#011 - Why a CEO Stepped Down so an Intern Could Take Over /w Hermann Arnold

 

Show Notes

Episode Contents

 

In this episode we will answer some of the following questions:

  • Why my guest voluntarily stepped down as a CEO in order to give a former intern his position
  • How his successor and customers reacted to this decision
  • How a manager recognizes the point where he or she is not the right person anymore to continue to lead the company
  • What it felt like coming back to the company and working under the new CEO
  • How he handled the conflict of his successor implementing his ideas with success
  • Why more companies should think about limiting the terms of their CEOs
  • What he learned from letting his employees vote for managers and why he believes this might not be the solution for the future

 

Summary

 

  • Despite all the talk about agile and other forms of organizations, there are still very few that dare to try new things out. But in these uncertain times, we desperately need pioneers all over the world to have the courage to try new things.
  • Sadly, we still have this idealised view of CEOs and managers that they should be all-knowing, free of faults, essentially the perfect leader at any growth stage of the company. That‘s not only unrealistic, but harmful for the managers, the company and thus its employees. No one is good at everything. So why don‘t recognize this fact and apply it to companies at well. The stakes not to apply this is so much higher in corporate environments than elsewhere.
  • In order to apply this thinking we also need to get over this societal stigma that stepping down is regression in ones career. And having term limits makes a lot of sense too. Nobody would argue that successful leaders in politics are failures when they step down after their term limit is up. Why don‘t we apply the same to the corporate world?
  • When we think about how companies are structured today, we can clearly see that they haven‘t fundamentally changed since the industrialization? The most common type of organization we find in companies today is the functional hierarchy - the same organization Frederick W. Taylor postulated in his management theory.
  • But with todays challenges this type of organization will fail, irrespective of modern technologies. Companies can automate and digitalize whatever and how much they want, this will not lead to a fundamental change in how companies operate and adapt to changes. The powers at play are culture, beliefs, values and many others. And these are far more powerful than any buzzword like „digital transformation“ that gets thrown around these days.
  • Also, you can‘t expect employees to work in cross-functional teams and think laterally, if you still have silos or departments in your company and compensate your employees based on these silos.
  • But this requires that managers give up power and control. Power and control are essentially a myth, because even in a functional hierarchy you always some interconnectedness. Power also provides managers with a status quo and that‘s hard for most managers to give up.
  • Today, more than ever, we need to solve problems across disciplines. Yet, todays organizations are setup in a way that contradicts what the leadership of corporations are claiming: Work in cross-functional teams and be creative, but incentives its employees based on their silo. How has that ever worked?
  • Our world has become too complex and is moving faster. Yet the organizational structures of companies (those pyramids) have not changed. By the time the information about the market, competitors and others are channeled up to authority, where it is then analysed, proceed and pushed back down with a decision the market has moved on. What we need instead for companies to utilize the subsidiarity principles. Let those who have the information decide. This is something David Marquet a former nuclear submarine captain states: “Don’t push information up to authority. Push authority down to information.”
  • Another aspect that is extremely valuable for managers and especially CEOs, is stepping down (even if it‘s just temporarily, say for a month a year) to work under the people you were managing. There‘s a lot of insights and personal growth to be had in this way.

 

Links & Resources Mentioned

 

Links Mentioned

 

Articles Mentioned

 

Books Mentioned

 

Videos Mentioned

 

Companies Mentioned

 

People Mentioned

  • Jitske Kramer
  • Stanley A. McChrystal, retired United States Army general (best known for his command of Joint Special Operations Command (JSOC) in the mid-2000s)
  • David Marquet, former Commander of the nuclear submarine Santa Fe)
  • Ricardo Semler, CEO and majority owner of Semco Partners, a Brazilian company best known for its radical form of industrial democracy

 

Follow/Add the Podcast Host/Guest on:

David C. Luna:  LinkedIn | XING |

Hermann Arnold: LinkedIn | Demokratie21

Episode Transcript - Click to Expand

Note: This transcript of the episode was machine-generated and has not been edited for correctness. It’s provided for your convenience when searching. Please excuse any errors.

 

[00:00:00] Guest (Hermann Arnold): Especially as CEO, you think everything is directed to you because he was such a smart and great person. And then when you're not the CEO anymore, you realize how much is connected to the road that you have. And not two years of personality.

[00:00:18] Welcome to innovation, no correctness, a podcast, all about innovation and transformation hosted by David Luna, author keynote speaker and founder of gamma digital and beyond David and his guests discuss real world practical advice on how to best harness the creativity of your employees and go from idea to product giving you unique perspectives and insights into their success.

[00:00:41] All while separating hype from reality and replacing bullshit. Bingo. With common sense, let's jump right into the show.

[00:00:51] Host (David C. Luna): Welcome back to another episode of the innovational correctness podcast. My guest today is Hammon honored. How many unknowns sees himself as a [00:01:00] pioneer of organizational innovation. He studied at the university of in Switzerland and was shaped by the understanding.

[00:01:07] That companies are a productive social system. He's also the co founder, chairman and shareholder of healthful. Montas a software provider of talent, empowerment and management. He has experimented with leadership elections, so democratic processes in companies, team recruiting, spiral, careers, crowd strategizing, and other ways of.

[00:01:26] Innovating collaboration in organizations. But what I find particularly interesting about how man is the fact that he voluntarily stepped down as a CEO in 2013 and appointed his former intern as a CEO. Now many would view this as a colossal failure when a CEO voluntarily steps down and admits that he isn't the right person.

[00:01:47] To continue to the next growth States of his or her company, why this is the exact opposite of failure. It's something we discussed at length in this app. So in this episode, we will answer some of the following questions. Why my guest [00:02:00] voluntarily stepped down as a CEO in order to give his former intern his position, how his successor and customers reacted to this decision, how a manager.

[00:02:09] Or CEO recognizes the point where he or she is not the right personally more. Could you continue to lead the company? What it felt like coming back to the company and working under the new CEO, how he handled the conflict of a successor, implementing his ideas with success. Why more companies. Should think about limiting the terms of their CEOs.

[00:02:28] And finally what he learned from letting employees vote for managers and why he believes this might not be the solution for the future. So let's go meet Hellman.

[00:02:42] Welcome to the podcast.

[00:02:43]Guest (Hermann Arnold): thank you very much, David. It's a pleasure to be with you.

[00:02:47] Host (David C. Luna): Do you want to introduce yourself to the listeners?

[00:02:50] Guest (Hermann Arnold): I'm the cofounder and executive chairman of humanities. That is a company that started 20 years ago and we [00:03:00] do software and consulting in the area of talent management and company rebuilding reorganization, and, privately and father proud father of three little girls and currently in home office because you all probably are sitting at home nowadays.

[00:03:18] Host (David C. Luna): Yeah. We're all in quarantine now. Yeah. So something I found out about you during my research was that you help children program back in the nineties. How did that come about so early, because nowadays that's a very hot topic. So you seem to be quite ahead of the curve with that idea.

[00:03:33] Guest (Hermann Arnold): Yeah. That was literally the case.

[00:03:36] We am the voice when I was. Studying. And I had my year off for military service and during the military service at a little bit, too much time. And that first training for adult, you get to know, did you stick compute? And then we thought, we should also do that for kids. Because our school system was so outdated, nobody was even thinking [00:04:00] of using computers in the education area.

[00:04:03] And then they said, okay, let's do the company. And it was called listen kids. And we were addressing kids from the age of, four or five 12 using a computer for running and programming and all that. But it was quite fun and it's true. We were ahead of the curve, but we had a lot of parents that they're really interested in doing that.

[00:04:23] And a lot of fun also with the kids and they learn tremendously fast nowadays. It's not necessary anymore because everyone is growing up with, an iPad in the prom. But back then, it was not that used. Yes.

[00:04:35] Host (David C. Luna): Oh, fascinating. The first time I came across you as a person was through a Ted talk on YouTube.

[00:04:42] And in 2013, you sat down as the CEO of how fit Munters saw your successor could take over. That would be better suited for the next growth of the company. And to add you were also a shareholder. So in that regard, I have quite a few questions. And so let's start with the first [00:05:00] one at what point. In your career, did you make that decision and was there like a catalyzing event that led to that decision to step down?

[00:05:09] Guest (Hermann Arnold): Yeah, I've always conscious out of my studies. That was really something that stuck from what I've learned, that the university West, that most of the organizations go through different crises. Most of the time when leadership doesn't fit to the challenges ahead anymore. Yeah. That becomes something like bottleneck the Greiner curve.

[00:05:27] I don't know if you've heard of that. That's what I was asking myself every year, if I'm still the right person to the company the next year. And I always said, I will be as long CEO, as long as we don't find any better that we can afford. Now, obviously there are a lot of people that are better, but it's also a question of affordability.

[00:05:49] And yes, there was one defining moment or defining phase. We had a lot of to do as always can imagine software startup. And we got two additional products [00:06:00] checked into our company. One was about a presentation, an important presentation for analysts. They are more or less. I'm making rankings with software's good than which not to.

[00:06:10] And on the other side, we had two really big potential new customer to win, and it was on top of all the things we had to do. And then we set up two projects. One was led by me concerning the analyst. Yeah. The second Royce led by my then successor or later successor. I was leading the afford with the customer and, but we were.

