screws.
But when McDermott came to USAA, the company had an implicit employment-for-life
guarantee. USAA was run mostly by former military men, for the military, and many of
its frontline people were themselves military spouses in the garrison town of San
Antonio. It was not the sort of company, in McDermott’s view, that would respond well
to mass layoʃs or draconian measures. Tony Hsieh’s pay-not-to-play program works for
Zappos because it is a young, fast-growing company based in Las Vegas. A CEO like
McDermott, with thousands of employees already, did not have the luxury of trying to
influence the culture through hiring. He would need another way.
Moreover, he was convinced that his people knew a lot more about the business he
was now running than he did—and could
quickly acquire more knowledge when
necessary. They just needed an opportunity to act on what they knew. “I couldn’t sit on
top and make all those [customer service] decisions,” he told us. “I didn’t know how to
handle them—even the typewriter, you know? But that wasn’t the point. [The point]
was to give [the employees] the opportunities to get into the frontline [where] all
services [are] delivered… Top-down isn’t going to get the right thing [done].” In other
words, McDermott saw his people as part of the solution, not as the problem. At the
same time, he didn’t see himself as a solution or as somebody who could deliver the
solution. All he needed to do was give his people the tools—and the skills, if they needed
them—and then set them loose.
For McDermott, education would start his employees on a journey of self-discovery
that would, in the end, redound to USAA’s beneɹt. “In the service,” McDermott
recounted, “I learned what a great thing for America [the] GI Bill of Rights was. That’s
what made America great after World War II. The Germans had the highest level of
education going into it,” the former P-38 Lightning pilot recalled. “Ten years after the
war, we had the highest level of education in the world. Choice and assistance was the
key to that. And we put that into our…system here at USAA.” A former dean of the Air
Force Academy who transformed it into a ɹrst-class academic institution, he explained
how it worked at USAA: “We had six colleges and universities…come into our building
at night and use seventy-ɹve training classrooms…. And we picked up the tuition if
[employees] made C grades or better for a baccalaureate, as long as they passed their
courses. And then B grades or better for a master’s degree. So we wound up with the
most highly educated workforce in the whole ɹnancial services industry in the United
States.” On any given day, about 30 percent of USAA’s workforce was in some kind of
training or educational program.

And with that education—and mindful of his own ignorance—McDermott turned them
loose on their own ɹrm. People would “come up with ideas to do it better, to serve
better and cheaper,” he said. Here, too, education helped. If an employee identiɹed a
need within USAA, McDermott would train them to ɹll that need, instead
of hiring an
outside expert who might know everything about computers but nothing about USAA.
He summed it up this way: “We enriched the jobs…and we enriched the people that do
the jobs by giving them more information and education.”
Underlying it all was the Golden Rule, which McDermott referred to repeatedly when
we met him, and which became a powerful competitive advantage for USAA that
persists to this day. “Serve others as you’d like to be served. Service is what we’re all
about. If we serve people they’ll come back to us.” And they have, and still do, which is
why USAA not only dominates its market segment almost totally—97 percent of
servicemen and -women are members—but why its customer satisfaction ratings are sky-
high.
McDermott spoke about “service” in religious terms, and that is how he thought of it
personally. When we asked him to explain his approach to running USAA, he thought all
the way back to his childhood in Readville, a tiny hamlet in what was then rural
Massachusetts. Today, Readville has been absorbed into the greater Boston metropolitan
sprawl. But back then, it was “a little crossroads, with maybe two or three hundred
people,” he said. It was near there, in Canton, that a young Bobby McDermott would
ɹrst watch planes take oʃ and land and decide he wanted to become a pilot. And it was
in the hamlet of Readville that McDermott was taught the lessons that would guide his
governance of USAA half a century later. “Like Robert Fulghum, who says, ‘All I really
need to know I learned in kindergarten,’ I say, ‘All I need to know I learned in Sunday
school,’” McDermott explained. Even so, he was careful to say, “I’m not trying to preach
to the world.” While it has a religious dimension for him, the message is a worldly one,
whether you are of a diʃerent faith or no faith. And that message is similar to Gore’s
principle of “fairness” and Sun Hydraulics’ “courtesy”: Treating people as the unique,
equally valuable human beings that they are, whether they are subordinates, colleagues,
customers, or suppliers, is good for business. McDermott’s Golden Rule is his own
personal gloss on the same principle.
It should come as no surprise that this basic concept comes up again and again at
these liberated companies. Each of the leaders we
met and studied came back to the
notion that he was just one man, and that excellence could be achieved only by fully
utilizing the knowledge and capabilities of everyone in the organization.
But if you are Robert McDermott and you are coming into an organization of
thousands of people, many of whom have been treated with suspicion—recall the
measurement of pencils—and sometimes contempt for years, the challenge lies in
getting those people to believe you when you say you think of them as equals and
expect them to act that way. The leaders at Harley, GSI, FAVI, and USAA each took a
diʃerent approach, one that was tailored to the particular organization he was
liberating and its history and challenges. Rich Teerlink involved Harley’s unions in

corporate decision making in a way that they had never experienced, while taking down
the barriers that separated management from the blue-collar workforce. Jean-François
Zobrist ɹrst tried unthreatening methods with controlling managers but in the end
stripped them of their authority, though he maintained their salaries and let them ɹnd
other useful, or at least nondamaging, roles in the company.
McDermott set his people free to do their jobs, but he recognized that in a large,
bureaucratic organization, there were likely to be a lot of people who didn’t want to be
in their jobs at all but were unable to leave. Zobrist had something of the same problem,
although on a smaller scale. In McDermott’s case, then, his education program was two-
pronged: It served to improve the knowledge and education of USAA’s workforce, but it
was also a signal to employees that USAA thought of them as more than Henry Ford’s
“pair of hands.” Thus it operated alongside the automation programs, the
preauthorization to approve claims, and the bureaucracy busting to show people that
USAA was a diʃerent kind of company. In the process, he redeɹned their jobs, too: They
were now to serve the
customers—
in fact as well as in name. All of this together—the
bureaucracy-busting, the devolution of decision-making authority, and the educational
beneɹts—constituted McDermott’s campaign to move from “how” to “why.” In the
process, he changed the way USAA’s employees thought of their relationship to their
customers—transforming Dante’s call-answering robots into natural service leaders.
This is not just happy PR talk. In 2005, a member called USAA to conduct some
business about her home insurance. But the sales rep, trained like everyone else at USAA
to be conversational and helpful, not just transactional, picked up on the worry in the
woman’s voice and asked: “You sound distraught. Is there something wrong?” The
woman explained that her husband had Alzheimer’s and had been missing for four days.
The police couldn’t find him.
After a short pause, the rep said, “You have a credit card with us. Why don’t I call
over to our bank and see if we can get your husband’s credit-card transactions over the
last few days. It might tell us where he is.” The information was found and the sales rep
happily shared it with the woman, suggesting that she call the police right away to pass
along the information. Using the credit card data, the police found him in a hotel many
miles away from his home. Not a bad display of customer-service leadership for a call-
center operator.
Although such service is considered par for the course at USAA, this case—perhaps due
to its emotional impact—merited not only a story in the company’s internal newsletter
but was also slated for publication in the company’s annual report. And the message
was clear to both employees and customers, who are known as members in USAA
parlance: “We do whatever we can to help our members.” And at USAA, “whatever you
can” means
whatever—
including breaking the rules, as shown by the story of another
remarkable USAA employee.
A member who had recently been diagnosed with breast cancer called to see about
getting her life-insurance coverage increased. The USAA rep, June Walbert, walked her

through it, including the cost, and got the policy written. But a couple of months went
by, and the member called back. “You know,” she told the customer-service
representative, “I just can’t aʃord this. What did I get myself into?” Contractually, she
was stuck. At most companies, continuing the conversation from there would have been
akin to beating one’s head against the wall. But the rep looked at the ɹle and said, “You
know what, this is wrong. We should not have done it.”
Walbert continued the story: “I felt like we, as a company, didn’t hold up our end of
the bargain. We should have really talked to her
more to make sure that she didn’t take
that policy. So I just broke the rules. I said, ‘We’re going to undo this policy, give you
back what you had before. You had a good policy before. Let’s leave it alone.’ I sent this
to our underwriters and they didn’t give me a hard time…. They just said, ‘You’re right.
We shouldn’t have done that.’ That was what was best for the member.”
2
We asked what helped her take such an action. “I think that our robust training
program is really what I would call the ‘secret of the ninja’ to USAA’s success as a
liberated employer,” she oʃered, spontaneously homing in on the key role of education.
“Because whenever you have suɽcient training, it increases your technical skills, which
in turn, increases your conɹdence to serve the member well.” In this case, natural
leadership meant bending, or breaking, the rules to do the right thing. But Walbert
didn’t
look
like a corporate maverick, ready to break the rules at any opportunity. She’s
middle-aged, petite, blond, and unassuming—nothing heroic about her on the surface.
But looks can be deceiving.
It turns out Walbert is a reserve lieutenant colonel in an Army paratrooper unit. This
is how she describes her other job: “It’s where you take a helicopter into a combat zone,
and you’re inserted expeditiously via rope from it. That’s why I consider things in terms
of, How do ninjas think about this?” Indeed, ninjas are free not to worry too much about
corporate rules. At this point, we thought she could have been a character in a James
Bond movie, a thought a colleague conɹrmed by adding, “And she likes champagne,
too.”
But our USAA sales-rep-lieutenant-colonel-ninja deadpanned, “I don’t think I look that
good in a swimsuit.”
That, too, was a vital part of USAA’s freedom culture: the freedom of a frontline
employee to crack jokes with visitors just out of a private meeting with the company’s
CEO and in the presence of the head of public relations. “Know our customer,
understand their current issues, and then provide solutions that may or may not involve
USAA products.”
“Do whatever you can” indeed.
IT’S ALL ABOUT DOING A GREAT JOB
Now, to some, this talk of treating people well, helping them grow, and letting them

self-direct may sound hopelessly touchy-feely in the face of the imperative to “run the
trains on time”—especially in tough economic times. Stéphane Magnan tells his own
story about the importance to the workforce of a nourishing environment. In 1982, at
the age of thirty-one, Magnan was given charge of the ɹve-plant aluminum foundry
Montupet, owned by Pechiney, then Europe’s leading aluminum producer. But Montupet
was no FAVI. In fact, the executives at Pechiney had recalled Magnan from his executive
job in their U.S. division into Montupet not to improve its performance but to shut it
down for good at the minimum cost to Pechiney and with as little labor unrest as
possible. France’s ɹrst-ever Socialist president, François Mitterrand, had nationalized
large chunks of the economy, and Pechiney’s leadership thought that it would be easier
to use the supposedly ruthless Magnan,
“l’américain,”
to shut down the plants.
But that wasn’t at all his state of mind. Magnan quickly realized what an appalling,
festering relationship the former management team had built with the plant employees:
“People would look down at their feet when I would walk by them!”
3
Magnan was
dismayed, but he also saw opportunity: The company had real potential—if the
relationship with the workforce could be ɹxed. So after a month of observation, he
oʃered Pechiney a diʃerent plan—to turn the plant around. Montupet wasn’t worth
much in its present state anyway, so Pechiney agreed to let him try—as long as it
wouldn’t cost anything—and Magnan started his liberation campaign, adopting many of
the devices we’ve seen at Harley, FAVI, USAA, GSI, and elsewhere. In fact, Yves Tillard,
the same consultant who helped Jacques Raiman liberate GSI, helped Magnan. In this
case it was a foreman who, once he understood Magnan’s vision for the company,
suggested that his CEO contact Tillard. In two months all the managers—this foreman
included—went through quick Tillard-led seminars to learn the kind of change the
company was looking for.
Then, to improve their own managerial practices, managers
and their teams attended two-day team seminars, similar to those Tillard conducted at
GSI. Again, they weren’t just some “pointless” seminars—Magnan, like Jacques Raiman,
assisted in each one of them. And as in other liberated companies, people started to
perform miracles.
When asked how he recognized that the liberation campaign had turned the corner
and overcame people’s distrust, Magnan didn’t have to think long: “The people began
looking me straight in the eyes, saying hello, smiling.” Then he quickly added, “Also, I
had the numbers. The scrap went down dramatically. And the strike days, too… When I
came to the company, the relations with unions were so conɻict-ridden that the former
management was working on manufacturing schedules with an expected thirty days of
shutdown per year due to strikes.” It’s not every CEO who, after explaining his vision,
gets advice from a foreman on how to implement it—and takes that advice right away.
The “miracles” continue today. Just a year before our interview, the company
experienced some technical problems in delivering cylinder heads—the company’s key
product—to Renault and Nissan. Worse, the two clients suddenly faced a surge in
demand and put enormous pressure on Montupet to ship the parts. Nobody could ɹnd a
solution until a team of operators—very much like FAVI’s operators do regularly—hit

the road on their own and went to see the client plant’s operators and supervisors to
explain to them the technical diɽculties. This established both trust and cooperation
between the two companies’ teams and the problems were soon resolved.
In other words, this talk of “treating people as equals,” “personal growth,” and “self-
direction” is, in the end, all about allowing people to do a great job. The turnarounds
accomplished by Zobrist, Teer-link, Westphal, Raiman, McDermott, and Magnan, and
the start-ups founded by Gore, Davids, Forward, Quadracci, and others we’ll see, attest
to that. Still, the question is worth looking at more closely. In “how” companies, most
decisions, policies, and rules are made at the top, or near it. In this arrangement, the
need for a “relationship”
between company and employee is limited: Workers are given
orders and told what to do and how to do it. They are measured—and controlled—
according to whether they follow them. People, in turn, measure their employer
according to how much they get for their complaisance in the form of compensation and
perks—“goodies.” These goodies are then often used to satisfy the universal needs—to
be treated as equal, to grow, and to self-direct—that are unfulɹlled at work. When an
employee restores a colonial house through hard work on weekends and over holidays,
for example, he gets admiring reinforcement from family and neighbors, learns new
skills, and runs his project as he deems best.
Nevertheless, many of these forms of control—those policies, procedures, and
bureaucracy—are there for a reason. Some of them are, as Gordon Forward of Chaparral
Steel put it, relics of some rare or singular mishap in the past that gave rise to a rule—
his so-called managing for the 3 percent. But many rules serve another function as well:
They are an institutionalized way of “communicating” with one’s workforce, even if the
messages are often demoralizing, if not demeaning, frustrating, and likely to produce
inefficiency.
The alternative communication means we have described—from CEOs’ listening
instead of talking, removing the signs of executive privilege, of executives and managers
being nourishing leaders to their teams, not raising their voices, removing bureaucratic
symbols and practices, radically transforming or eliminating the HR and ɹnancial
control departments—all these measures appear extremely diverse. For liberating
leaders, though, they were undertaken for one common reason: to create a corporate
environment that satisɹes people’s universal need to be treated as intrinsically equal,
with fairness and respect, so they can do a great job.
THE CASE
FOR
BUREAUCRACY
In 1922, the sociologist Max Weber could not know of liberated companies. The
emerging corporate world was composed of “how” companies, and in an attempt to
understand their success, Weber
wrote an article on the necessity of bureaucracy.
Following G. W. F. Hegel, he explained that unlike feudal organizations, in which
relations were based on personal favoritism bestowed by authority holders to their

vassals, bureaucracy treats everyone in an impersonal and absolutely fair manner by
applying the same set of right regulations. Put aside the fact that many corporate
regulations may be not only wrong but downright stupid and unfair to most. Weber
seemed not to envisage a third way between personal favoritism and “fair” regulations:
that relations between people of diʃerent levels of responsibility can be both personal
and
fair. In fact, liberating the workplace begins by de-bureaucratizing and re-
humanizing relations, by making them based on human fairness and equal treatment, so
people feel like
human beings
instead of
human resources
.
But belief in bureaucracy’s absolute fairness through regulation is utopian, too.
Contrary to Weber’s idealistic view, most real bureaucracies evolve into a type of
monstrous “feudal bureaucracy,”
4
a government of
nomenklatura
—etymologically, of
people
called
by
names
. The
nomenklatura
are personable and considerate to those who
are “one of them” but treat others in a dehumanizing manner, often referring to them as
“numbers,” “ɹles,” “full-time equivalents,” or even “ɻuids,” as one European
corporation designates the temps, to be managed along with the water and electricity.
But even if bureaucracy is replaced by an environment that satisfies people’s universal
needs, the imperative of coordination remains real. For people to act both freely
and
eʃectively, they must ɹrst understand and “own” the answer to Zobrist’s “Why?”
question, so that they can aim at the correct goal. In other words, they must understand
the company’s vision as well as how their own actions comport with that vision. Think
of Bob Davids, going over the list of supplies that his winemaker, Kris, had requested.
Davids reviewed the list not in order to ɹnd places to cut costs or corners, but to ensure
that Kris had made each choice with Sea Smoke’s vision in mind of making the best wine
humanly possible from that vineyard. Those were very early days at what is still a small
and young company, and Davids felt that going over the list was important for
reinforcing Sea Smoke’s vision in the mind of a key employee. Even so,
course
corrections and reminders became necessary over time to keep people focused on that
vision, as when Kris tried to save a buck by using old oak barrels for the white wine
instead of making it world-class.
Rich Teerlink, likewise, spent more than a year trying to establish and put on paper a
“joint vision” for Harley-Davidson—one produced and shared by management and
union members alike. Establishing a vision for the company that is widely accepted is
critical to the liberation campaign because you cannot replace something with nothing.
Of course, a vision by itself can be hard to apply to particular circumstances, even when
it is well understood. That’s why liberated companies generally have a set of guardrails,
as it were, to guide employees’ choices.
W. L. Gore & Associates’ principles of fairness, commitment, and the waterline are an
example of these guardrails. At GSI, they called their version of these guiding principles
the “rules of the game.” These guardrails often share similarities across companies, but
they are never the same in any two companies. That’s because in each company, they
emerge organically as a way of bolstering people’s self-discipline within the ɹrm. The

moment they start to ossify into formal policies—“No one is allowed to wear a tie!”—
they lose that virtue and become arbitrary constraints. That’s why, at their most
eʃective, they are simple, unwritten, and self-enforced. A leader in a traditional
company who ɹnds himself thinking, “What we need around here is a little discipline!”
ought to consider looking around for the causes of the lack of discipline. He might be
surprised by what he finds.
But for the vision and these principles to inform employees’ daily work, they, too,
must change work habits they might have developed while at “how” companies. Some
will be willing to do so, while some will not. Others may be willing but skeptical. After
all, if “how” control works to some degree, however imperfectly, and with less hassle
and risk, why not stick with it? Many successful companies existed for years with “how”
cultures and decision-making policies. And just as they used to say that you’d never get
ɹred for buying an IBM, we doubt there are many top executives who have
lost their
jobs for tightening the controls over employees. They may call it “cost control” or
“reorganization,” or some such. But whatever name it goes by, it’s a fact of life when a
company hits a rough patch: Tighten the screws, take away perks—such as free food—
scrub all the expense reports a third time. And quite often it works—or at least it seems
to. Recall Alfred with his gloves, a form of ɹnancial control no doubt thought up by an
accountant looking to save a few francs a year in the budget by preventing Gordon
Forward’s “3 percent” from taking an extra pair home. On the face of it, the policy was
a success: Spending on gloves went down. But, of course, all the ancillary costs in lost
productivity, bureaucracy, and paperwork—not to mention the salary of the supply
closet “doorman”—are never accounted for on that budget line. And that’s to say
nothing of the order that might go out late or the products not made, on the margins,
because of these various “operating eɽciencies” that, like barnacles on a boat, make the
whole company a little less—our liberating leaders would say, much less—swift.
THE ILLUSION OF CONTROL
Jacques Raiman of GSI understood this phenomenon all too well. In fact, Raiman
eventually came around to the radical view that all ɹnancial controls were little more
than creative fictions. Two stories illustrate the point.
The ɹrst takes place in the early days of GSI, in 1979. GSI is growing quickly while, at
the same time, Raiman is trying to instill a new, freer culture in the company. They had
grown to one thousand people, and Raiman had started to hold regular seminars with
employees in small groups so that he could explain GSI’s new, informal “rules of the
game”—and give people a chance to voice what sorts of problems they might be having.
“[Earlier] I had implemented a ɹnancial reporting system,” Raiman recalled. “And the
ɹnance department was, in fact, the police, the internal KGB.” It was, in other words,
management’s tool for keeping an eye on all corners of the company and
enforcing
budgets and spending policies. Or so they thought. During one of these seminars, the

head of operations in Grenoble, France, spoke up.
“Well, Raiman, I’ll tell you how it really works,” he said, according to Jacques. “We
establish our budget, ɹne. If one month we are above budget we’re congratulated, but if
another we are under the budget the sky falls: investigations, inquiries, discussions. So,
it’s not complicated: When we are above budget we cheat and instead of reporting the
sales, we keep them for the next month. That’s for me and the executive team, but the
salesmen cheat the same way. You believe, Raiman, that you know [thanks to all the
reporting] the reality, but you know nothing.”
5
After the corporate scandals in the
United States in 2002 and 2003, there was a huge and expensive attempt to crack down
on precisely this kind of manipulation of ɹnancial reports. One result of this was a
requirement that a company’s top executives sign a sworn statement attesting to the
truth and accuracy of their ɹnancial reports. Anyone who signs such a document should
be aware that Raiman’s story is not unique, and neither the passage of time nor of
voluminous new laws has changed the fact that the real experts on your company’s
various budgets are the ones near the frontlines who manipulate them to make their
numbers and beat the system whenever possible.
Even so, this is one of those truths not often spoken in polite company, never mind in
the presence of the company chairman. Raiman said that the executive’s candor was the
result of his eʃorts, up to that point, to foster openness and frank communication.
Raiman continued, “So, while on the train on our way back to Paris, we decided that we
would not function like that anymore. Management [ɹnancial] control is here to help
managers understand the numbers, not to be ‘Moscow’s eye.’ If a business unit head has
some performance problems he’ll talk directly with the division head.” In other words,
business units would still report numbers to the center, but the “KGB” would be
dismantled. Missing a number would not be treated as a crime because it is, instead, a
symptom of a problem. And treating it as a crime encourages a cover-up, which may
actually delay getting to the root of the problem. Integrity would be restored
to the
reported numbers by
removing
the fear of the secret financial police.
The ɹnancial controllers were not pleased. “They made a big fuss,” Raiman said. “The
ɹnance director said that I wanted to destroy the ɹnancial controls, that I didn’t like
them [the controllers] anymore, and that I wanted to destroy the company.” Raiman
assured him that he wasn’t out to ɹre the ɹnance department, but that he did want them
to play a diʃerent role. As for the director himself, Raiman left him in place but limited
his duties. “I wasn’t sure I had convinced him,” Raiman remarked. “So he remained the
head of accounting, and as a ɹnance director dealt with relations with the banks,
investors, et cetera.”
Once they decided to scrap this strict ɹnancial policing, they embarked on another
series of meetings with executives to explain the new approach. “I remember one
[meeting] in Paris,” Raiman recalled. “Together with [human resources director] Jean-
François Cottin, we tried to explain to a dozen of our executives a [new] company
model based on respect for people. We told them that this new system was realistic,

while the old one wasn’t because all the [reported] numbers were false.”
This did not produce the result that Raiman had been aiming for, however. “They said
that we needed
more
control,” Jacques noted with a rueful smile. “Then, others said,
‘[This new system] is ɹne for us; we must be respected and be autonomous. But you
won’t do that for the data-entry shop ɻoor, with the ignorant girls there, right? For them
it’s a drubbing,’” not freedom, that is needed.
When we asked Raiman how he dealt with this resistance, he characteristically
responded not with exasperation, but aʃection. “I’ll tell you: I liked them very much,”
6
he said, suggesting that, even if some of them didn’t share his convictions about how to
run the company, he had a strong personal bond with them. To this, Cottin, whom we
interviewed together with Raiman, chimed in. Besides, he said, “The ɹrst rule is that
when somebody does something stupid, the most important thing is that he admits it
rather than be condemned.” Since they were, in eʃect, asking that this principle be
applied to the ɹnancial reporting, they ought to try to apply it in their own dealings
with the executive team.
“So, I asked myself: How can I convince them?” Raiman continued. He sent these
executives to America for training and brought in outsiders to hold conferences in the
company “to show how important it is to ask frontline people’s opinion, make them
participate in the decisions.” Raiman described the process of pushing this new freedom-
and respect-based culture down through the company as a series of incremental,
nonthreatening steps, not some big bang. “We didn’t make any big speeches,” Cottin
added. “We just acted, a lot of little acts, steps.” For a CEO who wants to change
executives’ and managers’ practices, this nonthreatening, patient way is the only
eʃective way to do it. One of their techniques was to show the diɽculty, if not the
futility, of eʃective controls in an atmosphere of distrust and disrespect. “Here is a
beautiful story,” Raiman began by way of illustration. His eyes twinkled.
“It’s a story that I heard from a CEO of a French subsidiary of a U.S. company. A
young engineer who worked in the south of France was sent on a mission to a paper
plant in the extreme north of Norway. So he said good-bye to his wife and left for four
days wearing loafers. But, once there, in freezing temperatures, he had to buy fur-lined
boots. Back in France, he ɹlled in his expense report, including ɹfty dollars for the
boots.”
But before long, “he got the report back with a finance control note:
‘REREAD THE PROCEDURES:
CLOTHING CANNOT BE INCLUDED IN THE EXPENSES.’
So the engineer deleted the ‘boots,’ and added three
dollars here and there on other lines to keep the same total. And he sent the bill back
with a sentence at the bottom: ‘FIND THE BOOTS.’ The CEO who told the story gave me
a copy of this expense report and we circulated it all over GSI.” The moral of the story,
for Raiman, was that strict ɹnancial controls are often illusory. And when they defy
common sense, their chief result is that you end up knowing
less
about your business
and its expenses than you would if you trusted people more to use their best judgment.
But not everyone at GSI was convinced of this.