[00:06:30] Also working each one in the artist team as a team. I remember, and because I was quite conscious that all the people had too much to do, I try to do the most myself. And the only thing that I could not do myself, I tried to delegate two people in the team too, ask them for help in that. And. The approach of my colleague was a total different one.

[00:06:52] He made the first big things that how important it is. And then he puts workload on top of each of the [00:07:00] members and he was more or less just let's say coordinating it, obviously also giving direction, but coordinating it. Everyone was working quite long when I looked at the result and it's not about.

[00:07:09] Which project was more successful because my project with the analyst went quite well. And we've got a very good ranking with the analyst and we did not win the customer, but that's not the point. The point was what I realized is that the success we had with the analysts was perceived by everyone more or less.

[00:07:26] As it was my success and they could help a little bit. And the other pro check, everyone was proud of what they could achieve. There was a lot of energy and the implications for the organization where they're much bigger because everyone was contributing and also taking insights out of this work. And that was.

[00:07:45] The point when I realized, okay, I'm probably the right guy for the first phase of work. Yup. When it's about a pioneer being in a channel, not knowing where to go and just say, okay, let's go this direction and just paving the way and others can follow. [00:08:00] But the moment you have somehow the way somehow, a little bit paved, then you need someone who can better orchestrate people to make this waste.

[00:08:10] Broader and to make them bigger and faster, that's obviously not my way of doing things. And that was when I realized now is the time that someone else should take over. And then I prepared this transition for one of the half year. I was starting to talk with him. I was also preparing him, preparing the environment, the company.

[00:08:31] And then there was the time when we had the handover and he became the CEO. Yes.

[00:08:36] Host (David C. Luna): And how did your successor react when you approached him with your decision to step down and give him the CEO?

[00:08:43]Guest (Hermann Arnold): first of all, he was quite this Donnish, but he's quite a number of person. And he said, he was flattered obviously.

[00:08:50] And then he also said, okay, at one to. Think about it, if I think it's the right step to do. But he started in our company as an intern and I was really keen to [00:09:00] get him on board because I've seen a lot of potential in him. And he was doing a big career in our organization, going in different departments, doing different jobs and always been quite successful in what he was doing.

[00:09:12] And therefore it was really convinced he will be successful in his job. And therefore he said, after this sleeping over it, he said, yes, he wants to do with it. Yes.

[00:09:21] Host (David C. Luna): Oh, wow. He went from an intern to a CEO.

[00:09:23] Guest (Hermann Arnold): Yeah, exactly. And to make the story more funny, more or less out of coincidence, I was then working one year under him as person in his team because that's the literal meaning of stepping down now.

[00:09:38] It's not leaving the company, but you, most of the time associate when you hear someone was stepping in? No, I was going back into the team that I was leading before and he was then my boss. So to say, and therefore, yes, he started as an intern at the company and then he ended up even off for my, of myself.

[00:09:57] Yes.

[00:09:57] Host (David C. Luna): Okay. Wow. So you not only [00:10:00] stepped down as a seat, you gave him a former intern, the CEO position. You came back and worked under the new CEO. And now the question that probably a lot of listeners have, were there any challenges with this new setting or how was that like working under a former intern?

[00:10:16]Guest (Hermann Arnold): for me, it was quite an interesting experience because obviously there's, it's not very normal, but I started then looking into the world with different lenses. So they've seen it in so many instances where this exactly happens. For example, if you're looking for the most powerful man on earth, the American president, after eight years, Obama stepped down, he's not the president anymore.

[00:10:44] And now another one is. The president and is normal citizen again, or even in universities, there are some universities in certain regions where you have a term limit, and that means you are a first a professor. Then you get to the team and after you have reached your [00:11:00] terminal, make you go back and your professor again, and someone else that means it's certain organization.

[00:11:05] It's very common that you have such transitions, but in the classical corporate world, it seems. Impossible or implantable that too, to say there are people stepping back and then having others leading them that before they were leaving. But for example, in our company, which we called it spiraled Korea that were already people before me that went through this experience, not as a CEO, but as a team lead.

[00:11:33] And even after my. Example, if there were even more people doing exactly the same and they think it's a really good learning experience, obviously you learn a lot of things personally, especially as CEO, you think everything is directed to you because he was such a smart and great person. And then when you're not any more, you realize how much yeah.

[00:11:55] Connected to the road that you have and not to. Yeah. As a personality, I had [00:12:00] one really strange experience when. We had a meeting before a potential partner and they were both in talent development. That means they're more or less the experts in this field. And we were sitting there, me, a CEO. He is still then the sales manager and after probably one hour, I mentioned that he will be in the next month.

[00:12:23]the CEO and from that moment on, I could have left the room. Yeah. Before they were always looking at me asking me. And once they mentioned that they were only directly to him and talking to him and I even found it a little bit. Unpolite this behavior, but it really was an eye opener. And that happened very often in subtitles and less subtle ways.

[00:12:43] Host (David C. Luna): Yeah, they look up to authority versus competence,

[00:12:46] Guest (Hermann Arnold): but it's the point is it's easy to say day. I think it's we just imagine. Yeah. We, when we can shake the hands and talk a few words to the president of the United States, it's really [00:13:00] amazing. even if we don't like this person, and if we have a problem in a restaurant, we want to.

[00:13:05] Talk to the chief to address it. And so on, we are ranking people. We always look at something that gets kicked Kramer. That's a corporate apologist said that opened my eyes. We, you must to be a ranking people. If you always look good, it is the highest ranked person in the room. And then we address our affords and tension towards them.

[00:13:26] Now that's somehow really normal and every, even the most modern or advanced. People do the same. I had another experience that was, there was a movie, our company called in German, it's called in English. It would probably translate it on ice level. And that means that it was about companies that lead on ice level where it's not a strong hierarchy.

[00:13:48] And then there was the premiere of this movie and Turik and dipper, probably 200 people, all of that. They really think that is the way how it should work in the future. And for them. [00:14:00] Preprogram of this premiere, my success. And I'm Brent invited to have a short interview on the stage. And then very short time, my call, my successor could not come and I came alone on the stage and that's not okay.

[00:14:12] I make a little joke and said, I'm really sorry. The real CEO cannot come. It's just me. The former CEO. And I had to assume that some people would at least laugh or a smile, but I looked in the faces and it was more okay. It's not that bad, even. They felt somehow disappointed that the CEO is not those guys.

[00:14:35] Yeah. That preach. And those guys. The hierarchy should stop, but nevertheless, they would need to see the CEO. There should have been any employee of our company being there on stage. And they should have appreciated that as much as seeing the CEO, but it was not the case. That means we are really people that are, we are ranking people and it's so in our nature that we don't get it out.

[00:14:57] Yeah.

[00:14:58] Host (David C. Luna): Yeah, I guess we could say [00:15:00] we were status seeking animals. And I personally always have a difficulty accepting authority if that authority is not competent in my eyes. However, I do find it just because someone is president, just because someone is CEO. as a CEO, you can run a company into the ground as well.

[00:15:16] But yeah, absolutely agree that most people look at the. The business card and, Oh, he's the CEO. Now I have to be really nice to him and listen to everything he says,

[00:15:25] Guest (Hermann Arnold): most of us people say, yeah, we are not like the others. And if you're really honest with yourself, that is not true. If we would be in the room with Donald Trump, even if we don't think he's a competent president and probably even worse things about him, that we would feel quite tense.

[00:15:43] And if it would address us and does it would more or less be shaking, whatever. Yeah. It means that it's. so deeply ingrained in our, obviously when these persons are far away. Yeah. I don't stay in direct contact with them. Then we, then it's easy for us [00:16:00] to talk about that. But I have seen really powerful men being like little kids around, more powerful people.

[00:16:07] That means it's really, they're very few people that really can not be affected by power, but it's a, it's an, a story. Yeah. Yeah, I can

[00:16:16] Host (David C. Luna): definitely empathize with people that find that very seducing or find authority or power generally seducing. I want to come back to where you were working under the new CEO.

[00:16:27] Were there times where he thought things like, why the hell did he make that decision? Or I would have done it much differently or what the hell? That was my idea, because I know I would have struggled with the whole thought process. Of somebody else making or taking my ideas and running with it.

[00:16:43]Guest (Hermann Arnold): they're twisting point.

[00:16:44] That was obviously a journey. And first of all, he was doing things that I thought probably won't go well. And that was really, it was really hard for me not to jump into or to try to. Change chorus. And the only thing that helped me was that I [00:17:00] understood if he wants and should do things better than me, then he has to do it differently than I would have done it.

[00:17:06] And therefore I could somehow endure such things when he did things totally differently than I would. And we had the luck that he is someone who really opened the index, basically searches feedback and advice. And yes, I was giving him sometimes at places and I beginning sod. The most difficult thing is if you're given advice and the person doesn't follow this advice, but it's obviously that if you think it's difficult, but the more difficult thing where, what you were mentioning now is that I gave a feedback and advice and then he was implementing it and was successful with it.

[00:17:43] And it's somehow if you get, t-shirt a gift from someone and you're carrying it around and you get compliments for this t-shirt yeah. Most of the time you would. But not always say thank you very much, but this and this person gave it to me. And that is something that obviously is crutches and the ego.

[00:17:59] When you [00:18:00] see someone else succeeding with ideas that you have, but what helped me over this was the realization that if you're a leader, you get advice from so many people and everyone knows what you should do and how you should do it. And that means one of the key tasks and the key achievements of a good leader is to decide which advice to follow and which advice not to follow.

[00:18:24] And that means when a leader follows and the wise that she got it's her success. If it's successful, the same thing that you cannot say, I did that, but it was the advice of someone. Yeah. You can also not blame someone else when you're doing certain things that are not successful. And if you look at that in this way, then you can live with it and say, okay, I provide my advice.

[00:18:48] But at the end, it's the decision of the person that leads if she wants to follow or not.

[00:18:53] Host (David C. Luna): True. You have to take responsibility for the decisions that you make based on the advice you get, [00:19:00] unless you have some big name consultants that you can blame them for it. But I want to go back again. When you stepped down as the CEO, whether you reactions to this decision, generally more negative or more positive from your customers and suppliers, you mentioned one of them being basically invisible.

[00:19:18]I

[00:19:18] Guest (Hermann Arnold): think on the customer and supplier side, we try to somehow manage them a little bit in a good direction that I took also over the formal role of a chairman. And back then, it was just a former role that at least to the, towards the outside, there was a sign of continuity till they got over it and seen that it works or even works better.

[00:19:43]I had some quite interesting discussions first with my board. My then chairman, was asking me how I'm going. I understand, but don't you want to get a professional CEO and learn what it means to run a bigger organization? And also for my family and my [00:20:00] family are aspirin nurse too. And this, anyway, I don't understand you're you built up this company invested so much energy time and even money.

[00:20:09] Now you're putting the fate of this company into someone else's hands and just to love and meet a shareholder of the company. how can you do that? That means there was also quite an misunderstanding or astonishment about this decision.

[00:20:23] Host (David C. Luna): Most of the time we think when someone steps down, something must have occurred or they were forced to step down, even though be voluntarily, stepped down, people will still assume.

[00:20:35]that was probably the agreement voluntarily because he screwed up. So we'll let him save face. So my question that I have is. As a manager, how do you recognize when you're not the right person to continue the next growth stage of a company? So yeah, sure. What some managers might be good at building companies from scratch and that's, you might not be the right fit for a very poor at [00:21:00] scaling and managing large organization, but that's easier said than done.

[00:21:03] So how do you recognize when the time has come

[00:21:06] Guest (Hermann Arnold): so to speak? I think that's one of the most difficult decisions it's always went to persevere or went to pivot that way. And, for me, probably the most important thing is I think everyone should do that every leader, but everyone. Yeah, you should once a year sit down and this is this more or less stupid custom of making new years.

[00:21:28]promises to yourself and to others, but it has something, if you think through what is it, what you want to achieve the next year and what is it where you're good at and what is it where you're not too good at and what gives you energy and what costs yet. And, if you're honest to yourself, probably most of the time you will either see yourself or you will have signals within your organization, your team, or your private environment.

[00:21:56] Most of the time we see now a lot of managers that are really [00:22:00] close to burnout. We in Switzerland even had some cases of suicide, of CEOs who are very successful CEOs. Oh, wow. And, that is quite if you're honest to yourself and you listen to your own inner voice and also to your environment, you probably wouldn't get.

[00:22:17] Yeah. And obviously it's also somehow difficult because you're in a golden cage. You have some power, you have prestige, you have also salary, you have budget, you can do things. You can influence things that gets really difficult. And therefore, most of the time people are, even if you're over this point where you should have stepped down already.

[00:22:39] You start really to suffer. And that is something that probably some people are in, but then it's so difficult for them to get out of this golden cage because what you have to see it. I realize that when I was talking to someone who was responsible for them, net of subsidiaries of a big bank, that means they have a [00:23:00] lot of little.

[00:23:01] Subsidiaries in every village and they have to close every year, a certain amount. And he told me there is no way that one of those captains of the subsidiary in the village one says by himself, I want to, close my subsidiary. Because you only lose. Yeah. You're in this, you're in this village here, the big something, or whenever there's a festivity, they call you, they invite you.

[00:23:27] You are the guest of honor. You have the red carpet. You make the decisions who gets a loan into a notch. That means you're really powerful. And it's really. A good job. And even if you find another job in the, in this bank, that is the same pay level and has a really good title, you nevertheless lose a lot of things.

[00:23:47] Why the hell should you voluntarily go this way? There is almost no reason. And that's why so many people. Back into this golden cage and they only leave it when it's more or less to like, [00:24:00] and then they have to leave the company or they get fired. And then most of the time, if you change them, the company, then somehow it gets easier to do the only way that I have seen, where people yeah, really quick.

[00:24:12] Yes. When they start of in the same now, Start my own company, because obviously then they will earn less. In the first instance, they will have less power indifference, then even have a higher risk, everything. But somehow the image of an entrepreneur is okay, it's good. And you have at least the illusion and a little chance to in the end come up better than you work before, even financially, even from your status and your power.

[00:24:38] And that is something that we are. Actively thinking through and developing models. Could you do something like that within an organization? That, for example, if you are such a manager and you're, you wouldn't be at the time that it would make sense to step down, but there's no rational reason behind, then you will never go to step.

[00:24:55] But if you see this a path that could be even successful, then [00:25:00] probably for you, it's easier to. Recognize for yourself. And to be honest to yourself, because it's okay, there's an alternative. And that alternative would be internal entrepreneurship. That means you will start your own startup, your own mission.

[00:25:12] You do something entrepreneurial, even if there's a salary decrease. And even as the decrease in power and prestige, you can say I'm known as entrepreneur. And that should help to be honest enough to see the signs when they should step down.

[00:25:26] Host (David C. Luna): That wasn't going to be. My next question is how do we create an incentive structure?

[00:25:31] Not just monetarily, but how do we create an incentive structure within a company to make it much easier and socially accepted to step down from any position? Not just the pay cut, but also the repetition.

[00:25:44] Guest (Hermann Arnold): They said that this internal startup is something I put a lot of hope in and there are other.

[00:25:50] Models that I've seen that work quite well. For example, term limits work the most powerful person on earth steps down. That is okay with it. I hope even [00:26:00] with that, we now have to divide house. We do the same. Yeah. We see other people try to trick the system, but at least it worked for several hundred years.

[00:26:08] That means if you have a social contract, That this is just for a certain period of time, then it works. And that's something that you probably see, even in every one or two reorganization, that means you join a sports club or a student fraternity or whatever, and first to your normal member. And then they asked, Hey, couldn't you be the finance guy, or even the president.

[00:26:32] And you take home and say, yes, Of course, I'm happy to do that. And after a certain period of time, you say, okay, now it's time to hand over the responsibility and someone else takes over and you go back and become a normal member again. And there it's totally normal. Yeah, that means we have to find models how we can.

[00:26:50] Make it more common in companies. And obviously, always the first people within an organization, they have to be the pioneers and they have paved the way it's [00:27:00] not very common, but the moment there are some successes pieces and to see that they have a higher quality of life, they're more happy. They are striving and striving.

[00:27:11] Now in what they're doing, then it becomes easier for others to follow.

[00:27:16] Host (David C. Luna): But if we follow your train of thought, wouldn't that mean we have to let our employees vote for management as well. If we restrict the CEO position to a term limit,

[00:27:26] Guest (Hermann Arnold): necessarily we have done an experiment. We were voting for our bleeders for several years and we found out it's.

[00:27:34] Probably not the model for the future. We had great successes, but with time with a growing organization, with different locations, different cultures, more people, we tended to develop the habits that we have in our big societal prep democracies. Now on one side, the leaders. It seems to lead and strongly measures to the unpopular because you don't get bolted.

[00:27:55] That means we somehow hinder our leaders to really lead. And on the [00:28:00] other side, I think that could be something that you could handle in an organization with the right culture. But on the other side, what we also, all we all are developing is a con culture. At the moment company, if you have problem with your carrier, you have to solve that sorted out.

[00:28:15] Yeah. You cannot just say, okay, I wait until it changes because most of the time it wants in a good period of time. And if you have from the other, if you have a leg turns, then you just sit down, take out your popcorn and wait till these guys. Worked it out. And that was something that we have experienced in our company.

[00:28:31] And therefore we went away from elections to what's a better system where we can distribute power more into the organization because elections is just boating for the King. And probably also being able to vote out the King that's important, but there are probably other ways how we as normal employees or normal citizens can take over responsibility and not always.

[00:28:53] Waiting for those on top to do things. And it's so easier. For example, when we're talking about the refugee crisis, it's so [00:29:00] much easier to ask, those empowered, they have to solve the problem instead of saying, yeah. Okay. I opened the doors and I take him the refugees. And if everyone would do that, we had the problem solved.

[00:29:10] That is something with these elected leaders. We also gave up some responsibility and I don't know if. This is the right way to go forward within an organization. We are now more thinking of distributing the power that everyone who wants to take the decision and to execute on a decision can do that provided he talks to experts and all meaningfully effective people.

[00:29:32] And that doesn't mean that they have polo. We learned that from . They also have reinventing organizations. That's the advice process that he has seen in all the companies. And I was. Then reflecting on it. And it was exactly what we have done as a company before we were starting with these electrons.

[00:29:50] Whenever I had an important decision, I was seeking the advice, even did some votes on important decisions. And that was how I was running the [00:30:00] company. And there were also other people taking over responsibility and bringing things forward without always asking me that I'm then the right. Person that makes the decision.