“We were losing money in Spain,” Raiman explained. “And one day a Canadian—who
was a controller and had worked before in a command-and-control American company
—came to see me and said, ‘Do you want to stop losing money? I will identify all the
gaps in the expense reports, I will verify all of them, and you’ll see how the money will
appear.’”
Raiman replied, “It won’t work; this way won’t work.” The man said, if Raiman
wouldn’t support him, he would quit. So, Raiman told us, “I let him leave.” Raiman did
not believe that GSI’s Spanish business could be ɹxed by minutely examining every
expense report. On the contrary, he believed it would alienate and anger GSI’s people
there, who would feel besieged and persecuted by the ɹnancial secret police and start
making up the numbers “to beat the system.”
Raiman was not alone in disdaining KGB-style ɹnancial controls. Nor does this
attitude necessarily imply leniency toward abusers when they are exposed. Quite the
reverse, in fact. Most of our liberating leaders, including Zobrist and Harry Quadracci,
knew how to pull the trigger on the freedom abusers because they knew that everyone
else in the company was aware of the abuse and was waiting to see what the CEO
would do about it. Most—except Raiman. A person who worked with him in GSI
recounted that Raiman loved and trusted employees so much and was so saddened by
the news that some abused their freedom—such as cheating on expense accounts—that
nobody wanted to bring him such news. So, unwillingly, Raiman made himself
incapable of acting against these abusers. This, understandably, demoralized the
majority in many places who played according to the company’s “rules of the game.”
But Raiman aside, you might ask whether such a trusting approach is even possible in
a post-Sarbanes-Oxley world, with new layers of federal bureaucracy demanding more
and more precision on the part of internal company controllers. Richard Arter, the head
of investor relations at Sun Hydraulics, put it this way: “Our position on that is that we
need to pass the test. We don’t necessarily need to get an A.”
7
In other words, it is
possible to comply even with onerous ɹnancial reporting laws and still treat your
people with trust.
Indeed, it may well be easier that way—as Jacques Raiman suggests, a punitive
ɹnancial reporting system is more likely to lead to “smoothing” and other fudges than
one that is less oppressive. “As an economist,” Raiman told us, “I learned in my youth
that there is a trade-oʃ between eʃectiveness and fairness.”
8
He continued: “But what
one learns in a company is that fairness is the
basis
of performance and not vice versa.
For me, a fair manager is one who values you for what you do. From the moment that
running a company is compatible with moral principles one learned in childhood, it
becomes
un bonheur.”
9
Raiman’s last statement echoed one of Zobrist’s remarks, that his daily tours of the
shop ɻoor to listen and converse with operators were his quest for
bonheur
, for
happiness or joy. But it was his reɻection on the relationship between fairness and
performance that intrigued us. Indeed, Raiman used two diʃerent meanings of fairness:

economic and moral. While talking about the trade-oʃ, he refers to the economic
un
fairness of the competition that—since Adam Smith—has been viewed as the basis of
a country’s economic performance. But when he talks about fairness as a basis for the
company’s performance, he refers to moral fairness, to the way a company and
managers treat people. In the ɹrst case, he mentions the simple notion that underlies
Smith’s market economics: Material self-interest drives economic action and
performance. In the second case, Raiman formulates a more complex precept:
The
satisfaction of people’s need to be treated with moral fairness leads to their enhanced
effectiveness and to enhanced company performance
. This enhanced economic performance
—gains in productivity, proɹts, and so forth—then, in turn, paves the way for providing
economic fairness
to people through profit sharing, bonus, or ownership schemes.
It may seem hard to believe that fairness and respect can be appreciated by people
even more than a bigger paycheck. Needless to say, in a perfect world you would want
all three—fairness, respect, and maximum remuneration. But we do not live in that
world, and so we have to make choices. On at least two occasions that we know of,
unions at liberated companies, when given the choice, did, in fact, choose fairness and
respect over their pocketbooks.
THE “THEORY Y” UNIONS
The ɹrst comes from GSI. A large chain of stores had solicited bids for outsourcing its
payroll services. In an arrangement typical to this type of outsourcing, the chain’s whole
payroll department, complete with its union, would be integrated into GSI. But the chain
had outsourced several other back-oɽce functions in the past, and in one case the
integration of the chain’s employees with the new company had gone very badly. As a
result, the chain’s trade unions were on their guard. They insisted on conducting their
own investigation of the candidates, including meeting ADP-GSI’s union representatives.
When the contract was awarded, ADP-GSI got a pleasant surprise: Not only had it won
the bid, but ADP-GSI learned that it was the only candidate that had passed the union’s
vetting. Given the sour outsourcing history, the chain’s management was deɹnitely not
ready to go against the unions and risk a strike, so the union’s favorable opinion of GSI
had played an important role in winning the contract.
Most people assume that unions are focused single-mindedly on extracting material
“goodies” for their workers from their employers. And yet this French union put GSI’s
ability to satisfy their higher needs—for fairness and respect—above those material
considerations. Perhaps many other trade unions would do the same—if only they were
oʃered a similar choice and not simply “goodies.” At any rate, Jean-Luc Barbier, chief of
ADP-GSI’s corporate clients division, was certain about the economic beneɹts of treating
people well in the company: “It surely provides us a competitive advantage in getting
clients.”
10
That’s more than you can say about denying a traveling salesman pocket
money for snow boots in Norway.

The second story comes from Harley, in the midst of Rich Teer-link’s liberation
campaign. In early 1994, the news at Harley-Davidson seemed so good that
management started to worry about the bike maker’s future. Demand had driven up the
waiting list for a new bike to a whopping eighteen months, and Wall Street—grown
quickly accustomed to Harley’s fat margins—had started to hold the
company to ever-
higher standards of performance. Pressure was mounting, and without new capacity,
Harley seemed in danger of overheating. This meant a new plant. But Teerlink didn’t
want just any new plant. He envisioned one that was radically diʃerent from the
existing ones, built from the ground up to encourage work ɻexibility, more employee
involvement, and more freedom of action.
For most American companies, all this would point in one direction—south—to build a
union-free facility in a right-to-work state. Most of Harley’s executives and managers
liked the idea of going to a southern state, too. But for Rich and some of his colleagues,
such a move seemed likely to disrupt the relationships with the unions that they had
been building over the years. They convinced their colleagues and—even harder—the
board of directors not to write oʃ the unions, and presented the idea for the radically
diʃerent new plant to the presidents of the two unions’ parent organizations. The
unions agreed to support a new plant that would profoundly change existing work rules
and practices.
What’s more, the union locals said that they were ready to change the work rules in
the existing plants to match those envisioned in the new plant, but—using the famous
“yes, but” negotiation strategy—asked management to agree not to build the new plant
after all. Instead, the eɽciency gains from the changed work structure would be used to
expand capacity at the existing facilities. After giving this proposal a hearing,
management agreed to scale back, but not eliminate, the plans for the new plant. A
team of three people—one manager and two union representatives—set out to search
for a new site. And in every place they visited, city oɽcials were ready to roll out their
sales pitch to woo corporations. Harley’s team was bemused to see how, upon learning
that two out of the three visitors were from the unions, the city fathers would skip
hurriedly over the slides intended to show how good the local environment was
for
management
.
After all these trips, the team came back with a ranking of the top three locations,
with Kansas City, Missouri, where the plant was ɹnally built, topping the list. But it was
the number two choice that ɻabbergasted Rich Teerlink when he saw it. This three-
member
group, two of whom were union representatives, listed as their runner-up a city
in a right-to-work state in which the unions could never hope to organize the workforce.
This collaborative spirit remains intact today. Steven Sleigh, the director of strategic
resources for the International Association of Machinists—one of Harley’s two main
unions—recently said:
[Douglas] McGregor’s seminal work spurred managers and union leaders alike to rethink the command and control
work environment. Now, a full generation and a half later, my own union has dedicated substantial resources to

fostering high-performance work systems rooted in McGregor’s view that workers can think, plan, and be creative. In
this information age, this view should be dominant, rather than unusual, as it remains today.
11

I
11
THE ANTI-MAD MEN
One Man’s Quest for Peace and Liberty
in Advertising
F MAKING CALL-CENTER
operators’ jobs fun seems tough, Stan Richards may have had it even
tougher—he wanted to build an ad agency that was free from the dysfunction so
common in his business. Richards, in other words, was an ad man who hated the
advertising business. And that drove him to exasperation that, eventually, brought
liberation to his business. He quit his ɹrm after one year to set up the freelance shop
that eventually became the Richards Group. His goal was to show that “the way it’s
always been done” wasn’t a good enough reason to keep doing it that way.
1
When his agency grew close to 150 people—a danger zone, he says, echoing Bill
Gore’s concerns about that number—Richards became particularly fearful of the
emergence of the rivalry between the diʃerent departments typical of any ad agency:
the accounts people disrespecting the “creatives,” and the creatives scorning accounts as
empty suits. What he wanted was, in his phrase, to create “The Peaceable Kingdom,” the
title of the book he’d later write about his journey.
2
Even if lions weren’t going to lie
down with lambs in his Dallas oɽce, accounts and creatives were going to get along
and work together.
This was personally important to Richards, but there was a business rationale for it,
too—employees who didn’t spend their time suspecting or undercutting their fellow
workers would be able to direct more of their energy and attention to keeping the
clients
happy. Consequently, they would contribute to the company’s healthy growth
instead of creating a toxic and ultimately unsuccessful business environment.
Still, you can’t just sit down with your accounts people and your creatives and implore
them, “Can’t we all just get along?” Well, you could. But it would do about as much
good as Rodney King’s plea did during the L.A. riots. Everyone would smile and nod,
and agree to redouble their eʃorts. Then they’d go back to their respective lairs and
start trying to ɹgure out who in the other department had accused them of sabotage,
prompting this little get-together, and how to teach the culprit a lesson.
So Richards got creative. In a traditional ad agency, accounts and creatives have their
own turf—and their own ɻoors wherever possible. This keeps them well insulated from
each other. And so this is where Richards struck ɹrst. From the earliest days, he decided
that people would be assigned seats more or less randomly—accounts would sit next to
creatives and vice versa—but with one constraint. Richards didn’t want a creative and
an account executive who were working for the same client to sit side by side. In fact, he

wanted them separated whenever possible. So a creative and an accounts person might
be cheek by jowl, but they wouldn’t be working on the same things at all. If you needed
to talk to your accounts guy, you were going to have to walk.
The way Richards saw it, this arrangement had a number of advantages. By mixing
everyone up, he was emphasizing that they were all in the same boat; it would minimize
the us versus them dynamic found at many agencies. Familiarity, in Richards’s view,
would breed respect.
But Richards’s plan was even more devious than that. By using desk assignments to
encourage people to wander the halls, he was nudging his people to mingle. He wanted
them to bump into one another, see other people, and maybe learn a little about what
others did at the agency.
Richards was so serious about the virtues of people walking around that when he
needed to rent a second ɻoor to house his growing ɹrm, he knocked a huge hole in the
ceiling and built an
open atrium with a staircase to connect the two. He didn’t want to
lose the unity of space that his jumbling of diʃerent departments had accomplished, or
create a new, separate ɻoor that could develop into somebody’s little ɹef. Later, he did
it again, and then again, creating a dramatic four-story atrium in the heart of his oɽce
space. He wanted to do it a fourth time, but the ɹre code prohibited it. So he grudgingly
ran his fourth staircase up to a fire door instead of to a balcony, like on the lower floors.
And while people are not forbidden to take the elevator between ɻoors, when they do
somebody might well inquire jokingly whether they broke their leg over the weekend.
Because the stairwell is a light, airy, open, and pleasant space, it’s not hard to get
people moving through there—and naturally bouncing ideas and information along the
way. None of this bumping would occur, of course, if people simply took the elevators.
Oɽce etiquette everywhere dictates that impromptu meetings are never held in
elevators. “Well, that was a true danger,” Richards recognized. He compares stepping
into the elevator to visit another department at most agencies to passing through
“Checkpoint Charlie,” the spot in Berlin during the Cold War through which visitors
between East and West Berlin had to pass.
3
Richards’s stairwell is, by contrast, an open
border.
Richards played with traditional uses of oɽce space in other ways, too. The
workrooms in most oɽces are dark, windowless “dungeons,” in Richards’s words, where
the unfortunate are sent to “copy and collate and put things together.” The Richards
Group’s workrooms—the ones with the copiers and the staplers and the rest—are on the
outside, with large windows, plenty of natural light, and a nice view. As Richards put it,
any one of them “could be a CEO’s office.”
He explained: “The whole idea is to send a clear signal to anyone who comes in here
to do the routine work that we need to do, that there are no unimportant people, there
are no unimportant functions, and that everybody in this organization will be treated
with the highest level of respect in everything that we do. Now, it’s not a big investment
to take a nice piece of space and turn it into a working place. And it comes back to

beneɹt us a hundredfold, because what
happens is, everybody recognizes that what he
or she is doing is signiɹcant. And consequently the work just gets better as a result of
it.” Richards went on to explain that, at an ad agency, a typographical error in a piece
of copy is one of the worst things that can happen. That is, unless the misspelling is
done by one of the cows in the Chick-ɹl-A ads that the Richards Group designed. In that
long-running ad campaign, cows are depicted engaging in a guerrilla marketing
campaign to discourage the consumption of hamburgers. “Eat Mor Chikin,” their
suspiciously misspelled billboards often read. Everyone knows cows can’t spell.
But otherwise, getting the details right is important, and so the person who double-
checks those little things, who collates the presentations for the big account pitch, that
person is performing an equally vital role for the ɹrm. And Richards wanted to signal
that the agency sees the importance of this work by giving those who do it an attractive
place to work.
As you will by now appreciate, changing the geometry and the geography of an
oɽce, by itself, is not enough. It may even seem manipulative—shouldn’t truly free
people also be free to move about the oɽce in the manner that suits them, and to
arrange their seating according to their own preferences? We concede that there are
liberating leaders who would look askance at Stan Richards’ seating policy. On the other
hand, those leaders do not run advertising agencies, which come with a particular set of
internecine rivalries that can be very hard to counter—particularly when each group
clusters on its own ɻoor—and which can in their own right be an obstacle to each
person’s acting in the best interests of the business.
The point of liberating a workplace is
not
to return to some Rousseauian state of
nature in which man, unchained by society, lives a radically free and individualistic
existence. If such a state were either possible or desirable, we would not need ɹrms at
all. But it is not possible. And so, in the real world, we work together to the extent that
it is cheaper and more eɽcient to do so than to work apart, as the Nobel Prize–winning
economist Ronald Coase has convincingly demonstrated.
4
And so, when an advertising
agency squanders resources or misses opportunities because of some turf war
between
account managers and creative directors, that is not freedom in action. It is, rather, the
result of the construction of institutional barriers to freedom: in particular, the notion
peculiar to the ad world that certain questions may only be raised by creatives while
others are the sole province of the account managers. No wonder Richards wrote,
“Abolishing oɽce doors and, later, walls…was probably the most profound act of
cultural liberation we’ve ever undertaken.”
5
Note that while this
specific
problem is peculiar to the ad business, it is a species of
one that we have seen repeatedly faced by leaders in the companies they liberated. At
FAVI, a machinist could not make repairs on his equipment—only maintenance was
allowed to do that. At Harley, work rules strictly deɹned what workers with various job
descriptions could and couldn’t do. And at USAA, they literally had one person to open
the envelopes, another to remove the forms from the envelopes, a third to unfold and

sort them, and so on.
Just like Zobrist, Teerlink, McDermott, and others, Richards wanted to blur those
lines. And he knew enough about the existing dynamics of his industry to know that it
would take more than an oɽce party or an exhortation to work together to get that
done. He needed to break up the ɹefs physically in order to break down the barriers
mentally.
All but the most dogmatic creative directors will admit, at least in private, that even
account managers sometimes have a good creative suggestion, and vice versa. The
problem that Richards faced was putting those good ideas from the “wrong” sources into
action. And his solution was to force people to bump into one another—by separating
them and shoving them together by turns.
At the same time, he liberated Richards Group employees in other ways—although
choosing when to get to the oɽce was not one of them. Stan Richards has a thing about
people getting to work on time—before 8:30 a.m. in Dallas. That’s 9:30 a.m. in New
York, and as Stan puts it, he wants people in the oɽce in case clients on the East Coast
need to talk to someone. In fact, Stan Richards is so serious about it that everyone in the
company has a personal identiɹcation number, and they are supposed to “clock in” by
typing that PIN into
one of the keypads found at the entrances to each ɻoor of the oɽce
before 8:30 a.m. each day. It’s a time clock of sorts, albeit one that you never clock out
of.
This bit of regimentation is a source of both angst and humor at the Richards Group. A
number of people have T-shirts with “8:29:59” emblazoned on them. And when we
visited the Richards Group, we were introduced to the employees at what they call a
“stairwell”—a short, sometimes raucous meeting held in the four-story stairwell in the
center of the oɽce. The employees held a poetry slam in which they attempted to
describe the company for their visitors in verse, and more than one of the poems
mentioned the mad dash that some people take through the parking lot and the lobby to
key in their PINs before the clock strikes 8:30. We take this public ribbing of Richards
over the policy as a sign that Richards Groupers see the clocking-in regimen as a quirk
rather than a source of serious resentment.
At the same time, Richards shares the belief of Zobrist and others that people don’t
need to be clocked to get their jobs done. “Some bosses worry they won’t get an honest
day’s work from people. They
must
worry about it, or nobody would make time clocks.
But I’ve found that diligence is the rule,” Richards said, “and not because we
make
it a
rule”—except for that rule about what time you get to the oɽce, of course. “Given the
tools and the freedom they need to use their gifts, people enjoy working hard… My
experience around here has been that if people are imbalanced in their approach to
work they are usually imbalanced on the side of working too much … There may very
well be some … with a disposition toward gooɹng oʃ…but the culture pretty well takes
care of that…. The diligent majority sets the tone and pace… An open workplace is
remarkably self-policing.”
6
And yet he makes everyone punch in, and has chores for

those who make a habit of missing the morning bell.
Whether this is a blind spot or a pragmatic concession to the habits of his industry is
hard to say. It certainly sits oddly with Richards’s talk, in his book and elsewhere, about
trusting people to do the right thing. But Stan Richards is not a management
philosopher. Some of the liberating leaders in this book are connected directly to one
another or through a common intellectual heritage—McGregor’s or Townsend’s—arrived
at independently. Richards is one of those who came to his views through a combination
of a belief in his fellow man, as expressed above, and a desire to remove obstacles to
doing the work that he loved. When we asked Robert McDermott or Rich Teerlink what
drove them to do what they did at USAA and Harley, both men talked about their
childhoods and their upbringings. Tom Quadracci explained the drive of his brother
Harry as a reaction against bitter labor-management disputes he witnessed early in his
career in the commercial printing business. Bill Gore, Bob Koski, and Gordon Forward
all talked about the exasperation they experienced watching large corporations stiɻing
people’s initiative and creativity.
Stan Richards talked about advertising. “You know,” he told us, “I’ve never thought
that any of the things that I’ve done were radical. They just seemed natural.” And then
he delivered his bottom line: “I guess the thing that you need to understand is that my
total focus is on our work. I was trained as an art director; that’s where I worked for all
these years. So everything is about the work. How good can it be? How good can it get?
What can I do to keep making the work better and better and better and better? And so
everything that I’ve done is for that purpose.” In other words, if there are apparent
contradictions between his emphasis on personal responsibility and tics like the
obsession with 8:30 a.m., Richards justiɹes them as pragmatically necessary for “the
work.”
In
The Peaceable Kingdom
, we did ɹnd a passage that is the closest to a philosophical
declaration as one can hope to get:
I’d rather get burned now and then than to treat my employees like snakes…. Besides, experience shows that I’d be
wasting my time as self-appointed corporate hall monitor trying to keep people in line all the time. My… colleagues
are honorable men and women, and they prove it every day by their actions in a workplace where they’re at liberty to
run amok if they’re so inclined. They’re just not so inclined,
that’s all. The exceptions are so rare that to clamp heavy
restrictions on the whole work force just to try to control the actions of the potential bad apples would be a colossal
self-sabotage. We’d be robbing ourselves up front of the potential that people at liberty have.
7
Richards has—eʃective upon his eventual death—given away his company to a
foundation that is barred from selling it. Thus, the freedom environment Stan created
for his people will never be destroyed by some Madison Avenue agency that might
otherwise buy it.
For now, however, Richards owns 100 percent of the company. Even so, he is very
open about company news—good and bad. Whenever “something comes up,” whether
it’s losing a big account or winning a new one, he calls a stairwell to share the

information throughout the company. He explained the openness this way: “The only
way to defeat paranoia is by not keeping secrets, and so everyone is allowed to know
everything.” This is one reason that Stan Richards calls his five-minute stairwells.
“In most organizations,” he explained, “the information goes to the important people
ɹrst, and then it drifts down to the unimportant. There are no unimportant people here
and therefore, information should go to everyone at exactly the same moment.” A
second beneɹt of the stairwell: It is used to introduce prospects, clients, and visitors to
all employees. Why is
this
a beneɹt? “A typical client working closely together will get
to know twenty of us,” Richards replied. “But the fact is there will be two hundred to
three hundred others in this company who will touch and support their business in some
way. And they will never meet [that client]…. But for them to see [the client] and to be
a part of that experience that we have in the stairwell, makes us better at what we do
because those people now feel connected to that client…. And this second beneɹt is far
more important than the first.”
Compensation is the one big exception to this openness. At the Richards Group,
discussing your pay with your fellow employees is a ɹring oʃense. Asked to square this
with his views on trusting people
with information and being open, he said that it is
“easier” this way. And certainly, it makes it easier on him, although his statement about
paranoia, quoted above, would seem to apply in this area as much as in any other.
Richards argued that people should decide for themselves whether they feel fairly paid,
not by reference to colleagues, whose pay may reɻect circumstances that don’t apply to
those around them. He may have a point, but the policy, like the time clock, is
paternalistic in a way that Richards eschews in other areas.
But whether justiɹed or not, these are exceptions. Most of what he has done at the
Richards Group leaves people there far freer and more autonomous than their colleagues
elsewhere. This satisfaction of their need for self-direction, as well as those for respect
and growth, leads to both higher performance and employee happiness.
LOW TURNOVER, BOOMERANGS, AND OTHER SUPERNATURAL PHENOMENA
As at all liberated companies, the Richards Group’s happy employees move on to other
ɹrms much less often than their peers do. Richards estimated a turnover rate of perhaps
7 percent annually—compared with more than 30 percent for the industry. “And I guess
if you look at it from a practical standpoint,” he said, “does it make the work better if
we have turnover of key people in this agency? And the answer is no. It’s not going to
be better. It’s going to be worse, and clients are not going to be well served.” In this
way, albeit without any of the religious overtones of McDermott, he is echoing Zobrist
and the others: Employees who feel well treated are going to treat both colleagues and
clients well in return. “I close every meeting with, ‘Let’s go have fun!’ And that’s the
way it should be. Because if we are having fun, then the work is going to be better”—
and the clients happier.

Stan Richards’s approach is intensely pragmatic, and that does lead to anomalies. But
the Richards Group nevertheless has managed to operate according to the same
principles found at other liberated companies. It is, for one, deeply suspicious of
controlling
hierarchy and conspicuous perks of power. The seating arrangements are in
some sense random but respect one principle: Within a room, those who have been with
the company the longest, regardless of rank, sit the closest to the windows. A similar
loyalty-reward program applies to parking spaces. Unlike many liberated companies,
the Richards Group does have a small number of assigned spots near the entrance to the
building. But these are not reserved for top executives. Rather, they have been awarded,
again, to those with the longest service with the company, whether they are secretaries,
account managers, art directors, or what-have-you. Moreover, if the holder of a spot
doesn’t need it or chooses not to use it, she is free to rent it to someone else in the
company for whatever price she can command. In this way, what might otherwise seem
an arbitrary perk can ultimately ɻow to those who value it the most. And in a ɹnal nod
to loyalty, the company’s conference rooms are not named after some luminaries but
after those same long-serving employees—who, again, may not be senior in any other
sense of the word.
Stan Richards himself has somewhat more space around his desk than most other
employees, it is true, but even he doesn’t get an oɽce with walls and doors. All these
steps are designed to replace the traditional privileges of power in a company with a
diʃerent message: We treat our people with respect and dignity, and we value loyalty.
And while this message may help explain some of the low turnover, we doubt very much
that most Richards Groupers are hanging on at the ɹrm for their shot at an eponymous
conference room. Low turnover is another hallmark of all liberated companies. This is
true even though none of the companies proɹled in this book pay what could be called
industry-leading wages. Stan Richards estimates that the base pay at the Richards Group
is, on average, somewhat lower than at the competition—although he says that more
generous bonus and retirement programs balance this out.
That may be true. But when it comes to talent retention, the psychic income—as
McDermott liked to call it—of working in a free workplace is even more important than
these alternative forms of ɹnancial compensation. This explains another universal
feature of liberated companies: the “boomerang”—the employee who is offered
a higher-
paying job elsewhere, takes it, regrets it, and comes back. We met boomerangs such as
Les Lewis at W. L. Gore & Associates at nearly every company we visited. The Richards
Group, with some seven hundred people, had about one hundred of its own—one of the
poets at the stairwell we attended read an ode in their honor. Pat Pelino, a consulting-
practice leader at Vertex, insisted that she’d never seen anything like the way Vertex
embraced its boomerangs. It has twenty-seven of them, or 4.5 percent of the total
workforce—including three out of the company’s top eight executives. At other
companies where she’d worked, “It was like when you left, you left. There was no
opportunity to come back, no matter how good the relationship was when you left.”
8
Pelino had identiɹed something that stands out about liberated companies. When Jeʃ

Westphal tells his new hires “You’re free to leave,” the natural corollary is that you are
free to come back
. Forbidding either would be an aʃront to employees’ personal dignity
—it would suggest that they are either incompetent or not welcome to make the most
personal of decisions and most individual of freedoms—what to do with their own lives.
At the same time, the fact that they come back in such numbers—and that nearly
every company in this book has experienced the same thing—tells you something else.
Those people found a real value in the way that they were treated and how they could
grow and self-direct inside a liberated company that neither a higher salary nor a fancy
title could fully replace. To put it into the language of psychology, they were having
their universal needs met, even if
they
wouldn’t talk about it in those terms.
Meanwhile, halfway around the world, another liberating leader has also made it her
business—literally—to rearrange how her employees and her clients think about their
office space.

L
12
THE SECRET OF
LIBERATING
LEADERSHIP
How Paradoxes and Wisdom Help Freedom
You can’t ɹll a movie theater with a director…. The most important thing in the movie is the actors…and the decadence
of the cinema comes from the gloriɹcation of the director not as a servant of the actors but as their master. The work of
director consists of extracting from all of the actors the maximum human richness. So let us respect and love them and
help them to be great because they are the people who make the cinema unforgettable
.
—O
RSON
W
ELLES
1
It’s better to limp slowly along the right path than walk stridently in the wrong direction
.
—M
ARCUS
A
URELIUS
2
IISA
J
ORONEN IS
the president of SOL, Finland’s number two cleaning-services company,
with eight thousand employees and $212 million in revenue annually. And early one
September morning she arrived to pick us up personally at our hotel.
The cozy hotel, it turns out, was once Helsinki’s prison. The rooms are converted cells,
with small windows facing the sky, so it was a bit of a shock to emerge into the lobby
and ɹnd there the woman who has built the freest company in Finland, and possibly all
of Europe. She was a short, slight blonde, waiting for us in a bright
yellow raincoat and
playing with a school-age boy, also blond. She smiled spontaneously.
“Hello, I’m Liisa,” she said. “Do you mind if I ɹrst take my grandson to his school and
then we go to the company?”
3
We agreed.
“Do you mind if we take a tram? I have no car,” she explained.
We knew from our email exchanges that she spends most of her time today on her
farm in the south of France. “I need to give space to my children [her daughter and son,
both key SOL executives],” she had written a couple months earlier. “It is not easy to be
a child of Liisa Joronen. I have too often seen fathers who cannot give up and they ‘kill’
their children.”
4
The meaning of this took us some time to understand. In the meantime,
we were quite surprised to learn that she’d ɻown up from France to Finland for a couple
of days specifically to show us her company.

After we’d traveled some way on the tram she told us it was time to get oʃ. But the
journey to the school wasn’t over yet. “Now we need to change to another tram. You
don’t mind?” she asked, but the next tram took forever to come. So we took a taxi,
dropped oʃ her grandson, and ɹnally arrived at SOL City, aka SOL Studio. The
company’s headquarters got this nickname because in 1991, when Joronen took over
part of her father’s business, the only place she could aʃord to rent for a head oɽce was
a deserted movie studio. It remains SOL’s headquarters today, although its appearance
has little to do with its movie days.
Joronen ɹrst joined the family business, Lindström, ten years earlier, in 1981, after
fourteen years in banking. At the time, Lindstrom provided a range of cleaning services,
from commercial cleaning to dry-cleaning and laundry. Her father anointed her CEO of
Lindström at the age of thirty-ɹve, and the trouble began almost immediately. Ten years
later, it would culminate in the breakup of the company.
Joronen had strong convictions as to how a company should be run that she had not
been able to put into practice as a bank manager:
I had a dream of a company whose employees would be satisɹed with themselves and their work, who could [have]
inɻuence on their own work and on their customer relations. I had a dream of a company without unnecessary rules
and regulations, without unnecessary bosses and hierarchy that prevent people from doing good work. I deeply believe
that people work well if they have the freedom to decide themselves many things concerning their work instead of
their bosses [deciding for them.]
5
It turned out that the family business presented obstacles to realizing her dream. Her
father was an old-fashioned, domineering type who would “not give up” and was still
around most of the time, despite having oɽcially handed the reins to Joronen. To avoid
full-blown familial civil war, Joronen’s father divided the kingdom. He oʃered Joronen
the unproɹtable cleaning and small waste-management activities, comprising one-ɹfth
of the original company, while her brother and three sisters inherited the more robust
laundry and linen-renting activities. Her father also told her and a key manager who
followed her into the new company that both of them could return. “He was sure that it
would never work. And we said, we will show ourselves, my father, and the rest of the
world that we will succeed,” Joronen later remarked.
The new company had no money. Joronen was not even sure how many of its former
employees would stay—all of them did in the end—but it needed a headquarters. The
studio space was hardly a traditional oɽce, but it provided a blank canvas for the
creative transformation SOL’s new leader and employees immediately undertook. In
their hands it soon started to look like no other company. In its audacity and bold
colors, its interior design resembled the later oɽces of Google. Except at SOL, the
interior design was conceived and carried out within ɹve weeks by the people
themselves.
From day one, Joronen organized the company according to her convictions,
questioning traditional “how” practices: “Why should we have oɽces that look like

oɽces? Why work from 9 a.m. to
5 p.m.?” The company’s two hundred employees were
asked to brainstorm and propose ideas about the workplace that they would like to
have, and they responded with 1,146 suggestions. They also proposed the company’s
new name—SOL—with bright, sunny colors for the logo, symbolizing “positive spirit,
happiness at work, creativity and courage.”
The interior of SOL’s headquarters.
6
Proposed workplace changes included getting rid of assigned desks for everybody—
including Joronen herself. At the bottom left in the picture are the bags people use to
store their belongings after they’ve ɹnished their work and cleaned up their desk. Two
people, though, do have assigned desks: one at the entrance (in the far back in the
picture) who is in charge of welcoming job applicants—and who still cleans up his desk

for use by others when he’s not around—and the union representative, whose desk is on
the ɹrst-ɻoor balcony. It’s to this gallery that Joronen ɹrst brought us to tour the
headquarters.
“It’s very quiet now,” observed Joronen, looking down. “There can be three hundred
people here and sometimes it’s like a circus or an amusement park.”
We wanted to know what this depended on.
“It depends on the weather,” replied Joronen and, seeing our surprise, explained.
“Yes, of course. In summertime it is empty because people prefer their summer cottages.
And if it’s raining on Sunday evening, even Sunday afternoon, many people come here.
And then on Thursdays…because we have free soup for everyone. They come for the
soup and they arrange to have meetings that day. I always invite business partners or
customers on Thursday because it is lively then and we have the soup.”
We couldn’t restrain ourselves from playing devil’s advocate and asking, if people
enjoy the soup so much, why not have it every day?
“It’s too expensive,” Joronen replied. And then she added, “And I don’t want people to
stay here. I want them to stay with the customers they want [to recruit], the marketing
people to do marketing…. This is our headquarters. What do they do here? Very few
people have to be here … The more people you have here, the more you have internal
problems. They create their own work and they create bureaucracy. Then you need more
personnel managers and you need more people just to look after your own people.”
We started to notice a puzzling pattern with this big-business-owning, tram-riding
president. Having stepped aside as CEO in
favor of her children, she professes to be
reluctant to visit the company too often, but when she does, she clearly loves every
minute of it (even ɻying to Finland from France for the opportunity).
7
She praises the
free Thursday soup for employees and visitors alike but judges it to be too expensive to
provide every day. In the ɹrst ten minutes of our conversation, Joronen told us—in the
space of two sentences—that she “lives in chaos” but, at the same time, she insisted, “I
don’t go
there
and
there
and
there,”
waving her hand in three directions, “I go
somewhere.” She also told us that once she “decides something,” she’ll “break through
walls” to get it done—but she never “takes too big risks.” She was, in a word, full of
paradoxes.
And sure enough, she gave us another one a moment later. Returning to the question
of corporate headquarters, we asked her whether companies that build large head oɽces
are making a mistake.
“Oh, I love them,” she said with her characteristic warm smile and just a hint of
mischief. “I love them, because
we
clean them. And every time I give a speech to a client
I end it, ‘But don’t do what we do here. I love you and your big headquarters because
you are my client.’”
She was joking of course, but there was also something deeper in her attitude: Recall
Harley’s Teerlink saying “People don’t resist change; they resist being changed.”

Beneath the humor, there was something of this wisdom in Joronen’s remark. “It’s not
necessary for us” to have a big headquarters and all the support departments, she
elaborated. “But, you know, it’s their business. I always say, ‘You can do good business
in many ways. This is
our
way of doing things.’” But then she added, “I have to behave
in society because I am the opposite of almost everything in the society. But I have to,
because I still have the society, they are my clients.”
So add “rebellious conformist” to the list of Liisa Joronen’s paradoxes. We went back
to the beginning: When her father oʃered her the most problematic, most unproɹtable
piece of the family business, did she hesitate?
“It was a big risk, but not too big, I thought,” Joronen answered, adding: “I don’t do
any calculations, ever. I went to school for
economics but [I never do them]…because if
you’ve been running a business for ɹve years, year after year, day after day, you know
it.” Then, to show she’s serious about this approach to business, she added, “In 2009, for
the first time, we have abandoned a budget. We don’t do budgets anymore.”
How do you run a business without a budget? From the start, she said, SOL’s business
philosophy was to avoid centralized corporate budgets and instead to have individual,
supervisor-by-supervisor budgets. But now, SOL is leaving even those behind. In their
place, supervisors will forecast only the end results: their “growth and profits.” The goal,
after all, is not to spend your budget, but to earn more than you spend.
That may sound too simplistic, but it recalled one conversation with Zobrist. Referring
to the acquisition of the European steel giant Arcelor by Mittal, he asked us, “Do you
know how many business indicators Arcelor had? One hundred and ɹfty. And how many
does Mittal have? Four. Very clever company.” And it’s hard to argue with Joronen’s
results so far. In 2007, SOL grew 15 percent. Its proɹt margin was 8.7 percent,
compared with an industry average of 3 percent to 4 percent. The proɹts continued
even through the 2009 downturn, despite SOL’s decision to charge less than the
contractual price for many of its struggling clients, such as hotel and ferry companies.
8
So, SOL’s margins are very high because its costs are very low, we assumed.
“No, the costs are awful because the human costs are so expensive in Finland. Ninety
percent of our costs are human,” replied Joronen, adding another dimension to the
puzzle.
So how does she explain the margins, we wanted to know.
“We don’t spend money on overhead. Our overhead costs are very low…. Even if we
are very proɹtable we do count every cent. We are very, kind of, lean. Lean, and
stingy,” Joronen explained, switching suddenly from company to family: “I mean, our
family is stingy also.” Not seeing what the family’s stinginess had to do with keeping
costs down, we asked instead how the company controls costs without an army of
controllers.
“No, no, no. We don’t control,” replied Joronen forcefully. “I think if we, the
managers, would have spent a lot on ɻights, good hotels, cars, the employees would

follow our example. They understand the message we give here,” Joronen continued.
“We are a family company, 100 percent family company, we have always been. So what
that means is that it belongs to the family, too, to set the example. I think that’s very
important. If I had a big oɽce here, everyone would want to have one. I think the
example is important.”
A big business owner who ɻies only economy class? That ɹlled our bag of paradoxes
over the top. But before we attempt to resolve them, let’s take a look at what Joronen
achieved at SOL.
OUT WITH THE CLEANERS, IN WITH
THE SERVICE AGENTS
The headquarters in the picture, which Joronen characteristically calls “awful, but…the
cheapest and best place” available then—is still in use. But Joronen always wanted the
action to be elsewhere. SOL is a cleaning company, and you don’t make much money
cleaning your own oɽces—and even less sitting in them. Joronen wanted her people
out in the ɹeld, exercising their “freedom to decide,” as she put it, and dealing directly
with the customers. The ɹrst step was to build an environment in which the cleaners
were treated as equals. So, like Bill Gore before her, she began by changing their title—
from “cleaners” to “service agents.” They also got bright yellow and red uniforms, so
they became highly visible. While an ordinary oɽce cleaner can be expected to dress in
drab colors, registering just barely above the oɽce furniture in the awareness of many
of the employees around them, SOL’s newly outɹtted service agents would be impossible
to miss or to mistake—if you ever saw them. Most oɽce cleaners work at night, out of
sight and mind. But not SOL’s. This was the big breakthrough in how SOL did business:
SOL negotiated with its clients to do the cleaning
during the day
, not in the evening or at
night. SOL was the ɹrst in Finland to do that. It started to clean during the day not for
its many business development beneɹts—more
on those in a moment—but because it
wanted its brightly outɹtted service agents to be visible and proud of themselves and
their work.
Once this groundwork had been laid, Joronen spent almost all of her ɹrst year in a
permanent tour of the regional studios—named after the ɹrst one and, like the
headquarters, designed by the people who worked there. She repeated the same
cheerleading message over and over: “We are the best. You can do anything.” But, of
course, employees don’t develop their skills and become able to “do everything” simply
because they are cheered on and treated superbly by their CEO. All service agents were
oʃered substantial training to acquire the skills to serve the customers for their full
satisfaction—which they measured and collected from the customers themselves. They
were also trained in understanding the numbers so they could grasp their own team’s
business rationale, profit making, and even pricing, and to grow into service leaders.
Finally came the people’s need to self-direct. The service agents were organized into

self-directing teams focused on speciɹc clients and then turned loose. Each team—based
on the local knowledge of its market—decided what their growth and proɹt forecasts
would be and created a budget to achieve them. Joronen admits to being “quite
nervous” the ɹrst year, waiting to add up those numbers and learn what all those self-
directing units had decided SOL’s budget would be: “If the budget had been very low,
what could be done? Or the reverse, if it had been very high?” Joronen remembered the
budget game she had played herself at the bank, where everyone used to put down low
growth targets because they always expected the higher-ups to add something on the
top.
When the teams’ budgets came in, she was surprised: Most of the teams put up
ambitious forecasts, and, remarkably, they met their forecasts—despite a sluggish
economy at the time. And these self-directed teams have never stopped since: From 1992
through 2008, they produced 15 percent average annual growth and 8 percent to 9
percent proɹt margins. But something more happened when these equally treated,
highly trained people were turned loose on the customers. They did not merely provide
cleaning services to the clients’
full satisfaction—they even started to
sell
these services.
While cleaning and interacting with the customer—recall, it’s daytime—and while
analyzing customers’ satisfaction they often discovered new customer needs. It could be
a customer unhappy with a wooden ɻoor that needed waxing or with dirty windows
that needed cleaning. Whatever the need, these service agents would then go to see the
client’s buyer, explain the newly discovered needs, and propose a price to do the job.
This was possible in part because all the service agents were fully familiar with the
company’s pricing policies, margins, and finances. They also knew well that the margins
on these extras are much higher than on the main cleaning contract itself, which must be
won through competitive bidding.
So at least in SOL’s free environment—“it’s a company policy not to have policies”—
there were no paradoxes: It was built on a consistent logic of self-motivating people
through satisfying their universal needs. But what is the role of the CEO once the
freedom environment has been built?
“Let’s ask her.” Joronen deɻected the question to SOL’s current CEO, Anu Eronen,
Joronen’s former right-hand woman, who replaced her in 2002. Eronen was coming out
of the “summer cottage” built for meetings (in the picture’s upper-left-hand corner), and
Joronen asked her this question from up on the balcony where we were standing.
Showing no evidence of surprise, the CEO thought for a moment and then replied,
“Managing is organizing the success, organizing the kind of environment, [physical and,
more important] mental…and providing the tools to…activate all the success.” Joronen
added that when she was the CEO, Anu Eronen helped her, but today it is Anu who is
“organizing the mental environment,” stressing, for example, the company’s focus on
growth, proɹt, or what-have-you. “What you speak, you get,” she concluded. This may
sound deceptively simple, but it matches the importance placed by other liberating
leaders on constantly sharing the vision with everyone in the company. The current CEO
has maintained the freedom environment, so there is not much for President Joronen,

retired to her French farm, to do. From time to time she’ll ɻy from
France to host visits
like ours or to participate in external events. She has also continued to groom her
children to succeed Eronen. But besides that, Joronen stays away from the company. Yet
when her son was asked how he feels about his mother’s absence, Juppe Joronen was
clear: “Liisa is all over the place, every day.” This was the ultimate paradox: Joronen
was nowhere and everywhere all at once.
These paradoxes are no accident. In fact, these apparent contradictions, found not
only in the example of Joronen but of all of the liberating leaders, are not a sign of
sloppy thinking, but rather of wisdom. To explain
that
paradox, a detour is in order.
THERE ARE NO CHINESE BILL BUCKNERS
Wisdom has a colloquial sense that we all readily understand. One recent psychological
examination of wisdom described it, in part, as “excellence in judgment in matters of
life combining personal and common good.”
9
But research into the inɻuences of how we
make sense of the world gives us a better understanding of what makes somebody wise
—as opposed to being smart, say, or knowledgeable. Wisdom properly understood is not
about what we know—that’s just information. Nor does it have to do with intelligence in
the sense of IQ or intellectual horsepower. At bottom, wisdom is a function of
how
we
think.
Some 350 years ago, French philosopher René Descartes put forward a simple-
sounding proposition: If I can perceive something clearly and distinctly, it must be
true.
10
But Descartes took for granted something that we now know isn’t true—that our
own minds are an open book to us, and that we can discover, by looking inward, all the
possible errors to which our minds are prone.
The reality, however, is more complicated than Descartes believed. Our thought
processes are inɻuenced by a variety of factors of which we are often not even aware.
Some of the intriguing research on what psychologists call “thinking styles” has focused
on how they diʃer across cultures. These cultural diʃerences are not
of direct concern to
us here, but the research in this ɹeld has illuminated aspects of how we think that we
might otherwise take for granted or not see at all.
Take the case of the dire-sounding “fundamental attribution error,” also known more
melliɻuously as the “overattribution eʃect.” This is the tendency to assign too much
credit and blame for a situation to a speciɹc individual, without taking into account the
surrounding circumstances or environment. Think of our desire to identify the hero or
the goat when our favorite team wins or loses, and to place the burden for the win or
the loss on their shoulders alone. Poor Bill Buckner, the Red Sox ɹrst baseman who
allowed a weakly hit ground ball to roll between his legs in game six of the 1986 World
Series, is a victim of the fundamental attribution error. A whole constellation of things
had to go wrong for the Red Sox leading up to and after that play, but ask someone who
Bill Buckner is, and they’ll likely tell you that he cost the Red Sox the World Series that

year.
Psychologists once thought that the fundamental attribution error was, well,
fundamental—a universal feature of how the mind works. But beginning in the 1980s,
research revealed that it was, in fact, more of a cultural trait than a universal one.
11
In
the 1990s, a team of psychologists tackled the hero-goat problem directly by comparing
how Chinese and American sportswriters explained the same events.
12
What they found
was that American sportswriters emphasized the actions of particular players in
explaining the outcomes, while their Chinese counterparts focused on the context.
Western thinking, in other words, tends to isolate actors and objects from their
environments. In the East, however, context is king. Repeated studies have shown that
East Asians are far less prone to the fundamental attribution error than Westerners are.
This diʃerence is the product of nurture, not nature, as people brought up outside their
ancestral culture tend to adopt the characteristic thought patterns of the place in which
they are raised. Chinese Americans, for example, fall in between the Chinese and the
Americans of European descent. Studies of how mothers speak to their young children
have uncovered an intriguing pattern: Mothers in Western countries tend
to use mostly
nouns in speaking to their babies, picking out objects and assigning words to them
—“bottle,” “diaper,” “crib,” and so on. East Asian mothers, in contrast, tend to use more
verbs, focusing a young child’s attention on the interactions between an object and its
environment rather than on the object itself.
13
Naturally, if these styles of thinking and habits of mind are learned, they can be
changed, too. The wisest leaders are prisoners of neither of these dominant cultural
milieus, but draw from the strengths of both. And in the past thirty years, developmental
psychologists have shown that the best problem solvers think “holistically” and
“dialectically” about the problems they face. That is to say, they consider all of the ways
in which one problem may be related to its surrounding circumstances and environment
—holism—and they are not afraid to entertain both sides of an apparent contradiction if
it helps them move forward—that’s dialectical thinking.
THE PARADOXES EXPLAINED
With that in mind, let’s look again at Liisa Joronen’s leadership style and her way of
thinking about problems. She took a service—oɽce cleaning—that is normally done as
unobtrusively as possible, put her people in primary colors, and had them patrol the
corridors of her clients’ buildings in broad daylight in a way that they could not fail to
be noticed. This was not mere contrariness, however. It emerged from the insight that
visible employees would be
seen
doing their jobs, giving clients a perception of value.
Visible employees would also act as the faces of SOL to their clients. Instead of scurrying
about an oɽce building at night like church mice after crumbs, they were encouraged
not only to do their jobs with pride, but to seek opportunities to expand their business
relationship with those clients.