[00:30:10] And just to say an example, we were always hiring people as a team decision and not as the leader design, even the, when they didn't more or less integrate our company into the bigger half group. That was a decision that we took as. As a team that means all of the 10 more than a hundred employees had one vote would the founding CEO.

[00:30:35] I was the major shareholder and I had one board as the intern that just joined three months before. And. That's how we did decisions before, and that's how we go in now to 40. And then you have just the possibility everyone can I take over leadership and that can move naturally. Also give up leadership.

[00:30:56] That means they see others. Keen to do things. [00:31:00] They are good in doing things. Then you don't lose your status and power immediate, but other people can take over. So part and in the long run, I see. And you see it already happening. Since several dozens of years, that middle management gets flattened out.

[00:31:18] They have the have less numbers and those that are still in middle management have a lot of pressure and that's not healthy at all. That means, what I see is this disruptions that we see everywhere in the marketplace, where we have less bookstores, less bank account, people like banking people on the counters.

[00:31:38] That's the same happening within organizations. Yeah. We have less people latencies outside and the travel agencies off companies are middle management and stuff. And therefore this is an. Professional will get disrupted. And therefore you will not get just a premium because you are a leader. And when we are reaching this state that we [00:32:00] have less premium because you're a leader, then it probably becomes easier because it's just one task as a lot of other tasks.

[00:32:08] And sometimes you take it over. Sometimes someone else it takes you Bova. And by that everyone is a leader. And it's also something that I am somehow described in the book that I've written up, the stepping down and sinking toward that it's called mucin Jeff. Unfortunately only in German yet it's an English.

[00:32:26] He would translate. We are. That means everyone should be a leader in his or her respective way. And then it becomes easier, but it's a long way to go until then. It's not that easy.

[00:32:38] Host (David C. Luna): So you said quite a few things that I found fascinating. One was you let your employees vote for the managers, then realized, Hey, wait a minute.

[00:32:47] Maybe this concept, isn't the right thing for us, or it's not working out, but you did have the courage to try it out. And then I see it, a lot of parallels to politics. Now we Germans in particular, we. [00:33:00] I think we tend to put too much power or responsibility in politics. So when does chancellor or the president or whatever has to solve the problem?

[00:33:09] Yeah, so we can complain and Hey, they're supposed to solve it. We voted for them. So they need to solve it instead of solving the problem, blooms ourselves and yeah. AB because Germans are verse two. Responsibility. because we can see this with Corona. Now, a lot of people are doing things voluntarily without the government mandating anything.

[00:33:28]except maybe the quarantine thing, but here you see, we are actually capable as citizens to take on responsibilities, but yet Germans tend to be, they push off responsibility to the government. So I see a lot of parallels here. What I also found funny is the EU doesn't trust its citizens with such power of the referendum.

[00:33:49] Then why should companies trust their employees to vote for their managers or their managers that are also shareholders, but yet here you were humble enough to say [00:34:00] I, as a major shareholder, I, as a CEO or former CEO, shouldn't have more votes than the ordinary employee. And I think that's what most companies.

[00:34:11] Are intrigued with this concept of letting the employees vote for the managers, but are afraid to do yet here. You were still humble enough to say my vote should count more than the ordinary citizen or employee.

[00:34:25] Guest (Hermann Arnold): Probably. There's a reason why we didn't find that many followers. I'm doing leadership elections, probably the right time.

[00:34:31] We see ourselves as a pioneer and a competitor to the time when people tried, they said, now we should be able to fly. Obviously they were okay with some idiots jumping from cliffs with some feathers, but then when the time was right, they were right. Yeah. They were. A lot of pioneers all over the world, trying to fly in when you see some videos on the internet, how does it look like?

[00:34:54] They were really funny ideas and obviously some big machines that were having [00:35:00] wings that were moving like birds and obviously all those failed, but you need all these experiences to see if this doesn't work and other things. And that's something that we have seen. And I would now see, let say, let leadership elections.

[00:35:13] It's an interesting experiment, but probably not the way going forward for the majority of companies. And therefore we have to find out a ways to get to the point. And when you're looking at societies, they're also quite that point innovations in democracy. And I co founded an initiative called democracy, 21, where we tried to find this we're just in connect those innovators.

[00:35:36]and when you look at there are a lot of things like citizens assemblies. Yeah. Where people randomly get brought together for an assembly to discuss a certain problem and to propose a solution, and then either hand it over to a referendum or giving it to the government as a proposal.

[00:35:54] They would do. And they're tremendous successes, for example, in Australia and also in other [00:36:00] municipalities also. And one of the most quoted examples is, Ireland where they had the citizens assembly on different questions that were opposite in a Catholic country, quite difficult, for example, same sex marriage and all this.

[00:36:14] And then this is simply came to the solution and said, we should make a vote on same sex marriage. Nobody would have did it. And then, and it was one of the first countries to introduce them, in Europe. And that means there are, there is a lot of going on, also innovative things in how we organize our society and democracy because.

[00:36:34] It is stupid to assume that everything changes at the moment, everything is gets disrupted, but politics, and the way how we organize societies and how we organize companies will more or less stay the same as the Wars in the past. That's not going to happen. And there will be a lot of. Disruptive. And we see it in society.

[00:36:54] And the moment more, the, for me, disruption is the creative destruction of [00:37:00] in the moment we see more destruction, not that much creativity on the highest levels of. Society, but in a lot of municipalities, a lot of cities, there's things going on that really gives me hope that the future of democracy will look differently and much better.

[00:37:16] And the same is happening in organizations. And there are those organizations that are always asked and mentioned and interviewed black Hoff, humanities, and a lot of other, but there are hundreds of thousands of liters. In big organizations that just do the right thing in their own area. And that means they drive innovation.

[00:37:38] How to work together from small, smallest Crump teams. What is now more or less commonplace, too much? Bigger departments for leaders, they run it differently. And especially when you're looking at families, the companies that are very successful on the backbone of Germany, in a lot of things. If you look at this all bathrooms where you would say, they're the datas.

[00:38:00] [00:38:00] As they are in the rule book, they are not they're listening to people. They did. They mentioned it a little bit differently at saying, Hey, I have hired a lot of experts. They should know what to do. I'm just the boss. Yeah. But they say, okay, I distribute my power to those experts. Now listen to them and I more or less follow what they say.

[00:38:21] That means. There are already a lot of different ways, how leadership is distributed and how this big, powerful guys seeds some of their power to others. And that is out of my perspective, the future. And we will come to that and it will be less formal as we have it. Now that means there will be less people that have to step down formally to make this new system happen.

[00:38:45] It will be more organic to take over responsibility and the next time someone else takes over.

[00:38:51] Host (David C. Luna): Yeah, absolutely agree. Just to add to some of your comments. There was also Edison that famously said I didn't fail 500 times. I just came 500 [00:39:00] times closer to success. And I think those people that try things out that are very early on as pioneers don't get enough credit, because then they say, I told you how long it doesn't work.

[00:39:11] See voting doesn't work. I told you I knew it from beginning C. And then they try it again and again, and then someone finds a solution and then the one person and where it works, they get all the credit, which I find it's sometimes frustrating, but you need those people as well, pioneers to pave the way for success later on.

[00:39:30] And what you also mentioned is. I think the organization structure from a hundred years ago, or even 120 years ago from Taylor has not fundamentally changed. People like to believe a lot has changed. And that is true to a certain extent. But if you look at the functional hierarchy that hasn't changed, so you have a lot of people.

[00:39:49] Now we're very dynamic markets. And people at the top have the authority, but they don't have the information. And as David Marquette, he was a famous, a nuclear [00:40:00] submarine captain, and he took over one of the worst performing U S submarine divisions and transformed them into one of the best. And one of his slogans was don't push information to authority, push authority down to information.

[00:40:13] So essentially. What the you propagates or says they're doing cause the subsidiary principle. So those people who have the information that are closest to the customer, they should be able to make the decisions because by time you give all that information, channel it up to the CEO, then they have their round tables or whatever, obviously I'm exaggerating.

[00:40:32] And then push that down. The decision it's already too late. So I think a lot has to change. There as well. And a lot of people are saying, digitalization is the way forward. And I think that's not going to work. You can digitally all you want. If you're not changing the fundamental leadership principles and organization structure to fit the new context you're in, that's not gonna yeah.

[00:40:53] And they always look at me like, Yeah. digitalization, I'm like. That's not, that's only very small part of the answer, I think. what is your view [00:41:00] on the organization itself? Do you think the structures that we have today, are they sufficient for the future?

[00:41:07] Guest (Hermann Arnold): I think that's interesting what you mentioned because, there's not achieved is always a tool without any meaning by itself.

[00:41:14] And we have flooded the hard way. We first saw the internet with Democrat ties everything, and then we see now it's also used in a total different way and the same is. To towards organizations and their knowledge can be used to totally free power citizens and employees. And we see other areas. And now with Corona, we see a big push forward in this direction that they not only can be used to practice people, to control people, to.

[00:41:40] To even enforce a strict hierarchy and the strict of power over people. And that means it's not clear that just with technology, everything will go in the right direction and it's not even clear what is the right direction, because there are a lot of really smart people that say, look at this mess in the Western democracies.

[00:41:59] And on the other side, [00:42:00] look how good China is coping with their economic growth. The coronavirus, the Asian countries are much better doing that, but they just push it. It's true. And then in the restaurant industry, we have a lot of more chaos and not simple organizations. That means they are history repeats itself.