The logic of it all is unmistakable and compelling—after you’ve set aside the
prejudices about the nature of the work that kept you from seeing the opportunities the
way Joronen did.
Dialectically
, she looked beyond the apparent drawbacks of having
more-visible personnel
at customers’ sites and found the advantages that could result.
And thinking
holistically
, she saw that higher visibility, liberated people, and
unconventional work hours were all connected. Service reps who worked during the day
but dressed like slobs would do her business no favors. And, even more important for
our theme, none of these changes would likely result in any incremental business if
those now-visible SOL reps did not have the power to act on their own and sell clients
on new products and services as the opportunities arose in the course of their daily
duties.
Joronen’s business innovations were holistic—and wise—in another important sense.
They took into account not only her needs as a business owner and leader, but her
employees’ needs as well. The uniforms and the daytime work schedules give them
respect in a job that often lacks it. It encourages them to hold their heads high and take
pride in their work.
Other paradoxes likewise become easier to understand once they are put into the
fuller context from which Joronen approaches them. She ɻew from France to Finland to
meet a visitor to her company, for example, but she escorted that visitor around Helsinki
by tram. This is not mere frugality. It is part of the oft-repeated desire of all liberating
leaders to avoid double standards. Just as Bob Davids speaks of “subordinating yourself
to your employees,” Joronen shows SOL’s people that they are treated equally by not
taking liberties herself or using a visiting “dignitary” as an excuse to be chauʃeured
around town while her employees take public transit. Single standards, however, do not
necessarily mean thrift. What they do require is equity and fairness. For a long time,
FAVI had a top-of-the-line Audi A8 among its company cars, and no special status or
permission was required to use it for long rides to see clients. Sun Hydraulics has a
beautiful, relaxing garden with a pond and fountain behind its plant—built at
considerable expense. A large terrace opens up onto it so that everyone can enjoy the
view while eating his lunch. And SOL’s oɽces have dozens of sculptures and paintings
from Joronen’s collection—which she acquired with her own money.
Thus, liberating leaders’ wisdom, with its holistic and dialectical thinking, helps to
explain many paradoxes that so often strike a ɹrst-time
visitor to a freedom-based
company. But it can also explain one more paradox we encountered earlier: Liberating
leaders such as Zobrist radically transformed their companies’ managerial practices—
and did so mostly through nonthreatening, often gradualist tactics. Yet Zobrist did not
hesitate to take harsh steps against certain dictatorial managers, and to do so publicly.
This paradox, it turns out, is at the heart of why so few leaders attempt—much less
succeed—to set their people free. There are many executives out there who have an
inkling that they are not getting everything they could or ought to get out of the people
in their charge. But they are stymied as to how to begin, or else they charge forward
with guns blazing—only to go down in a hail of bullets, leaving the old guard and their

old ways ɹrmly entrenched. It turns out that it takes the willingness to embrace a
paradox—in this case, that of the nonviolent revolutionary—and the ability to always
keep the big picture in view to eventually find the freedom solution.
“PLAN-ORGANIZE-EXECUTE” IS NO WAY
TO RUN A REVOLUTION
Thousands of business seminars are conducted all over the world every year on the
topic, “How to Be an Eʃective Change Agent,” or some variation on that theme. They
preach mantras such as “Plan-Organize-Execute.” They teach managers how to lay out
the steps, establish deadlines, and envision all the risks and how to handle them. This
may be a great way to implement a new accounting or procurement system. But even
here, the exercise in envisioning what could go wrong can easily fail to anticipate the
biggest dangers. Some department will, unbeknownst to our change agent, feel it has
been adversely aʃected by the change or was not appropriately consulted. When this
happens, the resulting rift—or worse, the quiet insurgency—that results can drag on at
the company for years. Even in relatively minor matters, it is impossible to prove
logically to people that the leader’s solution was right and that theirs was wrong. As
everyone who has tried it knows, attempting to do so will
only entrench people even
deeper in their positions. These sorts of battles can last decades.
The stakes are much higher when it comes to transforming the way a whole company
is managed, and the potential resistance is that much greater. Among the managers, of
course, there may be some who won’t resist at all, such as the minority at FAVI. Even in
unionized, “how” companies such a minority often exists, as Adam Easter, billet yard
and ɹnishing manager at Chaparral Steel, observed: “I had over twenty years of steel
experience [before] I came to Virginia in 2000, … both union and nonunion. I worked at
one of the oldest plants in America and to the newest plant in America … and I never
really had a problem managing in the union environment either because it boils down
to the respect that you pay your people. Because if you show that you’re concerned
about their safety [and] their well-being, [if you stimulate] the mental portion of their
lives to give that enrichment, [and they are doing] jobs where they can make a
difference, you don’t really typically have problems.”
14
This minority makes a great ally in the liberation campaign. But then there is the
other
group. Confrontation is ill-advised, and acquiescing to them will doom your hopes of
liberating your company, as they will cling to their dual standards and their territorial
claims and will make a mockery of attempts to reform management practices.
So a wise leader looks at the problem of intransigent managers holistically and moves
dialectically to deal with it. To start, he will accept that these managers have legitimate
historical reasons to resist the liberation—they have needs, too. Their position and status
are threatened and their futures are made uncertain by the liberation campaign. Seen in
that light, resistance is not only natural, it’s rational. As Zobrist observed, FAVI seemed

to be reasonably well run when he was named CEO. It was proɹtable and its practices
were in sync with the times. As in most companies, the managers took comfort in this
view of the company and had reason to believe their managerial approach was just ɹne.
If not for some of Zobrist’s accidental little discoveries, such as the exorbitant
true
cost of
replacing a pair of gloves or the nightmare of repairing an imaginary lawn mower,
even he might have continued to run the plant in the old way. Seeing
the situation
dialectically—from both sides—he started with changes that did not threaten those
managers. Instead, he sent them to various seminars on alternative management
approaches. Jacques Raiman did the same at GSI, sending his managers as far as the
United States for it. Even later, when Zobrist took decisive action, beginning with his
speech about FAVI-as-prostitute, he was adamant that a liberating leader should “never,
ever leave anyone on the side of the road.”
Rather than write somebody oʃ because they’ve become a counterproductive force or
are resisting change, he said, “It’s necessary to have the courage to say: ‘I am ashamed,
sorry. But during many years I let you do inept things that didn’t allow you to fulɹll
yourself.’” And “courage” is the right word—rare indeed is the manager who will blame
himself for the underperformance of a direct report. But notice what Zobrist gets as a
result: He takes an impossible task—exhorting a suspicious and unconstructive employee
to get on board—and transforms it totally by taking the blame on himself. “I let you do
inept things”—if you mean it—puts the
listener
in the hot seat, because Zobrist has taken
the blame on himself. Next, he suggests you make the following oʃer: “You have all the
freedom and all the time to ɹnd in this company something much more constructive,
ɹrst of all for yourself and then, for the common good.” In other words, the one thing
you
can’t
do is to continue to stand in the way of other people doing their jobs. But the
rest is up to you. Instead of, ɹrst, blaming the manager for doing a bad job, and,
second, telling him how to shape up, Zobrist turns the whole encounter on its head: Take
the blame yourself and leave the other guy free to ɹgure out how to improve. Note,
however, what he doesn’t do in this hypothetical encounter: He does not pretend that
unacceptable performance or behavior is acceptable in order to keep the peace, and he
does not leave the preservation of the status quo available as an option.
In his twenty-ɹve years with FAVI, Zobrist didn’t dismiss any of the people whose
bureaucratic jobs became useless in the freedom-based company. He did, however, ɹre
three people—within a matter of hours—for bad faith and mistreatment of other
employees. As Bob Davids would say, “The swift sword cuts clean,” a mantra he
employed when a person would become increasingly dictatorial and when he “realized
that the rest of the people were waiting to see how long [Davids] will let this exist.”
15
Wisdom has also been helpful after the liberation.
Zobrist, who based his own style of dialectical wisdom on the writings of Douglas
McGregor, Chinese tradition, and his own hands-on liberation experience, wrote that the
overall principle guiding his action in the company after he achieved the “break” and
built a freedom-based environment was that of the good Chinese prince mentioned in

chapter 7
: “To act without acting is a laissez-faire that does not mean doing nothing, but
means creating conditions in which things happen by themselves.”
16
How liberating
leaders used yet another paradox—“acting without acting”—in order to
maintain
the
freedom environment is the issue we turn to now.

D
13
THE ULTIMATE
PARADOX
The Culture of Happiness as a Path to World-Class Performance
My job now is the keeper of the culture. That’s my job. I do it by talking to everybody every day: “Hello, how are you,
how’s it going, what do you need?”
—B
OB
D
AVIDS
1
AVID
K
ELLEY—THE
founder, chairman, and former CEO of the Palo Alto, California–based
industrial-design company IDEO, has never met Bob Davids, but he unconsciously
echoed him when he said, in answer to a question, “I view my job as maintaining the
culture. That was the most important thing…
Everything else was a distraction.”
We had asked him, “How much time did you spend building the environment—the
culture—as opposed to running the business?” And when we asked whether he held this
view of his job from the very beginning, he replied, “Absolutely.”
2
As an adult, Kelley built one of the most inɻuential design ɹrms in the world. As a
young kid, he took his ɹrst full-sized bicycle, a bright-red Christmas present, and spent
the day sanding the paint oʃ so he could paint it green. Later he would build his own
tandem bike by welding two bicycles together. He also made his own Halloween
costumes, to rave reviews. As an engineering student at
Carnegie Mellon University,
and then again in Stanford’s product design program, David Kelley’s only passion in life
was to design and build cool stuʃ. Today Kelley is a professor at Stanford’s Hasso
Plattner Institute of Design (the “D school”), where he spends most of his “free” time.
And yet, when asked, he insists that everything besides maintaining IDEO’s culture
during his decades as a CEO was a distraction. Paradox again? Let’s see.
It all happened, apparently, without a plan. While a doctoral candidate at Stanford,
David did a lot of “creative engineering,” working on projects spanning from medical
equipment to a reading machine for the blind to computers.
3
In the late 1970s, Silicon
Valley emerged as the place to be for young computer companies with an urgent need to
develop innovative products. Many of them turned to Stanford students for help. Kelley
was one of them, but he gleaned in these stints more than a simple way to gain extra
money and creative design experience: “I thought this would make a great business.” So,
in 1978, together with a business partner, he started IDEO—then called Kelley Design—
and soon had Steve Jobs knocking on the door to design an early Apple computer (and

later Apple’s ɹrst mouse). The company’s reputation grew. In 1980, the partner—more
interested in entrepreneurship, perhaps, than operations—decided to leave, and Kelley
bought out his 50 percent interest. Kelley thus found himself not only without a partner,
but more dramatically in his eyes, without a manager to run the business. Considering
himself a creative engineer, his ɹrst thought was to hire somebody to run the place. But
then the surprise came.
The company’s ɹfteen employees, informed by Kelley about his intention, objected.
“You’re fantastic at taking care of us,” they told him. “We love working for you.” Kelley
confessed that before that, he had never thought of himself as good at running the
business and was surprised that his employees might see him as “good with people.” But,
obviously, Kelley did
something
to warrant a unanimous recognition of his leadership
skills. This “something” explains the paradox.
FROM CULTURE EXASPERATION TO
CULTURE DESIGN
Unlike Bill Gore and Bob Koski, David Kelley didn’t have a clear idea of the corporate
environment he wanted to build. But, like Gordon Forward, Stan Richards, and Gore and
Koski, he knew what he wanted to avoid at any cost: the exasperating environment he’d
experienced at two big industrial corporations after graduating from Carnegie Mellon.
At those firms, he says, “I felt like I was cattle, a sheep.” Kelley explained:
If you look at how these companies are set up, … you get hired, and [then] they say, “Here’s your desk, you work for
[A], you work with [B].” You are in a box! Well, I didn’t get to choose them [A and B]. You wouldn’t do that normally.
I want to choose my friends, right? If I’m going to spend eight hours a day, or ɹfteen hours a day, working at
something, I should choose who that is, rather than the company choosing who that is.
This didn’t help Kelley formulate a vision for his new company, but it did allow him to
make a statement that became legendary. When we visited IDEO, the company was
preparing for its thirtieth anniversary, and Kelley’s statement was emblazoned on the
posters announcing the celebration: “I know that I want to start a company with all
employees being my best friends.” After he started to run the company by himself, one
of his employee-friends complained that his chair was not comfortable. Kelley
responded, “Would you like my chair?” He gave his friend his chair, making him so
happy that he showed oʃ the chair to his friends. In another company that would have
been viewed as belittling the person, Kelley remarked, but at IDEO he considered
himself as equal in status to his employees: “I never treated them like a boss.”
He also instituted practices that would make sense among friends. One was Monday
morning meetings. “Like the family sitting
down at dinner on Sunday,” Kelley
explained, “the whole company gets together on Monday morning and we just talk
about what’s the most interesting thing that happened to [each one of us] last week.”
Kelley also systematically refused to formulate any policies and would refuse if some

employees proposed them. “They [would] always want it,” he said. “Well, I [would]
answer them: ‘Do what you think is right. Don’t look in the book.’” At IDEO, leaders
discuss decisions they are pondering with employees, giving them time to react. This
included Kelley’s decision to hire a new manager to replace his partner, which
employees reacted to in an eye-opening manner. Indeed, it was these and some other
practices that his fellow employees—and friends—appreciated and pointed to when they
asked Kelley to “oɽcially” assume the role of running the business. This, Kelley
commented, “gave me the confidence to build the culture.”
“Please meet my colleagues and, nevertheless, friends,” is an old joke in academia,
referring to the sometimes tense relations among professors, or between professors and
their academic superiors. Though universities should be a harbor of peace, they—like
any bureaucratic organization—foster individualistic interests that often lead to conɻict-
ridden, rather than friendly, relations among colleagues. Kelley did not introduce the
above practices all at once—not, he said, “because I was smart [but] because that’s the
way I would want to be treated if I were them.” In the beginning, he was inspired by the
practices of one large company well-known in the Valley for its enlightened treatment
of employees: Hewlett-Packard.
Hewlett-Packard was started in 1938 by two entrepreneurs in a garage in Palo Alto.
The garage is still there, and today it bears a plaque that reads “Birthplace of Silicon
Valley.”
4
Their radical culture, called “The HP Way,” was more renowned in the Valley
than HP’s product innovations. It was egalitarian, decentralized, and sported as its ɹrst
principle “We have trust and respect for individuals.” In a manner that would certainly
please Zobrist, Hewlett once sawed a lock oʃ a supply closet and left a note: “HP trusts
its employees.”
5
After that, no closet was ever left locked. At the time that Kelley was
getting started, HP was still widely admired for its nontraditional culture. “I got the
employee manual from Hewlett-Packard, tore the
cover oʃ it, and then I used it as my
bible,” he explained. But because at IDEO he had not merely employees but friends, he
would improve on HP, adding, for example, an extra holiday to the number HP had.
That lasted for some time, but Kelley wanted something better. Then one day, he had a
“Eureka!” moment: “Geez, this is a design problem. I can be the one who designs a
culture.” At that moment, David Kelley transformed from a designer of cool products
into a designer of cool culture and made that his “job.” Paradox resolved.
DESIGNING FOR FRIENDS
One problem that Kelley did not share with leaders such as Liisa Joronen was how the
oɽce looked. From the very beginning IDEO employees had freedom to design their
own workplace. When we visited IDEO, we saw an old brown Volkswagen microbus in
the middle of one open space. Coworkers had bought it on Craigslist as an elegant
prank for their colleague and friend. They removed the engine and gas tank, built a
desk inside the van, and wired everything to make it a perfect oɽce. The colleague was

ɻattered and worked there for some time. Later, they redesigned it again, this time as a
meeting space with an oceanside ambience. This unorthodox conference room echoes
SOL’s “summer cottage,” designed by SOL’s employees to add a lakeside ambience to
their meetings. IDEO’s workplace may, in fact, look something like a hippie hangout,
and Kelley does nothing to disconɹrm the impression, saying that some people have
brought in not only dogs and turtles but snakes—big snakes. However, Kelley added,
before making decisions that can aʃect a colleague—bringing in a huge snake, for
example—the person consults with that colleague. If the colleague is aʃected negatively
in his work, the envisaged decision is not carried out—a principle common to all
freedom-based environments.
This principle of consulting with the aʃected applies not only to wildlife but also to
moving, for example, to a diʃerent building. In the early days, IDEO occupied a series
of small offices in downtown
Palo Alto. As the company expanded, everyone agreed that
it would be better and more economical to work in one bigger space. They moved into a
four-story building, and then—surprise—employees didn’t like it. Kelley laughed when
recalling the episode: “It was too much like a corporate building…. Some of the freedom
that people feel is that they can leave the building and walk around. And so if presently
you walk between buildings, nobody says, ‘Are you gooɹng oʃ? Are you wasting your
time?’ ‘No, I’m walking between buildings.’” But if you’re all in the same building, you
can’t do that. So they moved back to the small buildings, nine of them today, in
downtown Palo Alto.
At the time, downtown Palo Alto oɽce rents were among the highest in the nation,
which even for a successful company like IDEO, with clients waiting in line, was too
expensive. So Kelley continued to look for more economical oɽce space. Eventually he
found a series of buildings renting for much less near the freeway. Happy with his
discovery but following the principle of consulting on decisions that may aʃect others,
he described his plan and added a sweetener. Instead of pocketing the savings on rent,
he would distribute it as a signiɹcant salary increase to employees. At many companies,
this would have been a no-brainer. But not at IDEO. Kelley’s employees refused the
move and the raise. They felt that it was important for their work as designers of
consumer experiences to live among consumers: “We want to be able to see people:
women pushing baby carriages; we want to be able to see moms, we want to be able to
see everything.” Then they added an argument that appealed to Kelley a great deal:
They didn’t want to move down by the freeway; that would make them too much like a
traditional company. It takes guts to turn down a substantial raise for the sake of
preserving your work environment. But Kelley’s friends were not just any employees—
they were liberated people who clearly felt they got more out of their jobs than simply a
paycheck. And when they looked at what that raise would cost them—a cost that would
never show up on any company balance sheet—they wisely turned it down.
FUN, HAPPINESS, AND THE GOOD LIFE

AT THE WORKPLACE?
Kelley, in fact, touched upon the question of wisdom early in our conversation and
without any prompting. He called the core of what he has built and is maintaining at
IDEO “an attitude of wisdom,” a notion coined for IDEO by two Stanford researchers.
Robert Sutton and Andrew Hargadon studied the company’s creative methodology back
in the mid-1990s. Their view of wisdom—“acting with knowledge while doubting what
one knows”
6
—derives from the Socratic view that a wise man knows the limits of his
knowledge. Philosophers call this “epistemic humility.”
7
As Kelley explained, IDEO’s
culture helps employees acquire this attitude of wisdom because it “supports people to
allow them to express their ideas without being…hindered.” It also helped them question
the ideas brought forward by other people on the team. In contrast to the conventional
notion of the lonely artist acting in isolation, Kelley’s goal was “to move from an
individual sport …to a team sport.”
Kelley himself uses Socratic wisdom when he consults with his employees about his
decisions—just as Jeʃ Westphal and other liberating leaders do. Yet the wisdom Kelley
used in building and maintaining IDEO’s culture went further. Socratic wisdom captures
only part of what philosophers and psychologists today consider wisdom. We mentioned
in the previous chapter the notion of wisdom as “excellence in judgment in matters of
life combining personal and common good.” That last aspect originated in ancient
Greece, when Plato and Aristotle tied wisdom to happiness and the good life: “A man of
practical wisdom [is] able to deliberate well about …what sorts of things conduce to the
good life.”
8
This wisdom, sometimes referred to as Aristotelian wisdom, was also Kelley’s
cultural design focus: “Big companies…only have units to measure dollars. They didn’t
have any units to measure heart; social, emotional health …. This company is a reaction
to [that] because it wasn’t human.” What he wanted instead was “a fantastic place to
work, where you feel self-gratified”—or, in plain English, “have fun.”
Kelley thought that a wise person should know not only how “to deliberate well”
about things that “conduce to the good life,” but also “how to construct a pattern that,
given the human situation, is likely to lead to a good life,”
9
as some contemporary
philosophers have suggested. He knew how to construct and maintain these patterns—
IDEO’s culture—that led employees to the “good life.” But unlike Aristotle, his thinking
was not simply analytical. Real wisdom takes holistic and dialectical thinking, and
Kelley found his nonanalytical approach in IDEO’s methodology of “creative design.”
This method has more in common with Socrates’ dialogues than Aristotle’s treatises.
First, a project’s designers meet to share all they know about the product (or
service).
10
Next, they split into small groups to observe consumers’ real-life experiences
with the current versions of the product. Back at IDEO, they share all they’ve learned
and then brainstorm ideas for what a new product might look like. That done, every
project member votes on all the ideas, which are posted on the walls, looking for those
that are feasible and “cool.” From there, the products enter a rapid prototyping phase,

and mock-ups are presented to the client and other designers. As feedback is collected,
improved prototypes are built and presented again, and so on until the product is
perfected.
IDEO used this methodology to design hundreds of products, from Apple’s mouse to a
mechanical killer whale for the film
Free Willy
to P&G’s squeeze toothpaste tube to, more
recently, the Swiʃer. It has also used this process to design services. IDEO, for example,
redesigned AT&T’s mMode wireless-data service—which led to a doubling of the
membership in one year. The ɹrm also designed the lingerie shopping experience for
Warnaco Intimate Apparel, which had been seeing its sales in department stores
brutalized by its rival Victoria’s Secret.
11
The methodology’s power lies in
preventing
the participants from becoming analytical.
It achieves this, ɹrst, by forcing designers into the ɹeld to immerse and observe—like
anthropologists—how people actually work, play, and live. These are things that would
go unnoticed or get buried in an analytical marketing research study or focus
groups,
but which are essential to intuitively grasping the consumer’s real-life experience. Then,
the methodology forces designers to come up with a very large quantity of ideas,
including “crazy” ones, because brainstorming delays critique and analysis. Finally,
after the initial selection, designers try out the surviving concepts with “cheap and
dirty” prototypes. These are, in turn, presented and discussed with clients and colleagues
because—as Socrates knew—one person’s, or team’s, knowledge is always limited.
“Prototypes should command only as much time, eʃort, and investment as are needed to
generate useful feedback and evolve an idea,” IDEO CEO Tim Brown has written. “The
more ‘ɹnished’ a prototype seems, the less likely its creators will be to pay attention to
and proɹt from feedback. The goal of prototyping isn’t to ɹnish. It is to learn about the
strengths and weaknesses of the idea and to identify new directions that further
prototypes might take.”
12
David Kelley used this same methodology to design solutions for IDEO’s culture. He
ɹrst proposed to have an extra holiday in the spring, which—after employee input—
became an extra day oʃ of one’s choosing each year. It could be your birthday or
anniversary or anything else—or nothing. This, in turn, evolved into a loose honor
system about “day customization” because, as Kelley remarked, “we didn’t pay much
attention anyway.” The move into that new four-story building proved to be a bad
prototype, leading everyone back to their original oɽce space. The building down by
the freeway was another prototype, which the employees rejected without even trying it
out.
The same holistic and dialectical thinking that underlies wisdom is integral to the
“creative design methodology” Kelley used to design and maintain IDEO’s culture.
Observing employees (or customers) interacting with their environments—instead of
isolating them and trying to inɻuence their behavior through motivation (or attractive
product features)—is holistic. Building quick prototypes while actively seeking outside
input to improve them is profoundly dialectical. According to Kelley, it not only works,

but “once you’ve had success a few times, you trust your creative …methodology… and
you’ll always use it.” He believes so much in the power of his
methodology that he views
it as his life’s legacy: “I’ve seen my whole life that my job, my dent in the universe, will
be that everybody who comes in contact with me—employees, students—will become
more and more conɹdent in their creative ability.” Kelley has even gone beyond
inɻuencing employees and students to change the thinking habits of some
clients
from
an analytical approach to a more intuition-based one.
This, too, was not by design. It started as a way to get clients to stop bothering him:
“Every client, every businessman who came in said, ‘David, this is a very nice company.
When are you going to really make it a company instead of a playground?’” So Kelley
redeɹned the problem, “How can IDEO grow up?” into, “How can clients become less
analytically serious and more intuitively creative?” The solution was a consulting
activity focused on corporate transformation. Samsung, Kaiser Permanente, and Procter
& Gamble, among many others, have beneɹted from IDEO-facilitated analysis-to-
intuition transformation in their business thinking.
P&G, for example, ɹrst contacted IDEO to design new products such as the free-
standing Neat Squeeze toothpaste tube and the Oral-B toothbrush for kids.
13
Later, in a
bid to make P&G itself more innovative, CEO A. G. Laɻey took his entire forty-person-
strong executive team to IDEO’s headquarters to learn about their design and innovation
process. (IDEO promptly took them shopping for their own products.) Despite their
enthusiasm, these executives were not able to reproduce IDEO’s process back in
Cincinnati in the face of resistance from the commercial side of P&G. It was then that,
with the help of David Kelley, P&G executives realized that a deeper organizational
transformation was required to make IDEO’s innovation process work for them. In
addition to transferring its design process to P&G, IDEO also trained more than one
hundred P&G internal facilitators in it. IDEO also helped to create an “Innovation Gym”
in Cincinnati, a physical space similar to that found in its own headquarters that is ideal
for teams using the prototyping design process.
All of this has been beneɹcial to P&G, even though it falls well short of the
thoroughgoing organizational transformation
accomplished by Robert McDermott, Rich
Teerlink, and others. P&G is a company with many virtues, but it is not a liberated one
in the way IDEO is. But that was never IDEO’s goal. “Our dent in the universe doesn’t
mean we have to do all the digging,” explained Kelley. “We empower our clients. We
teach them to ɹsh,”
14
that is to say, to use less analysis and more creative intuition in
their business thinking. And although—compared with the proprietary, carefully
guarded approaches of most consultancies—Kelley sounds altruistic with his “open
source” approach to ɹshing, he isn’t worried: “I can give our methodology away because
I know we can come up with a better idea tomorrow.”
The culture that Kelley built at IDEO frees its designers both to do their best work and
to have fun. And some of these designers have helped build similar, though more limited,
cultures at client companies such as P&G, making it easier for
their
researchers and

designers to produce and implement new ideas. But these clients aren’t trying to
radically restructure their whole corporate organizations—they are trying to develop
environments and tools for a speciɹc type of employee—one whose job it is to innovate
and generate new ideas. And in “how” companies, this is a tiny subset of the whole.
Even at IDEO, not everyone is a designer, so the question arises: Is IDEO a playground
for its cherished designers, but
Dilbert-land
for everyone else? The litmus test of a
liberated culture is whether it touches everyone—beginning with the receptionist and
the janitor.
IDEO needs these people, too. But at IDEO these “support” functions have been
organized into a work group called the “experience team.” It’s composed of several
dozen employees responsible for receiving calls and visitors, accepting and shipping
goods and mail, catering, setting up and breaking down project spaces, maintaining
conference-room equipment, and even processing expense reports. In some companies
“you see them feeling like victims,” said David Haywood, IDEO’s vice president for
business development and a self-appointed guide to IDEO culture.
15
But at IDEO they
work as a team with the mission of organizing coworkers’ and visitors’ experience of
“living, working, and visiting here.” What’s more, they were trained in IDEO’s creative
design methodology to observe, invent,
and prototype the best possible experience
coworkers and visitors could have. One of the resulting ideas was to provide fresh
bagels, cream cheese, coʃee, and fruit every morning in the cafeteria. That way, people
who came to pick up their mail—which is delivered to the cafeteria on purpose—would
have a great experience while “talking to their friends.” Every year the team even goes
for a two-day oʃ-site of the sort reserved for the big-time salesmen at some other
companies. They rent a beach house, bring in meals and beer, and spend time
brainstorming and designing unique experiences for coworkers and visitors.
Joani Ichiki is a member of the experience team who serves as a receptionist and food
planner. When asked what makes working for IDEO diʃerent from other companies at
which she’s worked, she struggled at ɹrst with how to express her thought. “It’s just
diʃerent,” she said. “I mean, I’ve worked at what, four other [companies], and it’s just, I
can’t even explain it. It’s
not corporate.”
16
Was this because the people who worked at
IDEO were friendly? “It’s more than that,” Ichiki replied. “I think here, if you have the
initiative to try something diʃerent, they let you try and you can
do
it.” IDEO provides
all of its people—from Kelley to designers to the experience team—with a methodology
for ɹnding solutions that better the corporate environment. And then it gives them the
freedom to build that environment.
IDEO is a design ɹrm, so the interconnections between Kelley’s activities as a designer
of products and a designer of cultures are especially easy to see. IDEO’s openness about
how the company is run is clearly closely related to how the company designs for its
clients—the same processes and the same sorts of interactions are required in both
spheres. This relationship between organizational and professional openness is a vital
feature of all liberated companies. In business terms, the open ɻow of information and

ideas—from all corners of the organization—is without question the biggest single driver
of innovation and ɹnancial outperformance. Every company in this book is, to some
extent, applying their own version of Kelley’s creative design process to building both
their corporate environments and their products and business processes.
A HAPPY WORKPLACE, NOT A CULT
Even so, you may think that all this shaping of the corporate culture is simply an
alternative and disguised means of employee control. And it is true that, instead of
directly controlling their behavior through orders, policies, and motivational schemes—
carrots and sticks—the freedom-based cultures use a number of norms—“unwritten
rules”—that every employee must respect or face “soft excommunication.” No culture is
without norms, and some sense of “how things are done around here” is inescapable.
17
In a “how” culture, the norm may be “Always consult the hierarchy,” while in a “why”
company, it may instead be, “Inform and consult all persons potentially aʃected by
your future decision,” as it is at IDEO. This perception of the “social control” that a
corporate culture exercises over behavior can be so strong that to outsiders, some
liberated companies start to look like cults. And indeed, at Vertex, the Richards Group,
and others, junior employees talk a little bashfully about how it must sound like they’d
“drunk the Kool-Aid.” But a liberated company’s “rules of the game” are not imposed
from on high. They grow up organically from people’s own interactions with one
another. And in keeping with their bottom-up nature, they are self-enforced; there is no
managerial class authorized to enforce policy on those at the bottom of the pile.
The Kool-Aid drinkers are not in the grips of some nefarious cult leader; they are
happy about where they work—and to their friends, this can be highly suspicious. To
many people trapped in “how” companies, the very idea of being happy at work is
unthinkable. But in this happiness lies one of the key diʃerences between “how” and
“why” cultures. “How” companies are never called cults because very few people are
happy in them. And they’re not happy because the cultural norms in these companies,
instead of helping to meet people’s universal needs, are designed to meet the corporate
nomenklatura’s
particular ones. As a result, many employees are not merely unhappy;
they are chronically stressed out, with all the damaging health consequences that result
from that. Seen in this light, it’s the “how” companies that resemble real-life cults in the
way they take advantage of
new recruits for the beneɹt of the cult’s leaders, and in
which domination and stress are not far from the surface. Liberated companies, on the
other hand, are built to meet people’s universal needs so that they are self-motivated to
act for mastery and happiness.
Finally, building a freedom-based environment is not a socially deterministic project.
Unlike a “how” environment, which explicitly seeks to determine and control
employees’ actions, the freedom environment seeks to make employees free to act for
their own and for their company’s best interests—and to take full responsibility for it.

Think again about Kelley’s design process—it is a set of work practices intended to
facilitate coming up with the best solution humanly possible. These practices exist to
support the arena in which the best ideas come forward freely and can be acted upon.
One of the many good reasons that liberated companies all practice some form of
IDEO’s “consult with the aʃected” rule is that one never knows whose idea and feedback
will be crucial to solving some problem. So while a liberated company’s norms and work
practices constrain in some sense, they are liberating in another, far more profound,
sense. Because these practices are “epistemologically humble,” they remain open to the
contributions of all. “The goal,” as IDEO CEO Brown put it, “isn’t to ɹnish. It is to learn
about the strengths and weaknesses of the idea and to identify new directions [it] might
take.” The “constraints” are, in reality, “unwritten rules” that emerged to maintain that
openness. The point of a bureaucracy, on the other hand, is precisely to be closed—to
perform repeatable actions over and over in exactly the same way—and to “ɹnish.” To
do what you “should do,” in other words.
Bob Koski of Sun Hydraulics said that a liberated corporate culture is for “adults
only”—for people who “are good judges of them-selves…[and] responsible for
themselves…[because here] they can’t blame someone else for their nonperformance.”
18
Liisa Joronen agreed that it is not for everyone and very tough on some because
freedom comes with responsibility, and because a happy workplace demands self-
discipline.
Not everyone is cut out for a liberated company.
19
Next we’ll look at the challenge of
sustaining a freedom-based culture over the years in the face of turnover among leaders
and frontline employees alike.

O
14
BUTTERFLIES IN FORMATION
Sustaining Freedom Over Time
You can’t step in the same river twice
.
—H
ERACLITUS
UR FOCUS ON
liberating leaders may itself appear paradoxical, when freedom in the
workplace begins with an understanding of the centrality of frontline people to a
company’s success and performance. This paradox arises because everything we have
learned by studying these companies pointed in the same direction: The success or
failure of the liberation campaign ultimately rested on the shoulders of the man or
woman at the top—the leader’s values, creativity, and wisdom were the key elements to
the success of the project.
Even so, this reliance on a single, central ɹgure does raise an important question: If it
takes a leader with extraordinary qualities to build a free company, is it possible for that
environment to outlive its creator? Can a liberated workplace be sustained, or is it the
kind of happy accident that must invariably give way to bureaucratization over time?
This was, in a sense, Max Weber’s bureaucratic ideal: replacing personal preferences
with impersonal policies and procedures. Freedom in the workplace, on the other hand,
harnesses all the information, insight, and actions that cannot be captured by rules laid
down
in advance. While a rule-bound mode of governance attempts to say,
“This
has
worked in the past, so this is how we will do it in the future,” a liberating leader knows
that all kinds of valuable information had not been—and will never be—captured in
those rules. She knows, moreover, that the desire to codify “what works” into rules is
powerful and natural. Gordon Forward, the ex-CEO of Chaparral Steel, illustrates this
danger with a story.
One day at Chaparral, a new employee stopped Forward to tell him how impressed he
was with all the freedom he found in the company. Gordon thanked him. The employee
went on, swept up by his enthusiasm. He thought it was great, for example, that nobody
wore a jacket and tie in the oɽce. “Let’s have a policy that nobody wears a tie to
work,” the employee proposed.
“If we write that rule,” Forward replied, “I’m going to wear a tie!”
1
After telling us this story, he laughed and added, “It’s such a stupid thing to write a
rule.” Stupid—unwise, even—but natural. This young employee liked Chaparral’s
company culture so much, he wanted to codify it. And this impulse—to turn one’s

preferences into rules for everyone else to follow—is a constant danger to be guarded
against. This doesn’t mean that there can be no rules. As Gordon Forward notes,
Chaparral, a steelmaker, had lots of rules, particularly in the area of safety. These are
vital in a business in which one is dealing with three-thousand-degree molten metal.
And, as we’ve seen, all liberated companies have some unwritten rules, such as “Don’t
produce memos—inform orally” at GSI; or “Consult all the aʃected colleagues before
making a decision” at Gore and IDEO. The key is to distinguish between the informal
rules that arise spontaneously to signify some shared habit—a local tradition—and those
that formally impose one person’s preferences on everyone else. Forward was acting as
a keeper of the culture in the sense described by Davids and Kelley, reminding his
enthusiastic new recruit that the important thing was not whether white-collar
employees wore ties, but their freedom to decide that for themselves.
Now, the freedom to wear a tie or not is hardly the most important business decision a
company can make. That is precisely the
reason that Forward likes to tell that story: The
way he sees it, if you need to make rules about trivial matters, how can you trust
employees to make important decisions on your company’s behalf?
TIES, MIDRIFFS, AND THE DESIRE FOR RULES
This view of dress codes in particular was echoed at both Sun Hydraulics and Vertex.
Greg Hyde, Sun’s human resources director, connected dress codes with a theme we
encountered earlier: the use of rules to avoid what would otherwise be considered
normal human interaction. “Why have a dress code?” Hyde asked. If someone is
oʃended by someone else’s state of dress, “Aren’t they the ones who should talk to them
about it?”
2
The dress code is a means of replacing that conversation—admittedly, a potentially
awkward and tense one—with a formal rule. And a hierarchy to enforce it: “If you have
a hierarchy,” Hyde explained, “now you have to go to him [the boss] and say, ‘Hey, he is
violating the rule! Can you go tell him?’” Hyde added, wisely: “And now you create
animosity between the people.” A minor conɻict that might have been resolved
amicably becomes an occasion for one employee to wield the company’s authority
against another. That use of the hierarchy increases animosity, suspicion, and tension. A
rule—in this case, a dress code—designed to maintain civility and decorum has, in
practice, diminished both. And in the process, as Gordon Forward would put it, the
appeal to rules has diminished everyone involved from responsible adults to rebellious
children.
Now, again, dress codes are not the most pressing issue facing any business, and yet
they came up repeatedly in our encounters. At the request of some employees, Jeʃ
Westphal once let a committee meet to establish a dress code for Vertex. But after they
had discussed such weighty questions as how much midriʃ exposure was too much, they
returned to common sense and to the answer oʃered by Greg Hyde at Sun: If an

employee is dressing in a way that makes someone uncomfortable, those two people
should be able to talk without having to send the discussion through oɽcial “channels.”
Stan Richards had a formulation almost identical to Hyde’s: “Dress so that you are
comfortable, so long as it doesn’t make someone else feel uncomfortable.”
This topic came up spontaneously in the ɹrst hour of our visit to Chaparral Steel’s mill
—now owned by Gerdau Ameristeel—in Petersburg, Virginia. “The system Gordon
[Forward] had implemented is of informality and of no symbolism,” Gary Titler told us.
Titler started at Chaparral’s Texas mill in 1982 after a prior stint at a unionized plant in
Michigan. When we met him in 2008, he was raw materials manager for the Petersburg
mill. “The only time you’d see a tie other than a funeral would be in the case of a new-
hire interview and that was it. At other times that tie was symbolic in the industry in the
early days of the haves and the have-nots.” Then, without pausing or even
acknowledging the shift, Titler moved from talking about ties to talking about more
profound freedoms. “So when I got to Texas, what I found was that the culture expected
me to use my mind, to have ideas, expected me not to sit there and tell my fellow
employees what must be done but tell my manager how I could help him.”
3
Quad/Graphics has taken a somewhat diʃerent approach, which relates to the nature
of its business. Those working in the company’s printing plants must dress in a certain
way both for the sake of safety and because working around barrels of ink all day
requires certain concessions in matters of fashion. But Harry and Tom Quadracci wanted
to avoid creating an obvious distinction of status between the “suits” in the oɽce and
the printers, so they decided to institute a standard dark blue shirt for everyone. These
are available in several styles, but all have the names of the company and the employee
embroidered on them, and everyone from the CEO (and son of founder Harry), Joel
Quadracci, on down wears them, with few exceptions.
This enforced uniformity would not sit well with all liberating leaders. But it is
consistent with a principle that they would all embrace the need to eliminate outward
signs of unequal status. The assault on status symbols was vital to the original liberation
campaign at all the companies we studied. Some of them went farther
than others in this
respect: Quad, for example, has reserved parking spaces for some executives. Frontline
people, when asked about them, told us that the reserved parking didn’t bother them too
much. It was an inconsistency with the single-status culture of the company, but not,
they felt, a fatal flaw.
4
By the same token, preventing status symbols from creeping back in over time—
especially after a change of executive control or ownership—is critical to sustaining the
free workplace. After such a change, these symbols are not by themselves enough to
ensure that workers are both able to act freely and feel as if they are. As Gordon
Forward’s tale of the ties makes clear, it is all too easy for a new generation to accept
the form of these changes while failing to grasp their real meaning. If this is not
corrected, one of two mistakes is likely to follow: As in the case of Forward’s
enthusiastic young employee, a freedom can ossify into a formal rule. In that case, its

beneɹts are lost. The enforcers of the once-informal rule become akin to the monkeys in
the hosing experiment described in
chapter 3
. None of them knows any longer why you
can’t climb those stairs, but they do know to beat up any poor monkey who tries.
Alternatively, the practice in question is modiɹed or abandoned because the
underlying rationale for it is not understood by the next generation. Without that
understanding, the natural tendency is to focus only on the accountable costs of the
existing policy or practice.
MEANING OF WORDS AND MAINTENANCE
OF TRADITION
Les Lewis of W. L. Gore & Associates spoke to us about this danger in a diʃerent and
more serious context than mere clothing. Lewis, you will recall, had been with Gore
almost since the beginning. And when we met him, he was perhaps the second longest
serving employee still with the company. As such, he saw himself as “ɻag bearer,” and
he lamented that some of the relatively new hires didn’t see the point of some of the
“values,” in Lewis’s words, that the company’s associates took for granted in the early
days.
As noted in
chapter 4
, Bill Gore took on-time delivery seriously. So seriously,
according to Lewis, that “he actually raised his voice” when someone suggested “that it
was okay to have 85 percent on-time delivery.” Many businesses, most in fact, view this
question as an economic decision—a trade-oʃ between the inventory costs and the
delivery level. Zobrist’s story of hiring the helicopter to complete a delivery is only the
most extreme example of how costly it can be to insist on 100 percent performance. But
for Bill Gore, delivering on time wasn’t about the economics, at least not in the way the
accountants would measure it. “Bill Gore was adamant,” Lewis said, “that when you
make a commitment to a customer, when you make a promise date for a delivery, it is a
commitment
. And the reason he was so adamant about keeping it was that it was a
waterline decision. And it is waterline, because you jeopardize our reputation when you
don’t deliver on what you promised.” Once you ruin your reputation, he said, “You
never get it back.”
This was one of the few topics that could really get Bill Gore “exercised,” in Lewis’s
rather delicate phrase. It is no overstatement to say that it is the kind of question that,
for Bill Gore, went to the core of what kind of culture he wanted W. L. Gore & Associates
to have—a culture in which everyone kept his commitments. This had to be as true when
it promised a delivery date as when it said that Gore-Tex was “Guaranteed to Keep You
Dry.” In the early days of Gore-Tex, in fact, Gore recalled all the Gore-Tex-lined apparel
in the country because one Gore-Tex parka had leaked. The company then oʃered all
dealers a total replacement program—at a cost of $4 million.
5
This also had to be true
of the commitments one made to one’s colleagues—as captured in Gore’s notion of the
“credibility bucket.”

And yet, for all the passion that Bill Gore himself brought to this question, the bean
counters seemed to be gaining ground in recent years. “I am, I have been, for the last
ɹfteen years, the lone wolf, the lone voice on this,” Les said. New hires—especially, in
Lewis’s view, those who had come from other large companies—saw Gore’s commitment
to 100 percent on-time delivery as quaint, not to say uneconomical.
Gore, the company, was approaching ɹfty years in business when we met Les Lewis.
And in many ways the continuity of its culture—over three generations and counting—
was remarkable. But for all that, here was Les Lewis ɹghting a lonely rear-guard action
on an unwritten business principle that had once been central to the company’s very
identity. For Lewis, this was symptomatic of a certain drift in the younger associates’
understanding of Gore’s culture, and he spoke about bringing in old hands and retired
associates to talk to the next generation, tell war stories, and try to imbue in them
something of the spirit of those old days.
Everyone appreciates a good, well-told war story, so it wasn’t surprising to hear Lewis
say that younger associates were “hungry” for those tales. But whether they can be
wholly effective in conveying the tradition is another question.
It would be strange indeed if a company that was founded by a man who liked to ask,
“What mistakes have you made lately? None? You haven’t been taking enough risks,”
stopped taking risks itself. So some evolution and reinterpretation of corporate tradition
is not only inevitable but healthy. Each of these companies was founded or transformed
based on the wisdom that the person at the top of the organization didn’t have all the
answers and that IDEO-style prototyping is necessary to pull in the ideas of others.
ETERNAL VIGILANCE IS THE PRICE OF FREEDOM
That said, when a company is doing things diʃerently from what people may have
experienced at other ɹrms—or even throughout their upbringing and schooling—some
sort of reeducation is needed to maintain the most important pieces of that culture. W.
L. Gore & Associates has done that for more than ɹfty years, in part by the very words
they use to talk about the company’s culture. The “associates” and the “sponsors” and
the “credibility bucket” and the “waterline” are all reminders that Gore is diʃerent. This
language is oʃ-putting to outsiders and newcomers—some of whom leave the company
rather quickly—but this is not necessarily a disadvantage. Its goal is
not to alienate
outsiders, but rather to alienate everyone from traditional ways of thinking about
responsibility and authority inside a company. The language Gore uses captures its
culture’s unwritten rules, key principles, and practices. If Lewis succeeds in explaining
the principles of “fairness to the customer” and “commitment” to his younger colleagues,
they will ɹnd for themselves the appropriate balance between 100 percent on-time
delivery and the cost-reduction on inventory. It is not foolproof, of course. No tool is.
And as the meanings of the words used can themselves shift over time, it requires eternal
vigilance.

Gore’s focus on language is just one possible technique for preserving and
transmitting a company’s culture over time, especially after a change of leadership or
control. Not all of our companies share Gore’s focus on using language to transmit
culture. Some do it through social events and rituals, such as Quad/Graphics’ annual
musical, performed by all the top executives in front of the employees and their families.
The executive cast of the show rehearses with professional singing and dance instructors
for three weeks—during their free time, of course. Other companies transmit their
unusual cultures in part through the radical physical design of the workplace itself, as at
SOL, IDEO, and the Richards Group. But even these ways may not suɽce after a
company is sold or a key leader moves on.
When thinking about sustainability in the face of a change of ownership, it is helpful
to distinguish among the diʃerent ways a company’s ownership can change hands. At
Gore, there is some employee ownership through an incentive stock program, but
control of the company remains with the descendants of the founders, from Bill Gore’s
son Bob Gore to the current generation. Among the other companies we’ve studied, the
Richards Group remains in the founder’s hands, and CEO Stan Richards has no intention
of handing ownership to his successor—or to his children. “Why would I want to ruin
their lives?” he answered when asked why he wouldn’t bequeath the business he’d built
to his offspring.
Since Richards is still in charge and still owns the company, it is too soon to say
whether his plans will work as he hopes. Recall that he has made arrangements to have
the ownership of the agency put
into a trust that is not allowed to sell the company.
One of three named potential successors will be told that he or she is CEO when he steps
aside, but not before.
Richards has taken the extraordinary step of putting his company into a trust upon his
death because he doesn’t believe that the agency’s unique culture could survive an
acquisition by a bigger ɹrm. But as the experiences of other liberating leaders show, the
transition of executive control can present as much of a challenge as a change of
ownership—and sometimes more so.
Bob Davids grew Radica Games into an eight-thousand-person company from two
people in nine years. When he stepped down as CEO in 1999, the board installed his
handpicked successor. And yet, when asked what happened to the culture he’d built
there, Davids said without hesitation that it is “totally gone.”
6
His replacement, he said,
“killed it in about six months.” Asked
how
he destroyed it so quickly, Davids again didn’t
hesitate. “With dual standards,” he shot back. “Dual standards are the cancer of culture
…. It is absolutely the biggest killer of all.” By this, he meant that his successor
immediately began accruing all the perks of privilege that a liberating leader, if he is to
be successful, must eschew. In isolation, taking over the corner oɽce and other gestures
may seem relatively innocent, but employees get the message immediately. The new
man in charge is no longer subordinating himself to his employees; he feels he has
arrived and is announcing it to the world.

Bob Davids relayed this fact—the swift dismantling of what he spent nearly a decade
building—matter-of-factly. One of his favorite phrases is, “If you don’t have an exit
strategy, your job owns you.” This is true, he argued, regardless of whether you or
someone else owns the company on paper. In this respect Davids is very diʃerent from
Stan Richards and Bill Gore. He has run a half-dozen companies in his career and
measures himself by their performance
while he is in charge
, not by the standards of
posterity. He would view the attempts of Gore and Richards to preserve what they built
as quaint.
While at Radica, Davids said, he had a conversation with a promising employee who
was resisting a promotion to plant manager.
Davids asked him, “You want me to tell you the secret of being a CEO?”
“Yes,” the reluctant manager said, and took out a pencil.
“Okay, write this down. [This is] the secret to being a CEO. You’ve got to
—ready?—
make more mistakes than anybody else
. But never make the same mistake twice.” Because
you can only choose your successor once, the chances of making a mistake are high. But
in the end, all you can do is try to groom the newcomer and leave behind the best
person you can. If the new CEO—or the shareholders, if the CEO is not also an owner—
takes the company in a diʃerent direction, there is really nothing that can be done
about it. In this sense, Davids is justiɹed in not troubling himself too much about
Radica’s fate. The company was eventually acquired by Mattel and became a division
like any other in its new parent. Davids’s ambition is to build world-class companies and
to sell them—not to make them last and remain intact. But for those who do strive to
leave something behind that stands a chance of outlasting their leadership, we
uncovered plenty of evidence that it is possible.
TENDER, LOVING CARE TO MAKE
THE FREEDOM LAST
In 1996, David Kelley sold the majority of his stake in IDEO to Steel-case, which then
went public. But according to Kelley, neither this change of ownership nor the transfer
of his CEO duties in 2000 to Tim Brown ever prevented IDEO from operating as an
independent unit and preserving its culture for the past thirty years. Rich Teerlink took
Harley public in 1986 and then spent a decade liberating it. He stepped down in 1999
and today, Harley is on its third “liberating” CEO. Jim Ziemer, the current CEO,
recognizes that “it takes initially a visionary to say that there is a diʃerent way.”
7
But
Ziemer is not shy about making a bold comparison to the culture Teerlink built: “It is
like a religion, it is spiritual. You’ve got to believe in it and act like it’s a religion …
Sometimes, maybe, command and control is great,
but … if you don’t have the same
leader, then it does not sustain itself. If it is a religion, it can sustain itself.”
Ziemer, who started at Harley as a union member, is not exactly a priest. But just like
Kelley and Davids, he is a keeper of a culture that “needs maintenance and tender,

loving care to keep it alive.” He does forty town halls a year and walks through the shop
ɻoor asking what people need; he gets worried if he’s
not
being stalked by employees:
“I’d wonder if we had a new manager who said, ‘Don’t talk to Mr. Ziemer.’ I’d be
suspicious.” Just as Les Lewis noticed in Gore, Ziemer is convinced that “you need
continued care [for the culture] as well as the training” for new people coming from the
“how” world. Harley puts every new hire though a six-month training program so that
they have their own opportunity to doubt, ask questions, and absorb Harley’s culture.
Ziemer, by the way, started as a disbeliever. He admits now that at the beginning he
didn’t know why Teerlink’s project was good and just went “along with the party.”
Bob Koski, who founded Sun Hydraulics in 1971, took it public in 1998. The
company’s free culture persists despite the pressures of public ownership and two
changes of the guard at the top of the company. His family still owns a minority stake.
Koski himself passed away on October 11, 2008. But as of the middle of 2008, Koski,
though ill, was still going to work regularly at Sun. He had equipped the company with
a roster of executives who share his views about how a company ought to treat its
people. The documents he left behind, from the original business plan reproduced in
chapter 5
to his shareholder letters, oʃer a record of his vision for the company and its
culture.
When we met him, Koski didn’t like our use of the word “freedom.” When asked why,
he answered in a Socratic way, with a question: “How do you get the butterɻies to ɻy in
formation?”
8
Koski founded a high-precision manufacturing company. Its lifeblood is
building hydraulic valves and manifolds that perform better and more consistently than
the competition’s. That means getting things exactly right, over and over. Sun is very
good at that. It is so good, in fact, that even its rejects outperform most of the
competition’s parts. In other words, Sun lives or dies by consistency, reproducibility,
and
uniformity. So when Bob Koski asked about getting the butterɻies to ɻy in formation, he
was soft-pedaling his antithesis: Sun can’t aʃord butterɻies in its plants, no matter how
orderly they are. But that doesn’t mean Koski wanted automatons, or Henry Ford’s
mythical “pair of hands,” either. What Koski wanted were adults. When you go to work
at Sun, he said, “You can’t come as a parent and you can’t come as a child. You have to
build adult relationships.” Relationships, in other words, in which each person treats the
other as intrinsically equal.
That sounded familiar, so we pressed him further. How would Koski deɹne Sun’s
essential characteristic, the thing that set its culture apart? At ɹrst, Koski said it was
“hard to describe.” He added, cautiously: “Some people understand it and some people
don’t, from day one.” The “core thing,” he said, is what he called “universal
information,” which sounds just like Stan Richards’s idea that “there are no unimportant
people,” and so information should go to everyone at once. Universal information is
intimately connected with Koski’s idea of adult-to-adult relationships. It also echoes Bob
Davids’s warning that “dual standards” are a cancer. Dual standards can take the form
of reserved parking spaces and other perks, but they can also show up in the ɻow of
information within a company. And when information is wielded as a source of power,

it is a clear sign that people are not being treated as adults or as equals.
That type of behavior is all too recognizable in most companies. But when Koski said
you either get it or you don’t, he was referring to something deeper than whether your
manager treats every tidbit of information from on high as a state secret. This, in his
words, was how he tried to illustrate the importance of “universal information” to Sun
Hydraulics: “Take a look at what goes on on a factory ɻoor, where all the problems are.
The supervisor has two jobs. One is, a new employee comes in, he’s got to teach him the
job. So in that respect he’s a mentor.” But that supervisor, at most ɹrms, is also the
gatekeeper to the outside world. “When the work is coming in, he’s getting the work,
telling these people what to do and think.” In the ɹrst role, as mentor, the supervisor
gives the employee the tools, the knowledge, and the resources he needs to do his job.
He helps him
do it. But in the second role, he denies him some of those same things:
information about order ɻow, deadlines, and scheduling. Koski continued: “Now this
person, this worker, is being held accountable for something
he has no control over
. He
can’t pick what he does, how he does it, where he does it, or when.” All these things are
under the supervisor’s control, and yet the worker is still held accountable for getting
the job done on time according to a schedule being set by somebody else. The supervisor
has his own goals and performance measures to meet, and so he, in turn, imposes
requirements on those who answer to him in order to protect himself.
Koski said he didn’t “have a good vocabulary” for talking about these workplace
dynamics, and that he didn’t know anyone who did. And he sometimes struggled with
the words for what he was trying to express. But the strength of his grasp of the
essentials was made clear by what he said next: “And that’s where the problem is in
terms of psychology: ‘Hard’ drives out ‘soft.’ And over time, the new supervisor, who
starts out being mostly unmeasured, and then very soft with telling people what to do,
becomes very eager, or impatient, I would call it, and more driving all the time, because
he’s being held accountable for the results. And that’s the problem.”
In other words, within a traditional, “how” system, the “soft” manager is either made
“hard” or is driven oʃ. If he goes easy on his subordinates, they will underperform
because they lack the information and tools to motivate themselves to get their jobs
done. A soft boss in a rigid system does not equal liberation. In fact, as Koski pointed
out, it invariably leads to the opposite as that soft boss squeezes a little bit harder over
time to meet his own targets.
“So how do you ɹx it?” Koski asked, and then answered his own question: “Provide all
the information that anybody could want, and then teach them how to ɹnd out what
they need to know.”
“Universal information,” in other words, is not simply about respect and equal
treatment. It is a palliative for the destructive dynamic that Koski—much like Robert
McDermott at USAA—described: The information deɹcit contributes to reduced
productivity, because workers are operating in the dark. That leads to more control and
less freedom for the people, necessitating still tighter
control, and so on. As Hugh