[00:42:18] That was also during the industrialization. I have. I've seen a chart comparing the economic performance of us, Germany, France, UK, and some other Western countries. And the UDS, CSR, Russ, Russia, sorry. English is different appropriations. then Russia and they were in this really mess of industry where you didn't know how to do that.

[00:42:43] And you had to bring the farmers into the field. They were so much more successful. We had the clients in invest in Europe by 20 to 60%. And it was more or less also one of the reasons why we then had world war two and on the other side in [00:43:00] Russia, they were booming like crazy. And we were a lot of time fearful in the Western world because they brought the first living, being into the orbits.

[00:43:09] They were more successful in a lot of dimensions and it was not clear that this central planning with these experts will finally. Collapse because of production and a lot of other things and miss decisions. But back then, it was quite a successful model, Paul and we were all afraid and now history repeats itself with other contexts, but China and Singapore and all these things, and a lot of.

[00:43:32] Very smart people say, that's the better model. That's Marotta Christine. It's not this messy thing of democracy where everyone gets bribed, could be. I'm fighting for the other side and hope that we will find better ways how we deal with this change. But obviously, and that answering your question the way how we organize it today will not be successful in the future.

[00:43:54] Them quite to. And funnily enough, a lot of innovations always come from the military [00:44:00] every see in a lot of. Through almost like recruiting assessment, assignments or military terms, promotion. And I don't know if you're aware of the book team of teams from McCrystal. It's a general who was responsible for the special forces in Iraq.

[00:44:16] Host (David C. Luna): Yeah, I've heard of him, but I haven't read his book personally. It's

[00:44:19]Guest (Hermann Arnold): really enlightening. And the special forces

[00:44:22] Host (David C. Luna): were

[00:44:22] Guest (Hermann Arnold): found that after the disaster with deliberation of the hostages in Iran now the most powerful military there were coming in and they already had some helicopters crashing. And this the difference, the emissions, the Marines and the air force and the infantry didn't work together.

[00:44:41] Yeah. Because total silence. And it was really a big defeat of us that they could not free the skewer stitches. And then they implemented the taskforce, a special unit where they put the best people of all the divisions together, and they were tremendously successful for years, for [00:45:00] decades, they were doing special operations around the world.

[00:45:04] Always in, out doing this stuff, even til now, killing Obama and so on. Quite successful, but in Iraq,

[00:45:11] Host (David C. Luna): Osama, right? Not Obama. You get the news here,

[00:45:15] Guest (Hermann Arnold): right? Sorry. A thank you. No worries. And yeah, you're right. and then you see the wisdom, this big classic war in Iraq, and then us. They said, they're now more or less standard, just a few more you mess there that we have to get out.

[00:45:36] That's not the right thing for our big military. Come in as a special force. It just do it. It's done in a few months. And then this guy was taking over when it wasn't done within a few months, what he was saying was quite literally, he said, I wasn't that in the commander central, having all did the technology, the world can buy and even better having the best.

[00:45:56] Educated people with the best infrastructure, with [00:46:00] everything best off, best having resources without end. And then he said, after a certain period of time, they realized they were losing against people that could not read and write. And they were doing their war improvised. Explosive device. Yeah. And that was when he realized that's not the way how we can go forward.

[00:46:20] And then he was also pushing authority, downwards and not pushing information upwards. And he, changed traumatically how they were approaching things. And that's also the new doctrine. That means military is that we're facing an enemy that was more an HR network and not just a classic army. They had already to adapt and they have totally adapted to new realities.

[00:46:42] And now are we always thinking of the military is one example of the past, how you don't want to run an organization. I agree with compared with most of the militarists, but when you nowadays looking at the military, is that the fighting HR networks that is unfortunately again, a source that we have to look at this organizations of [00:47:00] how you can organize for the future.

[00:47:02] Host (David C. Luna): Yeah. You mentioned a very important point, which I always try to hammer home with CEOs of when I'm doing a keynote or workshop is well for one, obviously the America has relied heavily on compartmentalization, so they have the secrecy and the silos, and a lot of companies have these silos. And they incentivize based on silos, but then they're like, Oh, we need to be agile.

[00:47:23] We need to have these cross functional teams. If you're not changing the incentive structure to begin with then why should I as an employee work with that other department? Because my loyalty is to my people. To my department, obviously I'm exaggerating, but if you don't change the incentive structure and break up those silos, it won't work.

[00:47:41] And then the second point, which you mentioned is extremely important as the over reliance on technology, believing that it will solve all problems. And the example I always say is, okay, now you have digital cameras or the iPhone. Now everyone can shoot four K video. Now, what does that mean? We have a democratization of technology.

[00:47:58] That's fine and good, but you have the next [00:48:00] problem. Now everyone can shoot. Now what happens to the quality now you're flooded with four K quality. What becomes more important now to tell a story? So it's the fundamental principles that become much more important than the technology. So take someone that has been shooting analog.

[00:48:14] He'll do a much better job if you give him an iPhone or even his old camera, he'll do much better video than the people or the millennials with this newest technology. And I think that's a tendency. We. I always see with the middle Sean. So they'd SMEs in Germany, their over-reliance on technique.

[00:48:30] You believing it will solve all problems. And now with the coronavirus, we see this even more, I believe is, Oh, we just have to use this WebEx and zoom in. This will all work. And then they realize, wait a minute, I have to lead very differently and we have to coordinate and, Oh, we haven't. Done this before.

[00:48:47] What does that mean for our organization? And then they come up to these problems where I think your approach is the right one. We have to look elsewhere other industries or the military that maybe have already solved this,

[00:48:59] Guest (Hermann Arnold): but I don't [00:49:00] think that they have solved it already, but they are ahead of most organizations.

[00:49:03] Host (David C. Luna): Yeah. Yeah, absolutely. So they might have solved it, but at least they're addressing the problem. So we talked a lot about employees being able to vote for them managers. And two things came up one Switzerland, and the other was the dentist and I'll connect these. So in Switzerland, they seem to have a better the system where they're allowed to vote on a lot of things.

[00:49:25] Where this tends to take longer, but you have less protests and demonstrations. So this seems at least a better system. And on the other hand side, this also seems to create higher pain tolerance, because if I voted for someone, then it's very. Unlikely that I'll say, oops, I've ordered for the wrong guy. I made a mistake.

[00:49:46] Similar to when you go to the dentist, he'll ask you during my drilling. If at any point you feel any pain, just raise your hand. And there's a scientific reason for that. As everyone knows, the pain tolerance goes up. If you feel in control and can [00:50:00] stop the pain at any point, but. In companies, this would also, or could be potentially detrimental.

[00:50:06] And that maybe employees that voted for a manager, that manager now does a bad job. They have a higher pain tolerance to stop this bad or say even corrupt behavior. What's your view?

[00:50:17]Guest (Hermann Arnold): I think it is, electrons double-sided ward, as I already mentioned that on one side, obviously, if you have good welding results, it gives you a boost.

[00:50:27] In confidence, some hell to do your work and to lead because you have the backing of the people, obviously. But on the other side, there was also something that gets kick the myth of democracy. That means that those who lose an election except this result. Yeah. Somehow we do. Yes. But especially nowadays we see that there is much more.

[00:50:52] Problematic situations arising, especially when votes are very narrow, every seat in the U S and in all other countries where we have a [00:51:00] polarization of the society along certain lines. And that if it's that's 48 to 52, there's no reason why the 48 Minot minority should right. Go along with this. And they have issues the whole period, and then probably turns, and then it.

[00:51:15] The other side, therefore, I would say generally a greed. That means the more you're feeling control, the better you can handle situations also like stress and others. But I would say it helps when results are good, but the moment, if results are narrow, it becomes probably more an issue than a help in this situation.

[00:51:35] And therefore, I see there a lot of really critical consequences. And I said in our company, we have not solved it. And they're going on a different way where we see, we don't want to elect structural leaders anymore. We want everyone to be able to be a leader in a certain area. We are this advice process, and perhaps we could find similar solutions within society as well.

[00:52:00] [00:51:59] And you mentioned Switzerland there hasn't I think exactly Switzerland is somehow a little bit used to this kind because. You have a government, but this government is all the Pakistan parliament, also a part of the government. And they understand that UTI more to follow the great benefit because of the whole society and not to execute on they're programs of their parties.

[00:52:21] That's quite interesting because, and Switzerland, everyone can be a leader you're just. Start an initiative. And if this initiative is accepted, then it becomes law and then the government has to follow and execute on the law that you create it. And even if you're not successful, sometimes you force the government to go a little bit along in your direction.

[00:52:44] That means you've come refer probably quite extreme proposal. And then the government feels well. Seems to have some backing in the population. And then they make a counter proposal that is not so extreme as your initiative, but it still moves the needle in the right [00:53:00] direction. And therefore in Switzerland with this initiative and referendum, you give every citizen, theoretically, the possibility to define the course of the country.

[00:53:10] Even when you're not an elected official a politician. And that's something that I find is really strong and that's something that we tried to replicate in our company now, even more consequential than just saying the elect leaders every year. But obviously it's a long way to develop this culture that it is really live.

[00:53:29] But we are on a good track and the firm quite confident that this could be a better solution, but we will find also more companies that follow these ideas. Then, with leadership elections, where we have to be honest, we were just an exotic outlier in the corporate world.