Osborn, a consultant working in education reform put it, you ɹnd yourself “chasing
failure down.”
9
Indeed, of all the ways to treat people as equals, providing them with
abundant, “lavish” information is the most direct booster of their performance.
Inversely, controlling and withholding information from people is the most direct way
to chase failure.
Koski’s insight was another version of creative problem redeɹnition. Instead of asking
how to improve the mechanisms of employee and information control, Koski solved the
problem of how to properly equip people with information about their jobs and the
authority to act on that information. When you remove the need to have the supervisor
detail how and when to get the job done by giving people the information they need to
make those decisions themselves, you change the whole dynamic between the leaders
and their people. Koski again: “Then the leaders, as I prefer to call them in the
company, managers or whatever, are mentors. And they never have the drive to become
hard. [Because] they’re never holding anybody responsible for their performance, or not
often.” The workers’ jobs have been “enriched,” in McDermott’s words, by both
information and knowledge, and the managers’ jobs have been made more fulɹlling.
And neither is being held responsible for factors that are outside their control and in the
others’ hands.
“One of the things we tell our boys,” said Kevin Grogan, plant manager of Chaparral’s
Petersburg mill, “is that the best decisions are not always made at the top.”
10
Jim
Macaluso, in charge of melt-shop maintenance, added: “The people on the ɻoor are
making decisions in our mills worth millions of dollars. So we have to support them,
give them tools and knowledge, and show them how to be better at that.”
11
Placing these responsibilities where they belong satisɹes the needs of both the leader
and the led to direct their own aʃairs and, therefore, eliminates stress. It also treats
those frontline people like the adults they are. Another creative redeɹnition: The
problem of “how to soothe relations between managers and subordinates to reduce
stress” becomes
“how to transform the hierarchical relationship into one between equals in
order to eliminate stress.”
It is no accident, then, that some variation on “universal information”
came up with
every liberating leader we met. It is an essential corollary, as Koski framed it, of
altering the traditional “how” company dynamic. Perhaps butterɻies can’t ɻy in
formation because they aren’t well informed about their destination. Thus, they become
—to use David Kelley’s expression—sheep, herded from place to place by a sheep dog
who is merely following the commands of a shepherd who, alone, knows the
destination. And we shouldn’t be surprised, as Liisa Joronen remarked, that these sheep
look unmotivated or just plain lazy: “Everyone wants to do good work. [People] are not
lazy … Everyone wants to be good … It’s like animals.
They are not bad. We treat animals in a bad way,” and you get bad behavior in
return.
12

Joronen, once she retired from her CEO position, achieved a result remniscent of the
peaceful Forest Troop baboons on her French farm. Having seen the ɹlm
Babe
ɹve
times, she gradually built a similar environment, acquiring several dozen domestic
animals, including a pair of extremely smart piglets. But Joronen outdid
Babe
, and not
only because her farm is real. Wild animals—deer, boars, rabbits, and foxes—moved
onto the farm’s land, too, and seem to coexist peacefully “because,” Joronen explained,
“we don’t hunt and we give them food.” Talk about the benefits of tender, loving care.
Employees, of course, are not sheep nor dogs nor wild animals, all of which have the
rather simple need to be treated well physically. Ironically, it is to that need that for
atavistic reasons many “how” companies still cater, although their environments more
closely resemble George Orwell’s
Animal Farm
than Joronen’s. Employees are people
with universal human needs. For them, being treated well includes access to “universal
information,” knowledge, and more. Indeed, what Koski didn’t mention about
information hoarding is the conceit implicit in it—that the information possessed at the
top, or the center, is the most valuable, and is therefore worthy of protection and
secrecy. Eventually, it is trickled down in meager drips and drabs to people on the
frontlines on a need-to-know basis—a fetish at traditional “how” companies and a
running joke among their frontline people. The ɻip side of this is that the information
that only the frontline employee possesses—about the myriad ways in
which his time or
materials are wasted during the day, or the aspects of the company that most irk
customers, driving them away—is deemed not worth knowing or listening to.
Withholding information from people about decisions that aʃect them prevents them
from offering input and a chance to improve the decisions made at the top.
If David Kelley hadn’t informed everyone about his idea to move the company down
by the freeway, he would certainly have done it, saving a buck but losing the immersion
in the urban environment that his designers believed was critical to their work and
success. He would also have had to herd them there. Instead, IDEO’s leaders always
inform and consult employees about important “destination” decisions. Once the
decisions are accepted and shared, employees are invited to organize for themselves
how to reach the destination. Most of the time they succeed, which means that, perhaps,
a free environment does enable people “to ɻy in formation.” Zobrist, for one, was
convinced that they can. He compared FAVI not to butterflies but to birds:
A cloud of starlings can be composed of hundreds of thousands of individuals. But when a hawk is near, the whole
ɻock reacts instantly, as if it were one bird! A complicated system, with a boss, information relays, [and] even with
decisions delegated close to the ɹeld, would not be able to react so swiftly. Indeed, two
simple rules
guide [the] cloud’s
functioning: (1) every bird constantly watches out to never collide with her immediate neighbors; (2) when the danger
is near, the threatened birds dive into the cloud’s center, provoking immediate movement of the whole flock.
13
Zobrist cautioned, “But if one of these two rules is not respected, the system collapses
into chaos.” He concluded: “Chaos is characteristic of systems incapable of establishing
complicated rules, or of respecting the simple ones.” Indeed, complicated rules-based
“how” systems do function, and sometimes they are so big that the drag the rules have

on their forward progress isn’t easy to perceive. But, as we’ve seen, the
alternative to
“how” systems is not anarchy or chaos. It’s freedom, provided everyone—or nearly
everyone—shares the destination and agrees on a few simple rules. Just watch a ɻock of
starlings overhead.
HUMAN BEINGS ARE NOT RECTANGLES
There is no reason that “universal information” access cannot or should not be
maintained over time and independent of changes of ownership. It clearly meets any
reasonable test of a sustainable practice, one that is not dependent on personality or
any particular leader within a company. While a new boss
can
decide to start
withholding information that aʃects the people below her, the practice of sharing all
information with the people who are aʃected by it can be embedded in any company’s
culture.
Of course, information access alone doesn’t make a company or its culture
sustainable. People must also be able to act on what they know to advance the
company’s goals. Some liberated companies, such as W. L. Gore & Associates, take a
radical approach to ensuring this freedom of action
over time
. By eschewing titles and
jobs in favor of commitments, Gore frees its associates in the present day as well as
keeping them free over time. Here’s how.
A job, especially when frozen in place on an organizational chart, takes on a life of its
own. It’s possible that, at the moment it is created, a job ɹlls a vital business need. But
those needs change over time, while the jobs and the org charts change much more
slowly. Gore’s concept of commitments is designed to mimic the way the company’s
actual needs evolve: Associates don’t get reassigned all at once from one unit to another,
or moved up and down in a periodic purging and reorganization. Instead, they migrate,
moving from one commitment to another as their time allows and their interests dictate.
This begins on a new hire’s ɹrst day. When she asks, “Where is my job?” the answer she
gets is, “Figure it out.”
This organic system allows people to grow and direct their own work lives in a much
more natural way than the typical agony of
waiting for a promotion and worrying
about getting passed up, with all the oɽce stress that attends such moments. The
feelings of many employees placed in that position are summed up in a bit of oɽce
black humor—or wisdom: “Where there is death there is hope.” Those moments are
stressful, of course, because they are largely outside our own control. But they are also
stressful because they are so artiɹcial—you might work for years to prove yourself in a
job, trying to build up the case for you to get the next big promotion, only to face the
equivalent of a coin ɻip by your boss that determines whether you receive the
recognition you’ve sought.
14
Of course, in reality, the question of whether you have
contributed eʃectively to your company’s performance over those years is not an
arbitrary one. But those rigid, rectangular “boxes and lines”—to use Rich Teerlink’s

mocking expression—of the organizational chart have a way of making us feel like it is.
Even as the boxes conɹne the people within them, they lock down the organization
itself, too. Those periodic mass reorganizations that all companies undergo are the proof
of it: Every couple of years, several units will be merged while others are broken up; this
vice president will be relieved of some responsibilities while that one is given new ones.
All the boxes below them are shifted around accordingly. The accompanying press
release always includes a quote from top management about the necessity of
realignment in “a changing marketplace.” There is nothing new about this ritual. In
Up
the Organization
, Robert Townsend quotes noted ɹrst-century Roman satirist and writer
Petronius Arbiter: “We tend to meet any new situation by reorganizing; and a wonderful
method it can be for creating the illusion of progress while producing confusion,
inefficiency, and demoralization.”
15
Bob Koski described organizational charts, a little hyperbolically, as “casting in stone
something that’s going to change.” It’s not exactly stone, because these charts are
frequently torn up and revised. But they are certainly static, while a world-class business
—like the world itself—is not. That’s why Townsend warned against printing and
circulating organizational charts: They suggest that the
higher-ups know more than they
do. “It would not hurt to assume, in short,” Townsend wrote for
Playboy
in 1970, “that
every man—and woman—is a human being, not a rectangle.”
16
And you never know
when your company’s fate may lie in the hands of a night janitor who answers the
phone when she ought, really, to be mopping the floor.
Because of this adaptability, Gore’s
lack
of formal organizational structure is not, as
one might suppose, a hindrance to sustainability. Gore’s ɹfty-year history testiɹes to
that. As Koski argued, great companies are constantly reinventing themselves anyway,
so at best an organizational chart provides an
illusion
of stability over time, while
modifying it oʃers—as Petronius wrote—an
illusion
of progress. An organization that
employees adapt on the ɻy—like butterɻies reacting to a sudden wind gust—is less
likely to build up, over time, anachronistic little ɹefs that no longer serve a strategic
purpose but are diɽcult to get rid of, because you can’t reduce the number of people
underneath so-and-so. Zobrist called organizational charts a company’s stomach and
asked: “How can a company be successful if it is totally focused on its stomach and
totally ignores where the food comes from—the client?”
17
And in that sense, a liberated
company has a sustainability advantage—those organizational rigidities, which might be
allowed to build up for political reasons, don’t do so if there’s no chart by which to keep
score. And without artiɹcially imposed barriers, valuable information about clients,
markets, and opportunities will flow in lavishly—a key to sustainability of any business.
Not all the companies in this book have gone as far as W. L. Gore & Associates in this
regard, although the distaste for documents such as org charts is a recurring theme at
liberated companies, for good reason. But Gore’s track record and growth performance
show that it is not inevitable that a company’s structure will harden too much over time
if it is diligent about staying ɻuid. In Gore’s particular case, the very language its

associates employ serves as a form of institutional continuity.
FREEDOM STRENGTHENS “WEAK SIGNALS”
None of which is to say that there can’t be drift in the wrong direction—or even a
catastrophic collapse of a relatively free culture, as seems to have happened at Radica
Games after Bob Davids’s departure. One long-serving employee of USAA, since retired,
lamented privately to us that some things had changed for the worse since Robert
McDermott retired in the early 1990s. It is still one of the great customer-service
companies in the world, and it has the results to show for it. But he noted speciɹcally
that it had fallen out of the ranks of the hundred best companies to work for in recent
years, and he feared that some of McDermott’s hard-fought gains were not completely
understood by his successors at the top. USAA, perhaps in part because of its military
heritage, never abandoned many of the privileges of rank, and its executive suite is both
opulent and fortresslike. The overwhelming evidence is that the culture McDermott built
at USAA remains largely healthy forty years after he came to the company and
seventeen years after he left it. You have only to pick up the phone and speak to a
representative or to speak informally with its people to appreciate what he
accomplished. But whether those who succeeded him fully appreciate why he did
everything he did is an open question. And sitting in their mahogany–lined redoubt on a
company visit, it seemed easy to forget just how important those voices on the other end
of the phone are to the company’s success.
But even if USAA’s culture were to collapse completely—which is unlikely—a forty-
year run would be nothing to look down one’s nose at. USAA has gone through several
CEOs since McDermott’s retirement, while maintaining a freedom-based culture that
McDermott himself would still recognize. The same can be said in 2009 of Gore at 51,
Sun Hydraulics at 38, Chaparral and Quad/Graphics at 36, Harley at 33, and IDEO at 31
—all having undergone at least one change of CEO since the original liberation
campaign. To ask for more would be to risk tilting the playing ɹeld too far in favor of
“how” companies.
18
At best, that method of organization oʃers an
illusion of stability
across generations and personalities. It is not without reason that Wall Street
perpetually frets over succession questions even at their most beloved companies—
perhaps especially so. All too often, the business press lauds the “system” put in place by
a successful corporate leader, declaring it the model of the future—only to see it crumble
when a successor is named or circumstances change. The “system” inside a successful
company almost invariably gets more credit than it deserves, while the contributions of
good fortune and great employees get overlooked.
Looked at in this light, freedom-based companies are actually
more robust
than their
“how”-focused competitors. To some business-people, encouraging freedom seems like,
at best, a very delicate dance between total anarchy and fruitful experimentation—even
to Bob Koski, who worried about the butterɻies in formation. Stories of rogue traders

taking down banks and high-proɹle embezzlement cases are guaranteed front-page
news, so it’s little wonder that anxious CEOs—especially of publicly traded companies—
might live in fear of being one clever thief away from total dissolution. It would be a
mistake, however, to assume that this particular type of risk is greater in a free
company than any other. If anything, the 97 percent or more who are basically
trustworthy are likely to repay the faith vested in them. In any case, managing for the
tiny minority—Gordon Forward’s 3 percent—who might somehow pose a threat to a
ɹrm’s safety, security, or ɹnances has both costs and risks, too. A company in which
people are accustomed to being treated as intrinsically equal and being able to act on
their own initiative is, in fact, more likely to catch a rogue or a thief than one in which
the dominant culture demands that everyone keeps his head down and minds his own
business: Recall Stan Richards’s comment in
chapter 11
about gooɹng oʃ and how the
culture—people’s peers, not the boss—disciplines such employees. Terry Holder, the
manager of Chaparral’s roll shop in Petersburg, says that peer pressure plays a big role
in keeping steelworkers safe at the mill, too. “If you have a young guy,” he says,
“missing a step in safety, his peer is going to pull him aside and tell him: ‘Hey, you did
not follow a process or safety process. Get
your act together and make sure you don’t do
this again.’ You’ll have his peer say that more than his manager.”
In a liberated company, more people have more authority to make their own
decisions on behalf of the business. This dispersed decision making understandably
feels
more dangerous—the fewer people there are who can make decisions for themselves, the
fewer people, seemingly, can make a bad decision, right? Here, too, the advantages of a
highly centralized system are overstated. In fact, they are nonexistent.
This decentralized decision making, which may be perceived as a weakness of a
liberated company, is—on the contrary—a major source of strength. All companies,
however rigidly organized, are inescapably dependent on everyone who works there.
Concentrating authority at the center might appear to reduce the
number
of sources of
decision-making risk. But even people without any authority to take helpful action on
the company’s behalf can still commit devastating blunders through incompetence,
ignorance, or malice. Nobody has ever sought or granted permission to run an oil tanker
aground or crash a train.
At the same time, dispersed authority to make decisions and take actions has
enormous beneɹts. It is true that many people on the frontlines of companies will never
see everything the CEO sees from his Olympian perch. But the converse is also true: The
head of the company can never know everything that everyone on the front-lines learns
every day about how his company and its customers are doing.
Management theorists have borrowed a term from physics to describe the sort of
information possessed by these frontline people. They call it a “weak signal,” which is
the sort of information that is important—and might later prove vital. But by its nature,
it doesn’t rise to the attention of management because it never gets passed up the line
or, if it does, it gets lost in the aggregation of data or in the noise of larger problems
with stronger signals. One example is the design of the O-rings that sealed the booster

rockets of the space shuttle. A NASA engineer knew long before the 1986
Challenger
accident that their design was ɻawed, and he expressed his fear. But because there had
not yet been an accident, the signal was weak. By the time it became strong enough for
someone to act on, of course, the ɻaw had become tragically clear. It is the remote
starlings, in other words, that are the ɹrst to see the falcon approaching. In too many
companies, that knowledge deɹcit accumulates, showing up only after a big customer is
lost, a major opportunity is missed—or worse. There is also no mechanism for self-
correction when this happens: Mistakes are acknowledged, eʃorts are redoubled, control
is stiʃened, but still the information languishes because the only people who possess it
aren’t free to act on it.
BIRDS FLY AWAY FROM CAGES
This situation is, unfortunately,
also
sustainable for long periods of time, especially in
very large “how” companies with a high capacity to both lobby and borrow. But in the
normal course of events, talented people see opportunities that their employer is not
acting on, and they leave to pursue those themselves, as Rich Teerlink’s Dutch
immigrant father did.
19
A foreman with International Harvester, he partnered with four
other workers, bought his former employer’s old equipment at the junkyard, and opened
up his own shop. The partners quickly adopted all the ideas they had been unable to
implement while at Harvester, and in ten years the company grew to become one of the
top three in their niche industry and was written up in
Fortune
magazine. Some of these
start-ups turn out, of course, to be dead ends, but a smaller number turn into
blockbusters. And a few of these inadvertent spin-oʃs become monsters that eventually
threaten the parent company itself. As is often said, these companies will ultimately
hear their employee’s ideas—when that employee has gone to work for the competition.
Sun Hydraulics, Quad/Graphics, Richards Group, SOL, and Gore are products of just
this kind of attrition. No company can pursue every opportunity, and some people will
strike out on their own just because they can and because it suits them. But yet another
distinguishing feature of liberated companies, as we’ve seen, is their low rate of
employee turnover. In every case in which data is available and meaningful
comparisons can be made, these liberated companies have turnover rates well below
average. Employee loyalty is a big advantage when it comes to sustaining a culture of
whatever sort: It means more stable interpersonal relationships, institutional
knowledge, and levels of expertise within the company. But this loyalty is an even
bigger advantage for sustaining a
free
culture simply because the latter relies essentially
on unwritten rules, on tradition, and on its keepers. Of course, very low turnover has a
ɻip side: Companies need fresh blood. For liberated companies, though, it’s less of a
danger because they typically grow fast and hire a lot—still 15 percent annually at
Gore, which already has more than eight thousand associates. And these companies
make it easy for people to leave both because they genuinely want them to work at the
place that best satisɹes their needs and because they seek boomerangs, who are

tremendous culture keepers, like Les Lewis at Gore. All the impartial rule making in the
world won’t sustain a company culture if you can’t keep the people you need coming
back to the office day after day.
When Max Weber wrote of the need for a bureaucracy to discharge the “oɽcial
business of administration … precisely, unambiguously, continuously, and with as much
speed as possible,” he overstated the precision, lack of ambiguity, continuity, and speed
of the bureaucratic system. It is possible to program a computer to run in the way that
Weber described, but centuries of corporate organization have not yet succeeded in
similarly programming people or organizations to behave as according to an algorithm.
People remain stubbornly human, despite the attempts of visionaries from Josiah
Wedgwood to Weber and others to correct that fact or to design it out of our ways of
running a business. A liberating leader—unsurprisingly—redeɹnes this problem and
takes the opposite approach. Rather than pushing against the impulses, desires, and
needs that make us human and animate us in every other aspect of our lives, he tries to
get them rowing in his direction. Men and women worked, invented, struggled, and
strived long
before the ɹrst business owner put the ɹrst foreman over their shoulders
and a time clock on the wall. Sometimes they worked out of desperation, but they also
worked out of the desire for growth and self-fulɹllment. Ironically, the Industrial
Revolution eventually led to the production of such vast amounts of wealth that the
primordial needs for shelter and sustenance are largely taken for granted in the
industrialized world.
20
And yet there remains something atavistic about our attitude
toward the needs and motivations of our employees.
The modern entrepreneur exempliɹes the ancient artisan’s desires for recognition and
self-direction; those needs are universal. And yet too often we treat our employees as if
they were primarily driven by the need to satisfy their material wants. The liberated
companies in this book have succeeded so fantastically because they have tapped into
the higher universal needs—and not just of a few “great talents,” but in every corner of
the organization.
There are limits to how big an organization can be and still broadly tap into those
universal needs. Both common sense and experience tell us this must be true. But
whatever that upper bound is, it’s high enough that easily 97 percent of all businesses in
the world fall below it. In addition to the 8,000-plus associates at Gore, USAA employs
22,000 people, Quad/Graphics has 12,000 people, Harley-Davidson employs 9,000, and
SOL has about 8,000. There are companies that are larger than that, even a lot larger.
But not many, and what Gordon Forward said about managing for the 3 percent applies
here, too—particularly given the fact that all large corporations are divided into smaller
divisions and business units that enjoy a degree of autonomy to arrange their own
affairs.
Experience tells us that those higher universal needs are felt more acutely in some
people than in others. Bob Koski estimated that as many as one-fourth of the people
who seek a job at Sun Hydraulics cannot adjust to the level of both freedom and

responsibility that they ɹnd when they get there. Those people are “free to leave”—an
expression that Bob Koski used, unwittingly echoing Jeʃ Westphal. But as we’ve already
seen, oppressive, bureaucratic corporate environments also drive people out—birds hate
cages. Kevin
Grogan recalls how Chaparral’s Texas mill would occasionally lose
employees to unionized plants in the area oʃering two to three dollars an hour more.
But, Grogan says, “they would come back and say ‘Money isn’t everything.’ It’s not what
they’re looking for.”
The low employee turnover at liberated companies suggests that fewer people are
scared oʃ by “too much” freedom than are turned oʃ by bureaucracy and lack of control
over their own jobs.
Suppose, however, that this is not true—that some signiɹcant portion of the working
population really prefers to be a cog in the wheels of corporate bureaucracy. Apologists
for feudalism used to argue the same way about the average man and his ability to
govern himself. But suppose that, when it comes to work, it is true for at least some
people. If you are running a business, and you have to choose a system of organization,
would you pick the one that would naturally self-select for people who wanted nothing
more than to punch a clock and collect a paycheck, or the one that would self-select for
those seeking satisfaction of their universal needs to motivate themselves to act for the
best of the company? Which system would you choose? To put it another way, which
group would you want your competitors to end up with?
KNOWING WHAT YOU DO NOT KNOW
There is no system of organizing or running a company that is foolproof. We mean that
literally: Just as a fool with a tool is still a fool, a fool with a well-run company—
liberated or not—can drive it into the ground with alarming rapidity. Even very smart
people can act foolishly, and it takes a wise person
not
to do so occasionally. So we have
declined to oʃer a seven-step plan for liberating any company, anywhere. It seems
more useful to describe instead what successful liberators have done using their
creativity and their wisdom.
The leaders in this book all shared common qualities: They all had a drive to build
world-class businesses. But moreover, they all possessed a deep and sincere belief in the
value of treating all their people as intrinsically equal, in helping them grow and self-
direct.
They were not seeking to embrace the latest management fad, though they used
many management techniques—Total Quality Management and others—when those
were compatible with their beliefs. This genuine commitment to satisfying people’s
needs is what convinced employees to join in. Employees, like children—an appropriate
comparison in this instance—can smell a fraud a mile oʃ. And nobody looking to sell
their employees on “Freedom, Inc.” just because it might add a point or two to company
margins will win many converts. Human nature being what it is, some will try, but they
will fail.

Freedom works because it embraces what Douglas McGregor called in 1957 “the
human side of enterprise.”
21
It engages people more fully in what they are doing, and so
produces self-motivated employees in a way that no mere paycheck can. To succeed in
engaging people more fully in their work, a liberating leader must, ɹrst, eliminate
corporate signals that some employees are more equal than others. If you tell someone,
directly or indirectly—say, by asking him to punch the time clock—that they are there
only to be a pair of hands, one of two things will happen: They will comply, or they will
leave. Either way, you lose the beneɹt of his brainpower, which could be solving
problems invisible to you or ɹnding opportunities—also invisible to you—for your
business.
There is wisdom, as Socrates said, in knowing what you do not know. Of all the
obstacles to casting aside the traditional corporate structures, Jean-François Zobrist’s
exhortation to do as little as possible may be the greatest in practical terms. The type of
personality that “wants the keys” to the business is not often naturally disposed to adopt
Zobrist’s Zenlike, Taoist attitude. They worry, in fact, that only frantic activity can
justify their position—and their pay.
To this point, Bob Koski said he was never the highest-paid person at Sun Hydraulics
“because I never deserved to be.” The impulse to appear to earn one’s paycheck by
frenetic activity is a natural one. But just as great manufacturers preach economy of
motion, great leaders need to overcome the urge to act for action’s sake. Action and
decisiveness are needed to liberate a company, especially one established along
traditional, top-down lines. Leadership is needed to
ensure that employees
share the
company’s vision, understand their “charge,”
and
know that they are free to act with those
things in mind
. To this end, employers must also be equipped with
the information and
tools they deem necessary to act
. But, by deɹnition, a company that frees its people to act
on their own initiative will leave less for the person at the top to do.
This need not make a would-be liberator too nervous, however. Judged by their
ɹnancial performance, every CEO in this book is a standout. And judged by their ability
to create and maintain an environment that makes their people both happy and highly
productive, their record is even more impressive. All the evidence suggests that the latter
—maintenance—task is harder, especially over years or even decades, than turning in
good growth for a period of time.
The relationship between employee freedom and company performance is not merely
a coincidence. Freedom works because we don’t know what we do not know, and
because some of what we think we know is wrong—or soon will be. There are no cures
for those mental ills except help from our fellow man. If only we can harness the
additional knowledge of more of our peers, we can even,
pace
Weber, move much faster
than the bureaucracy can. And because the world around us and around our businesses is
changing much faster than in Weber’s time, the only way to harness that knowledge is
to allow those who possess it to act on it when necessary, right away
—now
—without
waiting for some boss to approve it.

A fragment survives from the famously cryptic pre-Socratic philosopher Heraclitus. It
is quoted at the beginning of this chapter. Heraclitus’s paradox was that, while the river
may always be within the same banks, it is forever ɻowing and changing, and what is
true about it in one moment may be wrong the next. Imagine trying to ɹsh in that river
under the rules of “how” corporate organization: Standing on the banks, an employee
spots a ɹsh amid the currents. If you’re lucky, the employee asks his supervisor: “Can I
cast the lure?” We say, “If you’re lucky” because looking for ɹsh might not be that
person’s job. Maybe he chops wood along the river or mows the lawn on the banks. But
say you
are
lucky, and he asks his boss, who asks his boss, and so on up to the senior
ɹshing committee. Even if that
chain of command is relatively short and the answer
delivered eɽciently, the odds are that when the message is ɹnally relayed back down to
the water’s edge, the ɹsh will have moved on. That assumes that somebody else, who
was free to ɹsh and didn’t have to ask for permission to cast his line, hasn’t caught it in
the meantime.
The CEO, the man at the other end of that chain of command who sees the river from
afar out the window of his corner oɽce, simply has no way of knowing how many ɹsh
swim past his company every day. There is no system of controls for ensuring that those
opportunities are acted upon, or even that they are learned about in time. The river is
constantly ɻowing, and nobody knows all of it at any one moment. As Jeʃ Westphal of
Vertex put it, “My measure is the net performance of the organization, so we can either
get an itty-bitty bit of leverage out of the incremental power of my little pea brain or
we can get a ton of leverage by the incremental power of six hundred brains.” Jeʃ’s
wisdom lies in knowing that however much the man at the top knows about the
business, he knows less than all those people working for him put together. This is true
even of the most knowledgeable, most qualiɹed CEO there is—because the river is
always flowing. Free your people, and you’ll be surprised at what they fish out of it.

Acknowledgments
This book has two names on the cover, but it could not have been written or
published without contributions, large and small, from a great many people.
Our thanks and gratitude go out ɹrst to Brian’s young family. Without the patient
support of Samantha, Luke, James, and Aletheia through the long years of this
project’s incubation, research, and writing, you would not be reading this now.
We also owe a great debt of gratitude to all of the people who work at the
companies we write about in this book. While that group is too large to list by
individual names, we could not have written it without the access, insights, and
wisdom that they all provided in great abundance.
Unique acknowledgement is due though to a special group that became the focus
of this book: Bob Davids, Gordon Forward, Liisa Joronen, David Kelley, Jacques
Raiman, Stan Richards, Richard Teer-link, Jeʃ Westphal, Jean-Francois Zobrist. The
acumen and perspicacity of these liberating leaders helped crystallize our own
thoughts and very often gave us the vocabulary to put them on paper.
Two of the liberating leaders we met, Bob Koski and Robert McDermott, passed
away before we could ɹnish writing this book. The world is poorer for their passing;
we only hope that in some small way we have done justice to their memories. Each
was a prince among men, generous of spirit, abounding with good humor and good
sense. May they rest in peace.
Two other liberating leaders—Bill Gore and Harry Quadracci—
passed away
before we started working on it. We’d like to thank Burt Chase and Les Lewis of
Gore and Joel and Tom Quadracci and Karl Fritchen of Quad, who shared with us
their memories and their thoughts on leadership.
Any frailties in relaying the insights of all these people are due entirely to our
own shortcomings, and where credit is due it is due mostly to them and to everyone
else who appears in this book, whether by name or not.
We often had occasion to remark to each other, in the writing and production of
this book, on the myriad ways in which good luck seemed to intervene to drive it
forward. But truth be known, it was the goodwill of others more than pure chance—
in every case we beneɹted from the intercession of a worldly angel of fortune who
appeared at just the right time to help us over some obstacle. Heather Bushong, Roe
D’Angelo, Annette Godart van der Kroon, and Jason Riley, were all, wittingly or
not, there at just the right moments to help when we needed it.
Our editor, John Mahaney, pushed us to make what we thought was a good book
even better. Both he and our indispensable agent, Kris Dahl, believed in this book
and gave us the courage and the opportunity to try to realize our vision for it. They

are the godfather and the godmother of this book and we could not have written it
without them. Jo “the star” Rodgers, John’s assistant, shined for us every morning,
carrying out seemingly endless little chores for us with speed, elegance, and a smile.
Last but not least, Brian could never have ɹnished this book without the support,
encouragement, and understanding of his colleagues at the
Wall Street Journal
,
especially Paul Gigot, Robert Pollock, Bret Stephens, and Taylor Buley. Isaac,
likewise, would like to thank his institution, ESCP Europe Business School—
established coincidentally almost two centuries ago by the business leader and great
proponent of freedom Jean-Baptiste Say—for its support. Many of Isaac’s research
assistants helped with often tedious tasks during this project. However, the eʃorts
of Marie Elisabeth Holm, who tirelessly read and reread the manuscript as we
drafted it, are especially worthy of recognition. Lucy Carney’s eagle eye also caught
many typos and omissions throughout the process.
We owe all of you more than we can ever hope to repay. Thank you.

Notes
Introduction
1
. Quoted in Richard Florida and Martin Kenney,
The Breakthrough Illusion: Corporate
America’s Failure to Move from Innovation to Mass Production
(New York: Basic Books,
1990), p. 157.
2
. Personal interview, May 17, 2008.
3
. Robert Townsend,
Up the Organization: How to Stop the Corporation from Stiɻing
People and Strangling Profits
, commemorative ed. (San Francisco: Jossey-Bass, 2007),
p. 59.
4
. In Tom Peters and Robert Townsend,
Winning Management Strategies for the Real
World
(Niles, Illinois: Nightingale Conant Corp, 1986), audio-cassette.
5
. Douglas McGregor,
The Human Side of Enterprise
, annotated ed. (New York:
McGraw-Hill, 2006), pp. 45–46.
6
. Ibid., pp. 65–66.
7
. Warren Bennis, foreword to McGregor,
The Human Side of Enterprise
, p. xx.
8
. Seminar given at the ESCP Europe Business School, February 18, 2009.
1: “HOW” COMPANIES AND “WHY” COMPANIES
1
. Alan Deutschman, “The Fabric of Creativity,”
Fast Company
, December 2004, pp.
54–60.
2
. Personal interview, March 1, 2006.
3
. Peter Marsh and Stefan Stern, “The Chaos Theory of Leadership,”
Financial Times
,
December 2, 2008.
4
. Deutschman, “Fabric of Creativity.”
5
. Jean-François Zobrist,
La belle histoire de FAVI: L’entreprise qui croit que l’homme est
bon (Tome 1: Nos belles histoires)
[The Nice Story of FAVI: The Company Which
Believes That Man Is Good (Vol. 1: Our Nice Stories)] (Paris: Humanisme et
Organisations, 2007), pp. 24–25. The book’s
back cover explains that its author is
a “Favien” who only “kept a quill” for the stories told by other “Faviens.” In fact,
the author is Jean-François Zobrist, who compiled the stories he wrote and
distributed them to all the company’s employees every week for a dozen years. We
thank Zobrist for granting us permission to reproduce some excerpts of his writing

in our book.
6
. Ibid., p. 26.
7
. Personal interview, April 8, 2005.
8
. The name “Zobrist” comes from the Swiss-German word
zu oberste
, which means
“one who comes from the top”—presumably of the Swiss Alps. FAVI’s CEO,
however, rejected this etymological heritage and determined, instead, to put his
employees on top—and leave them free to act.
9
. Personal interview, April 8, 2005.
10
. Rich Teerlink and Lee Ozley,
More Than a Motorcycle: The Leadership Journey at
Harley-Davidson
(Boston: Harvard Business School Press, 2000), p. 28.
2: ARE YOU MANAGING FOR THE “THREE PERCENT”?
1
. Between 1500 and 1820, per capita income in western European countries and
their oʃshoots (North America and Australasia) rose by 60 percent—although it
rose a mere 7 percent in the rest of the world (population growth was similar in
both regions). This means that, minuscule elite aside, the vast majority of people
lived at a level of mere material subsistence, if not hunger. However, from 1820 to
2001, per capita income rose twentyfold in the West (sixfold in the rest of the
world). See Angus Maddison,
Dynamic Forces in Capitalist Development
(Oxford:
Oxford University Press, 1991); and Angus Maddison, “Contours of the World
Economy and the Art of Macro-measurement 1500–2001” (Ruggles Lecture, IARIW
28th General Conference, Cork, Ireland, August 2004).
2
. Max Weber,
Economy and Society
(Berkeley: University of California Press, 1978),
p. 227.
3
. James Hoopes,
False Prophets: The Gurus Who Created Modern Management and Why
Their Ideas Are Bad for Business Today
(New York: Perseus Books, 2003), p. xv.
4
. Most leading management thinkers since Weber—including Mary Parker Follett,
Peter Drucker, W. Edwards Deming, Tom Peters, Russell Ackoff, Sumantra Ghoshal,
and Gary Hamel—disagreed with him and took a very negative view of
bureaucracy.
5
. See Hoopes,
False Prophets
, for a skeptical discussion of the views of some of the
leading management thinkers.
6
.
Isaac Getz and Alan G. Robinson,
Vos idées changent tous!
[Your Ideas Change
Everything!] (Paris: Editions d’Organisation, 2007).
7
. Rahul Jacob, “TQM: More Than a Dying Fad?”
Fortune
, October 18, 1993, pp. 66–
72.

8
. Jeʃrey K. Liker and Michael Hoseus,
Toyota Culture: The Heart and Soul of the
Toyota Way
(New York: McGraw-Hill, 2008).
9
. Ibid., pp. 381–82.
10
. Reported by Rich Teerlink, personal interview, August 15, 2005.
11
. Christine Buckley, “Turn Up for Work and Bag a Prize,”
Times
(London), August
5, 2004.
12
. Personal interview, September 25, 2007.
13
. “Gallup Study: Feeling Good Matters in the Workplace,”
The Gallup Management
Journal
, January 12, 2006,
http://gmj.gallup.com/
(accessed July 5, 2008).
14
. Isaac Getz and Alan G. Robinson, “Innovate or Die: Is That a Fact?”
Creativity and
Innovation Management
12, no. 3 (2003): pp. 130–36.
15
. G. A. Stevens and J. Burley, “3,000 Raw Ideas = 1 Commercial Success!”
Research-Technology Management
, May–June 1997, pp. 16–27.
16
. D. Harhoʃ, F. Narin, F. M. Scherer, and K. Vopel, “Citation Frequency and the
Value of Patented Inventions,”
The Review of Economics and Statistics
81, no. 3
(1999): pp. 511–15.
17
. “The
TR
Patent Scorecard 2001,”
Technology Review
, May 2001, pp. 48–49.
Lately, IBM admitted that patenting is not only unhelpful for innovation but even
hampers it; “Why Technologists Want Fewer Patents,”
Wall Street Journal
, June 15,
2009, p. A13.
18
. Florida and Kenney,
Breakthrough Illusion
, p. 171.
19
. Personal interview, August 19, 2005.
20
. Personal interview, September 25, 2007.
21
. “Gallup Study: Engaged Employees Inspire Company Innovation,”
The Gallup
Management Journal
, October 12, 2006,
http://gmj.gallup.com/
(accessed July 3,
2008).
22
. The October 2006 Gallup semiannual engagement study’s results are slightly
diʃerent from the previous survey in January 2006: 29 percent of employees are
engaged, 56 percent are not, and 15 percent are actively disengaged; hence, 71
percent total were disengaged in October 2006.
23
. Jeʃery McCracken, “‘Way Forward’ Requires Culture Shift at Ford,”
Wall Street
Journal
, January 23, 2006; and Dee-Ann Durbin, “Ford’s Restructuring Plan Calls
for 30,000 Job Cuts,” Associated Press, 2005,
http://www.staugustine.com/PalmPilot/stories/012406/new_3595454.html
(accessed May 25, 2007).
24
.
“‘Churn’: How to Reduce Customer Abandonment,”
The Marketing Intelligence

Review
, no. 6, December 2005,
http://www.daemonquest.com/en/the_marketing_intelligence_review/6/1192
(accessed December 14, 2008). Only 24 percent of customers attributed their
abandonment to high prices. Remarkably, when these companies’ directors were
asked about the main cause of their customers’ abandonment, 50 percent
attributed it to price and only 21 percent to their awful customer service.
25
. G. Gitelson, J. W. Bing, and L. Laroche, “The Impact of Culture on Mergers &
Acquisitions,”
CMA Management
, March 2001,
http://www.itapintl.com/
(accessed
May 15, 2007).
26
. Towers Perrin–ISR, “Engaged Employees Drive the Bottom Line,”
http://www.isrsurveys.com/
(accessed April 20, 2007).
27
. The following pages on workplace stress and its health consequences draw from:
William Atkinson, “Managing Stress,”
Electrical World
214, no. 6 (November–
December 2000): pp. 41–42; Hans Bosma, Stephen Stansfeld, and Michael Marmot,
“Job Control, Personal Characteristics, and Heart Disease,”
Journal of Occupational
Health Psychology
3, no. 4 (October 1998): pp. 402–9; S. Cartwight and C. L.
Cooper,
Managing Workplace stress
(Thousand Oaks, California: Sage, 1997); “Are
You Working Too Hard? A Conversation with Herbert Benson, M.D.,”
Harvard
Business Review
, November 2005, pp. 53–58; L. M. Cortina, V. J. Magley, J. H.
Williams, and R. D. Langhout, “Incivility in the Workplace: Incidence and Impact,”
Journal of Occupational Health Psychology
6 : pp. 64–80; R. S. Lazarus and S.
Folkman,
Stress, Appraisal, and Coping
(New York: Springer, 1984); J. H. Neuman,
“Injustice, Stress, and Aggression in Organizations,” in
The Dark Side of
Organizational Behavior
, ed. R. W. Griɽn and A. M. O’Leary-Kelly (San Francisco:
Jossey-Bass, 2004), pp. 62–102; Anne G. Perkins, “Medical Costs,”
Harvard Business
Review
72, no. 6 (November–December 1994): p. 12; Oakley Ray, “How the Mind
Hurts and Heals the Body,”
American Psychologist
59, no. 1 (2004): pp. 29–40; Paul
E. Spector, “Employee Control and Occupational Stress,”
Current Directions in
Psychological Science
no. 4 : pp. 133–36; and Joanne Wojcik, “Cutting Costs of
Stress,”
Business Insurance
35, no. 13, March 26, 2001, pp. 1–2.
28
. “Gallup Study: Engaged Employees Inspire Company Innovation.”
29
. Sample items from the “Workplace Aggression Research Questionnaire,” as
described in Neuman, “Injustice, Stress, and Aggression,” p. 66.
30
. Bosma, Stansfeld, and Marmot, “Job Control, Personal Characteristics, and Heart
Disease,” p. 406.
3: FROM ARTISANS TO AUTOMATONS
1
. The description of Birmingham and its Lunar Society is based on Jenny Uglow,
The Lunar Men: Five Friends Whose Curiosity Changed the World
(New York: Farrar,

Straus and Giroux, 2002).
2
. We owe the term “horsepower” to Watt and Boulton, who didn’t simply sell
engines. The key to their business model was to collect a fee from the businesses to
which they sold their engines. The fee was calculated based on an estimate of how
much the mill or mine had saved by replacing teams of horses with an engine. The
more powerful the engine, the more horses it displaced and the higher Watt’s and
Boulton’s royalty.
3
. Uglow,
The Lunar Men
, p. 199.
4
.
Encyclopaedia Britannica Online
, s. v. “Work, history of the organization of,”
http://www.britannica.com/eb/article-67037
(accessed February 15, 2008).
5
. David Mckie, “Last Train to Etruria,”
Guardian
, November 16, 2005.
6
. Richard Weaver,
Ideas Have Consequences
(Chicago: University of Chicago Press,
1948).
7
.
Encyclopaedia Britannica Online
, “Work, history of the organization of.”
8
. Tim Lambert, “A History of Northampton,”
http://www.localhistories.org/northampton.html
(accessed January 28, 2009).
9
. The description of primates’ studies in the following pages draw on Robert
Sapolsky, “Culture in Animals: The Case of a Non-human Primate Culture of Low
Aggression and High Affiliation,”
Social Forces
85, no. 1 (2006): pp. 217–33; Robert
Sapolsky, “A Natural History of Peace,”
Foreign Affairs
85, no. 1 (January–February
2006); and G. Hohmann and B. Fruth, “Intra-and Inter-Sexual Aggression by
Bonobos in the Context of Mating,”
Behaviour
140 (2003): pp. 1389–1413.
10
. F. B. M. de Waal and D. L. Johanowicz, “Modiɹcation of Reconciliation Behavior
Through Social Experience: An Experiment with Two Macaque Species,”
Child
Development
64 (1993): pp. 897–908; and F.B.M. de Waal, “Peace Lessons from an
Unlikely Source,”
PLoS Biology
2, no. 4 (2004): pp. 434–36.
4: FREEDOM IS NOT ANARCHY
1
. Personal interview, September 24, 2007. Bob Davids credits this approach to
Robert Townsend, from whom he borrowed it.
2
. Personal interview, September 24, 2007.
3
. Personal interview with Kris Curran, September 24, 2007.
4
. Personal interview, March 1, 2006.
5
. Personal interview, March 3, 2006.
6
.
Telephone interview, August 7, 2008.

7
. The preferred term of Max De Pree, who, by his own account, built a freedom-
based environment while CEO of the furniture and design company Herman
Miller, the maker of the iconic Aeron office chair, among other things.
8
. In 1999, Bob retired as CEO of Radica to focus exclusively on Sea Smoke Cellars.
In 2006, Mattel acquired Radica for about $230 million.
5: WHY THEY DID IT
1
.
Online Encyclopedia
, “Wilkens, Lenny (1937-). Basketball coach, basketball player,
Early life, Chronology, First taste of intolerance, Another shot at the Olympics,”
http://encyclopedia.jrank.org/articles/pages/4513/Wilkens-Lenny-1937.html
(accessed January 22, 2009).
2
. Personal interview, March 3, 2006.
3
. Robert K. Greenleaf,
Servant Leadership
(New York: Paulist Press, 2002), pp. 24–
25. Emphasis in original.
4
. Albert Camus,
The First Man
(New York: Penguin, 1996), p. 256 for the ɹrst
sentence, then, p. 241; emphasis in original.
5
. The technical term for this business strategy is the “George Costanza,” after the
eighty-sixth episode of the hit television series
Seinfeld
, titled “The Opposite,”
which originally aired on NBC on May 19, 1994.
6
. Sun Hydraulics,
Observations from Bob Koski and Clyde Nixon
, no. 7 (2003).
7
. Personal interview, May 20, 2008.
8
. Linda A. Hill and Jennifer M. Suesse, “Sun Hydraulics: Leading in Tough Times
(A),” Harvard Business School case study, 2003, p. 1.
9
. Sun Hydraulics,
Observations from Bob Koski and Clyde Nixon
, no. 7.
10
. We thank Bob Koski for his permission to use this image.
11
. Sun Hydraulics,
Observations from Bob Koski and Clyde Nixon
, nos. 1–2 (2003).
12
. Ibid., no. 1; the word “investor” is put by Koski in quotation marks because for
Sun Hydraulics “investors” are not only stockholders, but also its customers and
suppliers.
13
. There is no paradox in the coexistence of the “how” culture and freedom
environments at DuPont, as well as at AT&T and a few other research-based
companies in those days. Facing a shortage of scientists and engineers and high
turnover in their R&D departments, these companies created an “island of
freedom” in R&D. Inspired by the university lab culture, people were free to decide
what projects they wanted to pursue and how they wanted to go about their
business. These “freedom
islands,” however, were never meant to be expanded to

the rest of the companies—to the sorrow of Bill Gore. (See also note 7 in
chapter
9
.)
14
. The following remarks are based on Bill Gore’s internal memo “The Lattice
Organization—A Philosophy of Enterprise,” May 7, 1976. On the cover his wife
and business associate Vieve wrote, “Attached is a write-up Bill has made of the
talks he has given at various times. Many of you have heard this before but may be
interested in reading it. For those to whom this is new, it outlines many of the
basic principles of our Association.”
15
. Ibid., p. 4.
16
. Ibid., p. 5.
17
. Richard Arter, email communication, January 30, 2009.
18
. Personal interview, September 24, 2007.
19
. Personal interview, September 24, 2007.
6: WHAT’S YOUR (PEOPLE’S) PROBLEM?
1
. All the stories in this chapter on Harley-Davidson and Rich Teerlink are based on
our August 15, 2005, and September 27, 2007, personal interviews with Teerlink,
as well as on Rich Teerlink and Lee Ozley’s book
More Than a Motorcycle: The
Leadership Journey at Harley-Davidson
. Quotes that are not footnoted are from our
personal interviews.
2
. “Telluride Town History,” Mountain Studies Institute,
http://www.mountainstudies.org/databank/history/Towns/Telluride.htm
,
(accessed September 29, 2008).
3
. Harley’s York, Pennsylvania, plant has remained a staunch pocket of resistance to
Harley’s new culture right up to the present. In February 2007, the union there
launched a two-week-long strike that affected production throughout the company.
4
. Robert Townsend, “Further ‘Up the Organization,’”
Playboy
, July 1970, pp. 86, 89.
5
. Townsend,
Up the Organization
, p. 66.
6
. Ibid., p. xxviii. Interestingly, there is a parallel between blocking back in the
American football and “water boy” in European football, where the expression is
applied to the defensive midɹelders. Their visibility is low, but they are so
important to making others play better that the sports press often designates them
as the MVPs of the greatest teams, such as Claude Makelele of the French 2006
World Cup runners-up, and Marcos Senna of the Spanish 2008 European Cup
champions.
7
. The idea of leader-as-servant was invented by Robert Greenleaf. A servant-leader

does not merely treat his employees as equals. Because
their role is to satisfy
customers, to add value, the leader’s role is to serve them; see Greenleaf,
Servant
Leadership
.
8
. Bob Davids, “How Robert Townsend Talked Me Out of Getting an MBA,” preface
to Townsend,
Up the Organization
, p. xx.
9
. Ricardo Semler,
Maverick: The Success Story Behind the World’s Most Unusual
Workplace
(London: Random House, 1993), p. 68.
10
. Teerlink and Ozley,
More Than a Motorcycle
, p. 54.
11
. Ibid., p. 19.
12
. Ibid., p. 16.
13
. Ibid., p. 49.
14
. Ibid., p. 137.
15
. Ibid., p. 129.
16
. Ibid., p. 135.
7: LIBERATING AN ESTABLISHED COMPANY
1
. The following descriptions of Zobrist and FAVI are based on our personal
interviews on April 8, 2005, and January 25, 2006. They also make use of
materials from Zobrist’s book
La belle histoire de FAVI
and notes available on FAVI’s
website,
http://www.favi.com/
. We have translated all of the materials. For more
of Zobrist’s material translated and synthesized in English, see Shoji Shiba et al.,
Transformation Case Studies
(Salem, New Hampshire: GOAL/QPC, 2006), pp. 3–20.
2
. Zobrist,
La belle histoire de FAVI
, p. 26.
3
. Zobrist would later tell us that this way of speaking to his people was tailored to
the tastes of the local population in Picardy. He does not necessarily advocate
crude speech as a management technique generally.
4
. Douglas McGregor,
The Professional Manager
(New York: McGraw-Hill, 1967), pp.
67–68.
5
. David Montgomery,
The Fall of the House of Labor: The Workplace, the State, and
American Labor Activism, 1865–1925
(New York: Cambridge University Press,
1987), p. 251.
6
. Here Zobrist uses his favorite expression,
“faire en allant,”
which means “doing
while walking.” He elsewhere explains his admiration for a cinema hero who,
when his car breaks down in a desert, takes a jerry can and starts to walk. When
his more intellectual companion inquires where he is going, the hero replies, “I

prefer one advancing idiot to ten sitting intellectuals.”
7
. Jean-Christian Fauvet,
Comprendre les conɻits sociaux
(Paris: Editions
d’Organisation, 1973).
8
.
Vasily Grossman,
Life and Fate
(New York: New York Review Books Classics,
2006), pp. 82–83.