[00:53:45] Host (David C. Luna): That's very interesting. I think you can also vote for a dictator or you could vote for someone in a democracy.

[00:53:51] So those are two different things, but it's the same principle you get to vote, but that doesn't automatically mean as you mentioned, that it has the [00:54:00] intended outcome

[00:54:01] Guest (Hermann Arnold): and interesting button point is if you stick to a certain basic rules, I heard that from a. Democracy CRS has that. the most important function of democracy is not to vote in certain politicians, but it's the function to vote out certain politicians.

[00:54:18] That means as long as you have the principality, the moment someone loses the ground on the floor or becomes too extreme or whatever loses the backing of the population that you can vote out. This leader. Then everything is fine. Obviously it becomes difficult when you start, dominating the media, you start suppressing free speech.

[00:54:41] You start creating loyalties by providing money or influence to certain groups. Then it becomes difficult. And then it goes in a trajectory where at the end. Some people end up as dictators, because the interesting point, when you look at it there, where I have [00:55:00] at once a little research of the most brutal dictators of this world and what the history was most of the time, and they were freedom fighters for the little man.

[00:55:10] Yeah. if it's a. Now it's a dong or if it was direct Mayer and so on a lot of people and Gaddafi. Yeah. If you look at the green books of Gaddafi, that is opposed to China for direct democracy and participation of citizens. But with time, this somehow deviated also cast or said, if he fought for the people and then he.

[00:55:33] Abolished parties because it's, that's why we don't need parties anymore because we, as a party are led by the will of God people. And at a certain point, these freedom fighters for the normal person, Glinda in the country became with time dictators. And that means as long as yeah, at a certain point was ability to vote out.

[00:55:52] Just status. It wouldn't be difficult. But obviously when we look at that dictators have developed a, quite a yeah. Arsenal of tools [00:56:00] to once they have the power to make it so strong that it's almost impossible to ward out these guys, although you probably still have some how electric we see it in Russia.

[00:56:11] We see it in some East countries. We see it in China and probably most worrisome for me is now when you look at certain developments, In U S where you first destroyed trust in public institutions like the media, like the court, like the administration three important pillars for democracy. And then now with Corona virus, it's even on theory.

[00:56:32] It's because you have suddenly, a government can hand out trillions of installers to people that are loyal to the government or to the leaders. And to let us not just have to think if you're a governor of a state in the U S. And, if you're critical to Trump, you will get less ventilators and less personal protective things.

[00:56:51] Then if you're flattering the president and these are mechanisms that start almost unseen, but they become quite powerful. And I don't know if [00:57:00] I, how I would act as a governor of a state because I'm responsible for the life of my population. And if I know that. Game. Do you have now to ball, you vote towards Trump to get the life saving instruments, or do you say no, I'm stay critical.

[00:57:16] And then you risk the lives of your people. These are really difficult decisions to take, and this is. I hope I'm wrong. Yeah. And I hope I'm looking at it too negatively, but this could be some of the instruments that you have seen in other trajectories towards dictatorship too. And just a side note there, when you think the Democrats did now postpone primaries because of coronavirus Biden, the probable nominee of the democratic party proposed to delay the convention.

[00:57:48] When the. Candidate will be defined who in the whole country would be able to say, it's not good to delay the general election if there's still a next wave [00:58:00] of Corona virus. And I don't want, I don't want to know where we will end up if this election is delayed. Yeah. That's really, there's a really times we are now in where developments can accelerate in one direction.

[00:58:11] Or the other coming back to companies, obviously, if you have people that can be voted out, everything is fine. But if those people are so powerful that nobody there has to be a count the candidate, for example, and nobody dares to publicly voice opposition, then it could be that these leaders get reelected and not out of the right reasons.

[00:58:31] And therefore, I hope with the way we are now going, we will have another solution for the very problem I was mentioning.

[00:58:38] Host (David C. Luna): Yeah, absolutely. Yeah. it's well known that democracy. Yeah. These are very fragile and we always assume that democracy is the strong standing institution. But as Thomas Jefferson famously said, you need eternal vigilance to keep democracy alive.

[00:58:51] And people that are interested in this will won't go down. Too much of the politics, but there's also a book, a New York times bestseller. I called the end of the mare America, [00:59:00] letters to a young Patriot from now only Wolf. He basically describes, I believe it's seven or 10 steps, how to go from a democracy to a closed society, to a dictatorship using examples from history, but also the Bush administration, et cetera.

[00:59:14] And you could also see this under, even more so under Obama and all that. It was a war president and he expanded the power and you could just really see those mechanism. And I think the same applies as you said to companies as well. So this brings me to, which is a nice segue to my next question.

[00:59:30] Now, even though democracy in companies, isn't really common place. It's not a new idea. I remember reading about a Brazilian company called Semco and boy that was at least 15 years ago where the CEO left it up to the employees to run the companies. Without a mission statement and org chart or any written sees it all.

[00:59:51] And he didn't even track the numbers. Ours has employees worked either. He also distributed power. A very let's say unorthodox way. [01:00:00] For example, he let his employees set their own salaries. We. He gave them information about the revenue, the profit margins of the company, and some other numbers. And sure this might be an extreme case, but even buffer a tech company from the Silicon and Valley has a core value called default to transparency.

[01:00:18] So they essentially share employee salaries, breakdowns, and other financial. And these are numbers are not only thing well internally, but to the entire world. So I'm currently looking at the list and I can see that the CEO, Joel here earns about $128,000 per year. And I could see what iOS developer earns and so on.

[01:00:39] And similar wrote an article in the Harvard business review in 1994, which I'm quoting here. Participation gives people control of their work. Profit sharing gives them a reason to do it. Better information tells them what's working and what isn't. So here's my question. Why not extend the democratic principles [01:01:00] to the salaries of employees as well?

[01:01:02] Because after all transparency is necessary for a democracy to thrive. What's your view on that? Have you experimented at all with democratically voting for salaries?

[01:01:13]Guest (Hermann Arnold): we did a lot of. Experimented then I'm a strong believer, transparency. And we, in our company, we have every single transplant except of very privacy data.

[01:01:24] That is, for example, if you're sick while you're sick, if you leave whatever and then try it to implement three times parents and they always lost the vote on it. And there was a coalition, I think, out of two groups of people, one that. Did earn less than they thought they should earn or the data's around.

[01:01:45] And then they probably were embarrassed and didn't want to share it. And then the others that earned more than they thought would be the fair share. And obviously they were not interested in sharing with neither. And that was always the majority of people, but that's my interpretation, but I lost it.

[01:01:58] Yeah. And, but I have [01:02:00] also one your experience when I narrowly won an experience on salary and we had a tradition of handing out extraordinary bonuses. That means when we had a good year, we set aside a certain amount of money and said, we want to distribute it, not as an end goal achievement basis, but to contributed a lot during the last year, which I just wanted to say, thank you with an significant amount of money.

[01:02:24] I think we started this thing when we were, I see 30, 40 employees and we said it should be. Maximum 10%. Yeah. That means that we're three or four people. And we've set aside then the amount that probably the one who got the first law first number got, I think 25,000 francs, the second 20,000. And so on, that means it was even significant money and we have done it long, but in the management team, we made the nominations of the people.

[01:02:51] We would want to give it, we were discussing it and then we headed out this special bonus. And it was a direct to this person activity. [01:03:00] Nobody knew exactly about it and which has data, then it was saying, thank you. And then at a certain point, and we work with them, probably I think hundred, hundred 50 people I saw that feel somehow like old style or you have some money in your pockets, then you go to some people, take out some money and put them in their pockets and say, Hey, well done.

[01:03:20] And that's not the way we want to do that. Let's think of a different, more innovative way. And I thought, okay, why not doing that? Totally open, totally transparent and more or less put them up democratic. And then I propose the team forum and said, okay, we can do it two ways. Either we do it the way we have done it the last years, that means the leadership team decides and pans up, or we do something like the following.

[01:03:43] Everyone can nominate whomever he or she wants for this list and everyone can vote up if he or she supports this nomination. And then we just make a ranking of how many support each person has. And out of that, we distribute the money [01:04:00] and I saw that such a great idea. Totally transparent. It should be a fast of appreciation because everyone can nominate whoever he wants and explain why this person deserves it.

[01:04:11] That's not, it should be really a positive experience. And I narrowly won the vote to try this out. It was, I think, 56. Two 44. Yeah. Now years later, I know that should be a warning signal to not go that way. Yeah. But I said, okay, cool. I have one. We can do it. Okay. I'm telling you this. There was no. So under process in my country, bunny, in our company where we created.

[01:04:36] In a short period of time, more than that negative energy. And it was totally taken by surprise. It was really ugly. And so many people were frustrated and ventilating their frustration about this process. And I didn't get it. I still don't get it fully. Obviously some people thought it's the wrong people who get it.

[01:04:54] Yeah. But it was not, it didn't take away from someone, something which has gave some people [01:05:00] something more. But nevertheless, there were so many people totally frustrated and thought of. Bad and so on. And I sought, I personally thought the result was quite good. Yeah. There was one who was totally over the top and it was a programmer who was not very social, but doing a really good job.

[01:05:15] He was not even smartest one or the Britain, most brilliant one, but he did really good job. He was really engaged. And I think a lot of people thought, this guy is doing a good job, but nobody else. Sees that therefore I have to vote on that. I thought we came up with a really good list, but nevertheless, it was really disaster.