8: FROM MOTIVATION TO SELF-MOTIVATION, PART ONE
1
. Thomas Jefferson to Richard Price, 1789.
2
. Thomas Jefferson to Joseph C. Cabell, 1818.
3
. The description of the University of Virginia project is based on Virginius Dabney,
Mr. Jeʃerson’s University: A History
(Charlottesville: University Press of Virginia,
1981); Joseph J. Ellis,
American Sphinx
(New York: Knopf, 1997); Daniel Walker
Howe, “Religion and Education in the Young Republic,” in
Figures in the Carpet:
Finding the Human Person in the American Past
, ed. Wilfred M. McClay (Grand
Rapids, Michigan: Wm. B. Eerdmans Publishing, 2007), p. 382, and a personal
interview with John T. Casteen, president of the University of Virginia, May 21,
2008.
4
. Nevertheless, in order to earn a degree, a student would have to pass
examinations in at least three ɹelds, called “schools.” Alternatively, a student
could seek a “certiɹcate of graduation” by completing the requirements of one or
more schools, which today we would think of as academic departments.
5
. Dabney,
Mr. Jefferson’s University
, p. 8.
6
. Obviously, not all of America’s inhabitants were treated as intrinsically equal in
Jeʃerson’s time, although in 1819, he claimed that “no man on earth wanted an
end to slavery more than he did” (Ellis,
American Sphinx
, p. 317). He would never
ɹnd, though, a way to abolish slavery without causing what he saw as the
economic destruction of the South.
7
. The debate about tangible rewards is not entirely settled among the psychologists
(see for example, R. Eisenberger, W. D. Pierce, and J. Cameron, “Eʃects of Reward
on Intrinsic Motivation—Negative, Neutral, and Positive: Comment on Deci,
Koestner, and Ryan,”
Psychological Bulletin
125 [1999]: pp. 677–91). Some
researchers point out that the argument in the football story and similar research
experiments is not about the damaging eʃect of tangible rewards but about the
damaging eʃect of ɹrst promising and then withdrawing these rewards. This,
however, is exactly what almost always happens with bonuses and perks in
companies once bad results or times hit, as they always do. More important for our
purposes, though, is that the vast psychological ɹndings on the tangible rewards’
damaging eʃects on self-motivation is essentially ignored by traditional “how”
companies.
8
. Personal interview, September 24, 2007.
9
.
John Dewey,
Later Works, 1925–1953
, ed. Jo Ann Boydston (Carbondale and
Edwardsville: Southern Illinois University Press, 1985), 12, p. 112.
10
. D. L. Rubenson, “Art and Science, Ancient and Modern: A Psychoeconomic
Perspective on Domain Diʃerences in Creativity,” in
Creative Intelligence: Toward

Theoretic Integration
, ed. D. Ambrose, L. M. Cohen, and A. J. Tannenbaum
(Cresskill, New Jersey: Hampton Press, Inc., 2003), pp. 131–46.
11
. Robert Sternberg,
Intelligence Applied: Understanding and Increasing Your
Intellectual Skills
(San Diego: Harcourt Brace Jovanovich, 1986).
12
. Robert J. Sternberg and Todd I. Lubart,
Defying the Crowd: Cultivating Creativity in
a Culture of Conformity
(New York: Free Press, 1995), pp. 93–94.
13
. Douglas McGregor,
The Professional Manager
(New York: McGraw-Hill, 1967), pp.
10–11. The emphasis is McGregor’s.
14
. McGregor,
The Human Side of Enterprise
, p. 265.
15
. Townsend,
Up the Organization
, p. 96.
16
. Blaise Pascal,
Pensées
, trans. W. F. Trotter (New York: P. F. Collier and Son,
1909–14), p. 347.
17
. The description of Deci, Ryan, and associates’ views and research is based on
Edward Deci and Richard Ryan, “The ‘What’ and ‘Why’ of Goal Pursuits: Human
Needs and the Self-Determination of Behavior,”
Psychological Inquiry
11 (2000): pp.
227–68; and M. Gagné and Edward Deci, “Self-Determination Theory and Work
Motivation,”
Journal of Organizational Behavior
26 (2005): pp. 331–62.
18
. It can be argued that the highest need in Maslow’s hierarchy—self-actualization—
is never fully satisɹed and so continually motivates people to new action to satisfy
it. Though this may be true for a small portion of human beings, even for them
Maslow’s view of an unsatisɹed need is that of a tension that one strives to reduce,
which is very different from Deci and Ryan’s view of needs as nutriments.
19
. We are not ignoring the importance of physical and security needs. A chronically
hungry or hurt child obviously won’t enjoy playing. At the workplace, whether the
majority of employees have their essential physical and security needs satisɹed or
not is, of course, debatable. Regarding employees in developed economies, Angus
Maddison has shown (see note 1 in chapter 2) that the satisfaction of other than
material-subsistence needs was no longer limited to a tiny elite but was available
to the majority of the inhabitants of developed countries.
20
. Deci and Ryan deɹne relatedness as “desire to love and care, and to be loved and
cared for;” competence as a “propensity to have an eʃect on the environment as
well as to attain valued outcomes within it;” and
autonomy as a “desire to self-
organize experience and behavior and to have activity be concordant with one’s
integrated sense of self;” Deci and Ryan, “The ‘What’ and ‘Why’ of Goal Pursuits,”
p. 231.
21
. We prefer intrinsic equality, growth, and self-direction to denote people’s
universal needs rather than Deci and Ryan’s “relatedness,” “competence,” and
“autonomy” for two reasons. First, terms such as “competence” and “autonomy”

have acquired specific meanings in management. “Competence” is often used as an
HR term, as in rather command-and-control “competency management,” and
autonomy is often discussed in “balance” with control within a company. Second,
we want to stay close to McGregor, who talked about treating people as if they are
good and about self-direction and self-control.
22
. Dabney,
Mr. Jefferson’s University
, p. 6.
23
. Ellis,
American Sphinx
, p. 338.
24
. Ibid., p. 310.
25
. Dabney,
Mr. Jefferson’s University
, p. 21.
26
. “History of the Honor Commitee,” University of Virginia,
http://www.virginia.edu/honor/intro/honorhistory.html
(accessed June 12, 2008).
Tucker’s beliefs in freedom and responsibility may well be the product of family
education. His father, judge St. George Tucker, known as “America’s Blackstone,”
was the author of the ɹrst commentry on the Constitution in 1803, in which he
wrote: “A bill of rights may be considered, not only as intended to give law, and
assign limits to a goverment about to be established, but as giving information to
the people. By reducing speculative truths to fundemental laws, every man of the
meanest capacity and understanding may learn his own rights, and know when
they are violated,” quoted from
View of the Constitution of the United States with
Selected Writings
(Indianapolis: Liberty Fund 1999).
27
. The case is based on the following sources: Lars Kolind,
The Second Cycle:
Winning the War Against Bureaucracy
(Philadelphia: Wharton School Publishing,
2006); N. J. Foss, “Selective Intervention and Internal Hybrids: Interpreting and
Learning from the Rise and Decline of the Oticon Spaghetti Organization,”
Organization Science
14 (2003): pp. 331–49; N. J. Foss, “Internal Disaggregation in
Oticon: Interpreting and Learning from the Rise and Decline of the Spaghetti
Organization” (working paper, Department of Industrial Economics and Strategy,
Copenhagen Business School, 2000); Pernille Eskerod, “Organising by Projects:
Experiences from Oticon’s Product Development Function,” in
Managing the
Unmanageable for a Decade
, ed. Mette Morsing and Kristian Eiberg (Hellerup,
Denmark: Oticon, 1998), pp. 78–90; Tom Peters,
Liberation Management
(New
York: Ballantine
Books, 1994), pp. 201–4; and email interviews with Lars Kolind,
January–May, 2007.
28
. Kolind,
Second Cycle
, pp. 195–196
29
. Ibid., p. 197.
30
. Ibid., p. 207.
31
. Ibid., p. 115.
32
. Eskerod, “Organising by Projects,” p. 87.

33
. Kolind,
Second Cycle
, pp. 209.

9: FROM MOTIVATION TO SELF-MOTIVATION, PART TWO
1
. Warren Bennis and Robert Townsend,
Reinventing Leadership
(New York: Quill,
1995), pp. 66–67.
2
. Ibid., p. 67.
3
. Ibid.
4
. Ibid., p. 68.
5
. Ibid., p. 75.
6
. Personal interview, August 15, 2005.
7
. As Warren Bennis wrote in the editors’ note to McGregor’s
Professional Manager
(p.
14, note 5): “In … the scientiɹc research laboratory… management has gone a
considerable way toward [building a freedom-based environment]. The reasons for
doing so have been largely connected with the problem of obtaining and keeping
competent scientists, rather than with the acceptance of new ideas about human
nature.” Indeed, freedom aspects have been built in R&D centers such as DuPont’s
Experimental Station and AT&T’s Bell Labs to attract and keep a particular talent
pool. The environment has not been built elsewhere in these companies, though.
Today, approaches similar to DuPont’s and AT&T’s are used by top consulting and
software companies that rely heavily on “knowledge workers.” SAS Institute has
long been known for outstanding conditions and for extremely low turnover of its
software developers. Google, which studied SAS carefully, seems to have adopted a
similar approach.
8
. Personal interview, March 2, 2006.
9
. Personal interview, September 26, 2007.
10
. John Fennel,
Ready, Fire, Aim
(Pewaukee, Wisconsin: Quad Graphics, 2006), p.
182.
11
. Personal interview, March 2, 2006.
12
. Personal interview, August 15, 2005.
13
. Personal interview, October 18, 2007.
14
.
While Milton Friedman is often credited with this coinage, and he did write a
best-selling book of that name, the phrase appears to have originated in the press
in the 1930s. Its exact origins are shrouded in mystery.
15
. Fabienne Gambrelle and Félix Torres,
Générale de Service Informatique
(Paris,
France: Albin Michael, 1996), p. 122.
10: IN SEARCH OF LOST BOOTS

1
. Our interview took place on March 6, 2006. General Robert McDermott died at the
age of eighty-six of complications from a stroke on August 28 of that year.
2
. Personal interview, March 7, 2006.
3
. Personal interview, February 4, 2008.
4
. Avishai Margalit,
The Decent Society
(Cambridge, Massachusetts: Harvard
University Press, 1996), p. 217.
5
. It’s interesting to note that in his book, Townsend advises the following approach
on making budgets with regard to outside company stakeholders: “Most lenders,
directors, and owners look at the monthly report to see if you made your budget. If
you did, into the ɹle with it. If you didn’t, the report goes to an uninformed
nitpicker who dreams up a lot of stupid questions. To save yourself this agony, put
some arbitrary safety factor into the top statements that go outside the company.
You haven’t distorted the ɹgures by which you and your managers are trying to
measure trends, but you have something you can use to oʃset unforeseen setbacks
without missing the budget as far as your investor/lenders are concerned.”
Townsend,
Up the Organization
, p. 9. The head of operations in Grenoble most
likely read it, because a copy was given to every GSI manager.
6
. The French
aimer
means both “to like” and “to love” and here denotes a stronger
affection than simple liking.
7
. Personal interview, May 20, 2008.
8
. The French word Raiman uses is
justice
. In the context of his other statements, we
translated it as “fairness” as the following discussion of the fair—in French
justes
—
managers shows.
9
. The French
bonheur
can be translated both as “joy” and “happiness.”
10
. Personal interview, November 21, 2008.
11
. Quoted in Joel Cutcher-Gershenfeld, “Introduction to the Annotated Edition,” in
McGregor,
The Human Side of Enterprise
, p. xlii.
11: THE ANTI-MAD MEN
1
. Personal interview, March 6, 2006. All of Stan Richards’s quotes, unless speciɹed,
come from this interview.
2
. Stan Richards,
The Peaceable Kingdom
(New York: John Wiley, 2001).
3
. Ibid., p. 9. Richards often compares Madison Avenue ɹrms’ atmosphere to U.S-
Soviet relations during the Cold War.
4
. Ronald Coase, “The Nature of the Firm,” in
The Firm, the Market and the Law
(Chicago: University of Chicago, 1990), p. 33–56.

5
.
The Peaceable Kingdom
, p. 20.
6
. Ibid., p. 142.
7
. Ibid., p. 143.
8
. Personal interview, March 3, 2006.
12: THE SECRET OF LIBERATING LEADERSHIP
1
. Conference for l’Institut des Hautes Etudes Cinématographiques, Paris, 1982. We
thank Jean-François Cottin for having pointed us to this video.
2
. Cited in P. B. Baltes and U. M. Staudinger, “Wisdom: A Metaheuristic (Pragmatic)
to Orchestrate Mind and Virtue Toward Excellence,”
American Psychologist
55
(2000): p. 133.
3
. Personal interview, September 8, 2008. All the quotes from Liisa Joronen, unless
specified, come from this interview and will not be referenced separately.
4
. Personal communication, July 18, 2008.
5
. “The SOL Story,” SOL internal document, February 2006.
6
. Photo by Anne Nisula. Used with SOL’s permission.
7
. In 2000, Liisa Joronen distributed 90 percent of the ownership of SOL to her three
children, keeping just 10 percent for herself. But she retained a “golden share”
giving her veto power over many corporate decisions. She kept the deciding vote
for herself, she said, “in order to keep the children happy.”
8
. Personal exchange with Liisa Joronen, May 10, 2009.
9
. P. B. Baltes and U. Kunzmann, “The Two Faces of Wisdom: Wisdom as a General
Theory of Knowledge and Judgment About Excellence in Mind and Virtue vs.
Wisdom as Everyday Realization in People and Products,”
Human Development
47
(2004): pp. 295–96.
10
. René Descartes, “Meditations on First Philosophy” in
The Philosophical Writings of
Descartes, Vol. II
, trans. John Cottingham, Robert Stoothoʃ, and Dugald Murdoch
(Cambridge: Cambridge University Press, 1984), p. 24.
11
.
M. W. Morris and K. Peng, “Culture and Cause: American and Chinese
Attributions for Social and Physical Events,”
Journal of Personality and Social
Psychology
67 (1994): pp. 949–71; and R. E. Nisbett, K. Peng, I. Choi, and A.
Norenzayan, “Culture and Systems of Thought: Holistic versus Analytic Cognition,”
Psychological Review
108 (2001): pp. 291–310.
12
. F. Lee, M. Hallahan, and T. Herzog, “Explaining Real-Life Events: How Culture
and Domain Shape Attributions,”
Personality and Social Psychology Bulletin
22

(1996): pp. 732–41.
13
. A. Fernald and H. Morikawa, “Common Themes and Cultural Variations in
Japanese and American Mothers’ Speech to Infants,”
Child Development
64 (1993):
pp. 637–56; and T. Tardif, M. Shatz, and L. Naigles, “Caregiver Speech and
Children’s Use of Nouns versus Verbs: A Comparison of English, Italian and
Mandarin,”
Journal of Child Language
24 (1997): pp. 535–65.
14
. Personal interview, May 22, 2008.
15
. Personal interview, May 18, 2008.
16
. Zobrist,
La belle histoire de FAVI
, p. 1. The principle opens Zobrist’s book.
13: THE ULTIMATE PARADOX
1
. Personal interview, May 18, 2008. Other Davids quotes in this chapter are from
this interview and our interview on September 24, 2007.
2
. Personal interview, September 15, 2008. All other Kelley quotes, unless speciɹed,
come from this interview.
3
. This paragraph is partly based on “Designed Chaos: An Interview with David
Kelley, Founder and CEO of IDEO,” Virtual Advisor, Inc.,
http://www.va-
interactive.com/inbusiness/editorial/bizdev/articles/ideo.html
(accessed July 7,
2007).
4
. Peter Burrows, “Hewlett & Packard: Architects of the Info Age—The Founding
Fathers of Silicon Valley Steered Tech Away from Hierarchy,”
BusinessWeek
, March
29, 2004.
5
. Ibid.
6
. R. I. Sutton and A. Hargadon, “Brainstorming Groups in Context: Eʃectiveness in
a Product Design Firm,”
Administrative Science Quarterly
41 (1996): p. 685.
7
. The various philosophers’ views and quotes on wisdom in these paragraphs are
based on Sharon Ryan, “Wisdom,”
Stanford Encyclopedia of Philosophy
,
http://www.science.uva.nl/∼seop/entries/wisdom
(accessed November 26, 2008).
8
. Aristotle,
Nichomachean Ethics
, (Stillwell, KS: Digireads, 2005), p. 66, VI, 1140a-
1140b.
9
.
J. Kekes, “Wisdom,”
American Philosophical Quarterly
20, no. 3 (1983): p. 280.
10
. This description of the methodology is based on “The Deep Dive (at IDEO),” a
Nightline
segment that originally aired on ABC on July 13, 1999.
11
. Bruce Nussbaum, “The Power of Design,”
BusinessWeek
, May 17, 2004, p. 96.
12
. Tim Brown, “Design Thinking,”
Harvard Business Review
, June 2008, p. 87.

13
. See Linda Tischler, “A Designer,”
Fast Company
, February 2009, pp. 78–101; and
A. G. Laɻey and Ram Charan,
The Game-Changer: How You Can Drive Revenue and
Profit Growth with Innovation
(New York: Crown Business, 2008).
14
. Tischler, “A Designer,” p. 78–101.
15
. Personal interview, September 15, 2008. The following quotes on the “experience
team” are from this interview.
16
. Personal interview, September 15, 2008.
17
. See, for example, C. A. O’Reilly III and J. Chatman, “Culture as Social Control:
Corporations, Cults, and Commitment,”
Research in Organizational Behavior
18
(1996): pp. 157–200.
18
. Personal interview, May 20, 2008.
19
. This does not necessarily mean hiring the “best” in the traditional sense. When
Robert Townsend toured Chaparral Steel in the 1980s, he said to Gordon Forward,
“Gordon, you are cheating. You have good people here!;” personal interview with
Gordon Forward, September 25, 2007.
14: BUTTERFLIES IN FORMATION
1
. Personal interview, September 25, 2007.
2
. Personal interview, May 20, 2008.
3
. Personal interview, May 22, 2008. All the quotes in this chapter from employees at
Chaparral’s Petersburg mill were gathered in personal interviews on that day. In
July 2007, Gerdau Ameristeel bought out Chaparral Steel for $4.2 billion, and at
the time of our visit, Chaparral was still being “integrated” into its new parent
company. The fate of the culture that helped make Chaparral such an attractive
prize to Gerdau cannot be predicted as of this writing.
4
. Harry Quadracci was strongly opposed to unionization of Quad/Graphics, having
witnessed divisive strikes at an earlier employer. For this, Quad has earned the
attention and ire of organized labor, but so far no one has succeeded in organizing
a Quad facility,
which speaks to the Quadraccis’ success in maintaining a fruitful
relationship with their employees.
5
. Frank Shipper and Charles C. Manz, “Employee Self-Management Without
Formally Designated Teams: An Alternative Road to Empowerment,”
Organizational
Dynamics
20, no. 3 (1992): pp. 48–61.
6
. Personal interview, May 18, 2008.
7
. Personal interview, August 17, 2005. Ziemer retired in early 2009.
8
. Personal interview, May 20, 2008.

9
. Personal interview, November 26, 2008.
10
. Personal interview, May 22, 2008.
11
. Personal interview, May 22, 2008.
12
. Personal interview, September 8, 2008.
13
. Zobrist,
La belle histoire de FAVI
, pp. 107–8.
14
. One Gore associate, a ɹrst-generation immigrant from India, joked with us that
his status-conscious family back in the old country was very concerned that he’d
been at the company over a decade and was still a mere “associate.”
15
. Townsend,
Up the Organization
, p. 111.
16
. Townsend, “Further ‘Up the Organization,’” pp. 86, 89.
17
. Jean-François Zobrist, seminar given at ESCP Europe Business School, Paris,
February 18, 2009.
18
. A study of 6,772 large “how” ɹrms from 40 industries showed that only 2 to 5
percent sustain a competitive advantage over a 10-year period, and only 4 ɹrms
sustain it over 20 years. More, about 99 percent of ɹrms—large and small—
disappear over that peroid (C. I. Stubbart and M. B. Knight, “The Case of the
Disappearing Firms: Empirical Evidence and Implications,”
Journal of
Organizational Behavior
27, [2002]: pp. 79–100.)
19
. Personal interview, August 15, 2005.
20
. See Angus Maddison’s ɹnding, note 1 in chapter 2, that beginning in 1820 and
up to 2001, per capita income rose twentyfold in the West. This meant the
satisfaction of needs beyond mere material subsistence was no longer limited to a
tiny elite. The majority of inhabitants of developed economies could now concern
themselves with “higher” universal needs whose pursuit is unique to humans.
21
. Title of a paper presented at a conference at MIT on April 9, 1957; reprinted in
McGregor,
The Human Side of Enterprise
, pp. 341–56.

About the Authors
B
RIAN
M. C
ARNEY
is a London-based member of the editorial board of the
Wall Street
Journal
and the editorial page editor of the
Wall Street Journal
Europe. In 2009 he
won the prestigious Gerald Loeb Award for Commentary, and in 2003 he won the
Bastiat Prize for Journalism for his writings on business and economic aʃairs. After
majoring in philosophy at Yale, he earned a master’s degree in philosophy from
Boston University and worked at the Innovations in American Government program
at Harvard University before joining the
Wall Street Journal
in 2000.
I
SAAC
G
ETZ,
who has Ph.D.s in psychology and management, is a professor at ESCP
Europe Business School in Paris and has been a visiting professor at Cornell and
Stanford Universities and at the University of Massachusetts. Isaac conducts and
publishes research on innovation, leadership, and corporate transformation for
excellence and growth, and speaks on these topics. His previous book has been
published in ɹve languages and his work has been featured in the
Wall Street
Journal
, the
Financial Times, Le Figaro
, and other periodicals and media.
For more information about Brian M. Carney’s and Isaac Getz’s work, visit
www.FreedomIncBook.com
.

Copyright © 2009 by Brian M. Carney and Isaac Getz
All rights reserved.
Published in the United States by Crown Business, an imprint of the Crown Publishing Group, a division of Random
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CROWN BUSINESS
is a trademark and CROWN and the Rising Sun colophon are registered trademarks of Random House, Inc.
Grateful acknowledgment is made to the following for permission to reprint previously published material:
The Free Press: excerpt from
Defying the Crowd: Cultivating Creativity in a Culture of Conformity
by Robert J. Sternberg and
Todd I. Lubart, copyright © 1995 by Robert J. Sternberg and Todd I. Lubart. Reprinted by permission of The Free Press, a
division of Simon & Schuster, Inc.
Pearson Education, Inc.: excerpts from
The Second Cycle: Winning the War Against Bureaucracy
by Lars Kolind, copyright
© 2006 by Pearson Education, Inc. Reprinted by permission of Pearson Education, Inc., Upper Saddle River, New Jersey.
Library of Congress Cataloging-in-Publication Data is available upon request.
eISBN: 978-0-307-46247-3
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