[01:05:34] And that burned the idea of two salary experiments for the next years in our company, because of this really bad experience. Having said that I'm still convinced that we will have to come up with some now a way of transparency of salaries, because especially for women. Yeah, we have a pagan and most of the time women don't yeah.

[01:05:57] To ask just for ridiculous amount of [01:06:00] salary, because women more or less, there's a lot of studies of confidence gap. And so on. They only ask for the things they should to get. They don't, they want to avoid a no male colleagues. Just try to seed like a game. They try to ask for very much. And if they get it's good.

[01:06:15] If they don't get it, nothing lost. And therefore just with this, it's a very simple explanation, but that's one explanation. That makes it difficult. The moment I have transparency and there is a woman, I see that some of my females of my male colleagues doing the same chop, or even a worse job than me earning much more than me, but give me some facts that I can go in to your and say, Hey, I have my police worth the money that this guy gets.

[01:06:38] And that would Boyce us to be more consistent with our salary system to be no, in a lot of companies, they are not consistent. Yeah. Because you have to hire someone and they ask for a lot of money and then you just hire them. Right too much. And so that means, I think that would give us that would give us a discipline in having consistency in our salary system.

[01:06:56] Having said that I think they're [01:07:00] very different cultures. For example, in the Nordics salaries, very transparent, almost in every company. And everyone knows what would average earning at. It's not a big deal. Yeah. In, as we say, continental Europe, it's a big secret and nobody tells, and then us, everybody brags about it.

[01:07:18] But most of the time, I think it's even overinflated, but the numbers did tell you, but it's also quite black and white. And obviously there are a lot of grays in between every company that co-found. I tried to put it in from the beginning, because then it's. A little bit more accepted if you say, okay, is that a Saturday?

[01:07:36] Then everyone knows it. And then you can keep it to introduce seller transparency in a company that's already in operations, in Sears. It's probably quite difficult. I don't know if it would go this way. I have seen some models and videos experimented with that. For example, one thing we did that was quite successful.

[01:07:54] We still kept people that were deciding about the salary system and that were more or less. [01:08:00] Elected leaders back then and people culture. So that is a function that we have in a company that they are not direct reporting people, but helping in the people arena. And they were the group to decide on the salary.

[01:08:11] And we did the survey we sent out to every employee that more or less the full list of colleagues and asked, okay, please. Out of your assessment. Great. This person from beginner to Google, beginner, professional expert school, whatever, some top grading, if you want to. And then the second question was based.

[01:08:34] On this assessment of the expertise, how do you assess the performance of the person that means you obviously have a degree for the assessment of a person that is a beginner towards a person that is a cool. Yeah. And then we collected all this information, right? B we aggregated the data and then we have seen some people that were quite consistently.

[01:08:53] By all the people put in a certain pocket of expertise and also in a certain packet of performance. And then we could [01:09:00] compare that to the salary, to the bonus, and then decide on that if we have to increase the salary or let them the line of the salary and how we, how do we go with bonus? And there were some others where we had.

[01:09:11] Quite a discrepancy between different assessments. Then we knew, okay, there, we have to look deeper into why is this that some colleagues thinks that's the beginning. And some colleagues thinks that see Google. And some think that there's a very good performance, as I might think it's a bad performance.

[01:09:25] And that was good, but obviously we were not transparent, but we used at least the wisdom of all the others. To get to a fairer system. Yeah. And, in other companies that said, okay, we introduce salary transparency, not by making the current salaries, but by making an open forum, obviously that works only with smaller companies.

[01:09:47] I don't know. I would do it with a hundred thousand employees, but what they did, they made an open forum and they asked the question not, they did not make public what you earn, but they said, okay, now let's reshuffle our salaries. Yeah, this [01:10:00] is the sum that we can spend for salaries, X Y set. And the other side, now we ask you that you put down the number of see you should, because then you have a different discussion.

[01:10:10] You don't discuss what I'm currently earning, but you're discussing what I think I should do in the future. And then it was quite interesting to follow this discussion somewhere, arguing out of. The contribution somebody's arguing for the need. I have a family have a house, whatever. And there were some examples where this was a successful process.

[01:10:29] At the end, they came up with a slightly higher salary, some, but they said they can afford it. And then they just implemented it that way. And from that moment of really the salaries for transparent. Yeah. And I have another, experience just realize in 2007, 2006, a two, and we had this financial crisis and we had to cut all the salaries.

[01:10:50] Now on company, I asked the management to cut the salaries better than made all the salaries transparent, just in the management team of all the colleagues and [01:11:00] the management team. And the interesting part was we had the two colleagues that were earning a lot, and the moment this was known by the others.

[01:11:06] The expectations towards those colleagues increased dramatically because they said, okay, if these guys earning so much more than me, this guy has to be really much better. And if, than I am, I'm really pushy to either increase the performance or to push this guy out. Yeah. That means that can also be a consequence of salary transparency, that those guys that run a lot, get a lot of pressure to prove the value.

[01:11:34] Host (David C. Luna): What I found very fascinating during this whole podcast episode is you've tried a lot of things out where haters or companies or critics column, what you want always say, that wouldn't work in our company or that wouldn't work in this industry. And they're quick to judge and if I always ask, okay, did you try it out yourself?

[01:11:55]no. I'm like, that's exactly the point. sure. It's easy to [01:12:00] criticize, but trying it out and learning from it is a whole nother ball game yet. They're quick to judge and that's what I found. Very fascinating. You actually have the experience to back it up. Even if it didn't work, maybe you didn't do it, right?

[01:12:14] Yeah. Maybe but at least you had the courage to do it. My last question would be to sum this up facade up is what are your top three recommendation for today's CEOs, managers, or even people that are not aspiring to leadership possessions, and maybe you also have some three don't dues for these people as well.

[01:12:33] Guest (Hermann Arnold): Yeah, you're right. I think we are in the moment, in this phase where we have to find out new things and we do things knowing that the problem will not work, but nevertheless, we have to try them out to learn something, to improve on our ideas. Yeah. When I would look at recommendations, first of all would say, yes, have the courage to try out.

[01:12:57] Not new things. And most of the [01:13:00] time when you involve all those who are meaningfully affected, you will get good advices and sometimes even more courageous solutions that you would dare if you would. Just impose your ideas. That means involve the people, with what you would do first, second, very important, understand that you're more or less doing an experiment and it's something totally different that we have learned in change management.

[01:13:26] The change management normally is you think very. smartly through certain concepts, you have the best experts. Then you have your concept. Then you make a communication and then make your roll out. And then everyone is on this page. And this doesn't work when you don't know if what you will implement is the right thing to do.

[01:13:43] Therefore you have to go in different way, go with first early adopters. That means find people that are willing. To go with you the journey and try new things out because those are willing to experience failures and they are [01:14:00] even somehow, sometimes motivated by learning and improving on things. That means don't force your whole organization into new thing.

[01:14:07] Try it out in a small team that is open to doing that. And they gain experience to improve the ideas, to improve the system. And the moment something flies. Then out of the join in automatically, that means don't do roll outs, do roll in. Now that would be my second recommendation. You could even, for example, in salary, or if you have a team that says, okay, we want to have open salaries, then let this team to it, let this team define.

[01:14:32] And then the rules that this team find out how to do the transition from. Non transparent to transparent, and then let's see how it works. And if it works fine, others will follow it. If it doesn't work fine, then you didn't risk your whole organization and didn't preoccupying your whole organization. The internal things that don't work roll in instead of rollout.

[01:14:54] And, the third is something that's probably very difficult because. Most [01:15:00] of the time, those pioneers to try out new things are motivated by finding out new solutions by themselves. On the other side, there are a lot of ideas concepts now, already out that work here and where you could start from there and therefore read some books that are really helpful in this way of this leap.

[01:15:21] The company, you mentioned Semco, that's a really good book about it. Then their books about how gorgeous it, their books about has defined us. If there's reinventing organizations, there are other books where you can get a lot of insights and ideas from where to start. That means you don't have to start from scratch.

[01:15:41] You get some ingredients that somehow work, and then you can put them differently together. Three things. Avoid doing one. Obviously I already said with the recommendation, don't do certain things just for the full organization or for a lot of people. Start with the volunteers, start with a coalition [01:16:00] of the willing people and then roll, let it roll in, then do it with the whole organization.

[01:16:05] First second, don't do too many things at once. Because it's difficult, obviously it's at a certain point, you get to a tipping point when one follows the other, for example, we did, employee recruiting. That means the team was recruiting the colleagues. We were elected, I think leaders. And then suddenly people started saying, okay, I also want to be able to fire people.

[01:16:26] Yeah. That is somehow like opening the door. Box of Pandora, and then you have to manage that. But if you try to implement in an existing organization, just from day one of today, to, to, a wholly new system, you probably will fail with it. You could use it. That means don't do that Nita. And perhaps one is that could be a recommendation or don't do that one of the most difficult to answer.

[01:16:54] And therefore, at least my recommendation would be to ask. You self discretion regularly. [01:17:00] Yeah. Especially when you're doing your things and you're failing at the beginning. That's very normal. It's really difficult to decide if you want to double down or if you want to pivot. Yeah. Double down means, okay.

[01:17:13] Be on the right track. We have to go to this J curve one day we will find out and then it will work. Yeah. You pivot and say, okay, this was a crazy idea. It didn't work out. Now. Let's find another idea. Yeah. And that's probably one of the most difficult questions to answer. Yeah. When you have to leave certain ideas and when you double down and that at least the recommendations would be ask yourself regularly on the attorney.

[01:17:36] I think you're still on the right track. Or do you have to pivot? Yeah. All though, you put in a lot of reputational energy and capitalism seeing symbols of energy for people, for example, our leadership elections. Yeah. We try to. Improve it for several instances and we failed. And then at a certain point, we have to say, okay, we go in a different direction.

[01:17:59] Although [01:18:00] we are known for leadership elections, everyone asks us about leadership elections. It is a huge attractiveness, in the employer and the employer market. It's also a huge attractiveness for our customers. Nevertheless, we have to say, okay, we have to give it away. And that was quite painful.

[01:18:16] I think we did it in a great way, but nevertheless, it was painful and therefore that's a really important question, double down.

[01:18:23] Host (David C. Luna): Perfect. those are some really killer recommendations. I think even if companies only. Did 50% of them. I think they would be much better off or much more successful than if they keep on doing the things they have been doing.

[01:18:35] Yeah. Thank you, Herman. Again, for being on the podcast and taking the time out of your busy schedule to do this interview.

[01:18:42] Guest (Hermann Arnold): Thank you very much for this interesting questions. And I'm looking forward for the publication.

[01:18:48] Host (David C. Luna): Now it's that time again, to summarize the interview and give you my thoughts.

[01:18:52] I think there was a lot to unpack in this episode, and I also think it's safe to say that despite all talk about [01:19:00] agile and other forms of organizations, there are still very few companies. That dare to try new things out. But in these uncertain times, we desperately need pioneers all over the world to have the courage to jump off the cliff.

[01:19:13]maybe not off a cliff, but Sadly, we still have this idolized view of CEOs and managers that they should be all knowing for your faults, essentially the perfect leader at any growth stage of a company. But, that's essentially very unrealistic and also very harmful for the managers, the company, and also thus its employees.

[01:19:34] No one is good at everything. We know that. So why don't we recognize this fact and apply it to companies at well, the stakes not to apply it. This is I would argue much higher in a corporate environment than elsewhere. But in order to apply this thinking, we also need to get over this societal stigma that stepping down is a regression in one's career.

[01:19:56] And having term limits makes a lot of sense to, [01:20:00] nobody would argue that successful leaders in politics are failures when they stepped down after their term limit is up. Why don't we apply the same to the corporate world? When we think about how companies are structured today, we can clearly see that they haven't fundamentally changed since the industrialization, the most common type of organization we find in companies today is the functional hierarchy, the same organization, Frederick Taylor postulated in his management theory.

[01:20:26] But with today's challenges, this type of organization will feel irrespective of modern technologies. companies can automate and digitalize whatever, and how much they want. This will not lead to a fundamental change in how companies operate and adapt to changes. The powers at play are culture, beliefs, values, and many others are far more powerful than any buses word like digital transformation that gets thrown around these days.

[01:20:51] Also, you can't expect employees, the work in cross functional teams and think laterally. If you still have silos or departments [01:21:00] in your company and compensate your employees based on these things silos, but this requires managers to give up power and control, but power and control, essentially a myth because even in a functional hierarchy, you always have some interconnectedness and some interdependency power also provides managers with Abe status quo, and that's hard for most managers to give up.

[01:21:22] Today more than ever. I would say we need to solve problems across disciplines, and yet today's organizations are set up in a way that kind of contradicts what the leader ship of corporations, right? Cleaning work in cross functional teams and be creative, but incentivizes its employees based on their silos.

[01:21:42]how has that ever worked? Our world has become way too complex and is. Moving faster yet the organizational structures of companies, those pyramids have not changed by the time, the information about the market, the competitors and others are channeled up to authority. Where does then analyzed, [01:22:00] processed and pushed back down with the decision the market has moved on.

[01:22:03] So what we really need instead is for companies to utilize. The subsidiarity principle. So let them know those who have the information decide. This is something David Marquette, a former clearer submarine. Captain States don't push information up to authority, push authority down to information, something.

[01:22:20] I briefly mentioned it throughout the podcast episode. Another aspect I find extremely valuable for managers and especially CEOs is stepping down. Even if it's just temporary, rarely say for a month per year. To work under the people they were managing. There's a lot of insights and personal growth to be had in this way.

[01:22:39] You might also experience for the first time that people only look up or respect your title as a CEO and not the competence you might have as mentioned at the beginning of the episode. Now we employees, for instance, more often than CEOs that haven't worked as an employee before, or have had this experience before, probably more than once.

[01:22:57]I remember when I had my first real [01:23:00] job after university, where I was fortunate to be responsible for a new and strategic product. And as such, I conducted many sales meeting with the CEO and was somewhat baffled by the fact that clients wouldn't really hear what I said, Sure. I was young and needed the money.

[01:23:17] Okay. That sounded really cheap. Anyway, at first I thought it was me, the way that I communicated, I was like, maybe I have to repeat it or maybe say it more forcefully. Yeah. And then the client will hear me and it took some time to realize that I could say whatever I wanted. It didn't really matter as all that mattered was what the CEO said.

[01:23:38] And this has always really confused me and really disturbed me since childhood. I even remember where I had a substitute teacher that was hitting my classmates and nobody had the courage to stand up and I was more angry at. My classmates for not standing up. So I stood up and said, this is you need to stop this.

[01:23:58] So I was ordered to sit [01:24:00] down and shut up at which I did not do. And I refuse to do So I got thrown out of class, went to the principal, and luckily we had a very fair principal and he, had that substitute teacher removed for the rest of the year. So I was very lucky and I also remember a time. At an exhibition at amnesty international, where we had a booth and a couple of very prominent guests came by and spoke to me.

[01:24:21] And one of 'em was very obvious. It was back then in 98, 97 or something like that. There was the justice minister and she came with her bodyguard. So I knew it was apparently somebody very important. And she talked to me five, 10 minutes and my colleagues said, Oh, that was a justice minister. And I'm like, okay.

[01:24:39]it's nice that she talked to me and she came by and it's probably just a formal visit. And then we had your, him calc combined at that time. And just a few years back, he was actually the, Buddhists, presidents. So it's more of a ceremonial position. So it's not the Buddhist chancellor, but back then, he.

[01:24:55] Wasn't as famous, but he was still famous that he signed our [01:25:00] VIP Balkan. I was like, okay, who was that? He was very humble and very interesting person to talk to. And that's all I remember. She's Oh my God, that was like, he talked to you like 10 minutes. And I'm like, okay, so it's an important person, the point I'm trying to make is. Regardless of somebody is famous, whatever position that person has, all that should matter is the person in front of you. And what he's saying. So everything I remember is he just being very humble and, having an interesting discussion is a nice guy period.

[01:25:26] So again, maybe I'm just really weird. I don't get attached to any position, but then again, it could have a psychological problem. I don't want to rule that out. I just give people what they need to hear, not what they want to hear regardless of their position without being destroyed, respectful, just because you're important doesn't mean it makes you a better person.

[01:25:44] And so the point I'm trying to make here is we need to start also respecting the competence or more of the content of what someone is saying instead of who is saying it. And you can see this. very clearly. And this is a good example between Obama and Bush. [01:26:00] nobody like Bush, at least not very many, but a lot of people like Obama.

[01:26:04] Now this isn't a political podcast and it's matter with which part you're associated, if it's this party or that party, I think this makes the point extremely clear. So you had this very eloquent. President Obama with lots of charisma, many Lakeland to this day, which I find personally very disturbing, which I'm going to lay out.

[01:26:23] So he said he was going to soul peace, but he did exact opposite. He created three additional Wars, killed more people with drones and any other president in history put more whistleblowers behind bars than any other president. And he said, himself, this is public record. That he is really good at killing people.

[01:26:41] That was his exact quote. And that's why we should look to what someone is doing, not the way he or she is seeing it, or how powerful or famous that person is. No matter if it's in politics or business. And this is more important in innovation. Where you don't want good [01:27:00] ideas that are very fragile being influenced by any sentiments, such as popularity or groups, pure Archies.

[01:27:06] And that's why I tried to make this point very clear of why it's so important to keep this in mind. Don't let yourself get sucked in by how famous someone is or how popular someone is that doesn't make the content that what someone is doing or what somebody saying any better or any worse. And I think we tend to forget that to something I have as a pet peeve, I've always had a problem accepting authority.

[01:27:32] That's just because they're our authority, just because they have some title makes them automatically better or the content is much better if they say it. And that's just something which especially for a company that thrives on innovation, you have to really keep an eye out for is to create an environment where essentially.

[01:27:53] The best idea wins now, does that always work? Of course not, but it's just something one should be aware of, [01:28:00] especially when it comes to innovation and these very fragile ideas.

 


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This podcast looks at innovators and companies that are changing the game and how they took their initial idea and created a game-changing product or service, while giving you unique perspectives and insights you’ve probably haven’t heard elsewhere.

David and his guests discuss real-world practical advice on how to best harness the creativity of your employees and go from idea to product or service that has the potential to radically transform your business.

They also share lessons they’ve learned along the way to effectively accelerate, incubate and scale innovations within small, medium and large enterprises, all while separating hype from reality and replacing bullshit bingo with common sense.

The show is hosted by David C. Luna, author, keynote speaker and founder of GAMMA Digital & Beyond.

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