Business Leaders: Ricardo Semler

With a tendency to throw away the rulebook – Growing Business looks at the man behind Semco, one of Brazil's most profitable enterprises

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Name: Ricardo Semler
Born: 1959
Expertise: Adopting unconventional management practices to ensure a more successful, happier business
Known for: Completely revolutionising how a business can be run, with a particular focus on liberating employees from the traditional rules of employment. Under his ownership, Semco has become one of Brazil’s most successful companies, with turnover growth of 40% per annum
Best-known titles: Maverick (1993); The Seven-Day Weekend (2003)

Who is Ricardo Semler?

Son of Brazilian immigrant entrepreneur Antonio Semler, who founded Semco, Ricardo Semler is a Brazilian and is now the CEO of Semco SA. A Harvard MBA, he joined his father’s company, Semco, and proceeded to completely re-engineer the business, from what it did to how it is run.

He has been named Brazil’s business leader of the year twice, is vice president of the Federation of Industries of Brazil, and is a board member of SOS Atlantic Forest. Today, he is frequently found on the international speaker circuit encouraging other business people to adopt the Semler Way.

What is Semler known for?

After conflict with his father about which management style Semco should adopt, in 1980 Ricardo threatened to leave. His father reacted by resigning and vesting ownership of the company to his son when he was 21. On his first day Ricardo fired 60% of the company’s top managers and proceeded to save the then-struggling company. At 25, he suffered from a fainting spell, which encouraged him to seek a new way of operating the business so that he and his employees could have a better work/life balance. In the late 1980s, following the success of the Nucleus of Technological Innovation unit at Semco – a unit designed to develop new business and product lines, which identified 18 opportunities in its first six months – Semler instated satellite units throughout the business which rapidly grew to be responsible for two-thirds of activity.

Despite the hyperinflation in Brazil in the early 1990s, Semco thrived. Thanks to full employee engagement, the company took the necessary steps to avoid failure, including up to 40% wage cuts for management and employees in return for profit sharing arrangements and giving employees the right to approve every item of expenditure. Employees and management were also encouraged to move around the company, taking many different roles to get a better understanding of operations. There were dramatic improvements in operational performance and equally dramatic improvements in profitability.

Once the Brazilian economy started to recover, Semco’s performance took off. It has grown from a sub $5m turnover company in the 1980s to one with sales in excess of $400m in the early 2000s. Semco also has interests in other businesses worth approximately $9bn. Semco has never been afraid of change. In the last decade it has divested a number of its operations and has set up partnerships with companies such as Pitney Bowes, GMF Gouda, H&R Block Inc and Loedige.

The concepts

Semler’s theories invert almost every conventional business practice. Outlined below are a handful of his better-known ideas, all of which he deployed within Semco.

The seven-day weekend

The eponymous title of his second book, Semler advocates that if employees take their work home even if only to check their emails, then why should they not be entitled to take their private life into work? This means allowing staff to choose their own hours of work and even where they work. Semco also has a deal ‘retire a little’ with its staff, whereby they can take part of their retirement early (e.g. one day a week now) in return for agreeing to work the equivalent amount of time after retirement.

The philosophy is that people will be most productive for the company if they are given the freedom to take responsibility for their own lives and achieve a work/life balance that suits them. He believes that this does not make people carefree, but, in fact, more responsible, and it also reduces stress levels, one of the biggest reasons for employee failure in today’s world.

Equality for everyone

Semco’s staff can have business cards or not, depending on whether they need them or not. They can also choose their own job titles on the same basis. They do not have fixed desks or offices and only keep their jobs if their peer group declares a need for them. Semco does not even have a head office, as Semler believes this creates a sense of hierarchy; staff operate from a series of satellite offices, based around Sao Paolo originally, and now in three countries.

Junior and senior staff are placed next to one another so they can learn from each other. Managers are appointed by the staff who will work for them, and those who do not perform are voted out by those same people. Board meetings have two open places which employees can sign up for on a first come, first served basis. Everyone at board meetings is expected to contribute to the meeting. Decisions made at meetings must be by majority vote, not by the influence of the most important person. Even though he is majority owner of Semco, Semler endeavors not to make any decisions at all, trusting his staff to come out with the right answers for the business and themselves. He still has the right to come up with ideas and make suggestions, but has to accept the outcome if these are turned down by the rest of the team.

No hierarchy of reward; full competition for roles

At Semco, people who do not fit in a role are invited to try out others. It may take several attempts for them to find a role that fits, but this is worth it if it allows them to out-perform overall. No-one has the right to a more senior job just because of time served. Jobs are rotated regularly, which means that there is no sense of a right to a specific job, unless you continue to be the best person to undertake it. The corollary is that there should be a job that suits everyone, somewhere within the organisation.

People are regularly hired from outside the company, but internal candidates are given a 30% advantage in the application process (in terms of scoring who is most suitable for the role) because it is assumed that they understand the Semco way better than an external candidate.

Control is bad; trust is all

Staff at Semco do not have their emails checked by the company – at all! They are free to explore new business with customers and to find new ways of winning new business from potential customers. Staff are trusted to find their own routes to achieving their set objectives, even if this means that established methods are overridden. Semler believes this approach frees employees to make decisions that will get the best outcomes in a continuously changing world.

Replace long-term planning; take a six-month view

Semler says that you should not try to plan for the long-term or you risk chasing a business stream that will eventually die. You should only plan for the next six months. This may mean changing the results you require.

However, he believes in giving both people and projects every opportunity to succeed, including funding loss-making projects for years if necessary; the only proviso is that there are regular reviews to see if this is still the right strategy to follow.

Success is more important than money; passion is most important of all

Semler is passionate that while the purpose of being in business is to run it profitably, achieving results for the sake of monetary reward is self-limiting. It is more important to achieve a successful outcome than just to make a lot of money. Those purely motivated by money are led by greed, making a volatile business which is hard to control. A business motivated by successful outcomes for the customers, suppliers and staff, creates a sustainable business headed in the right direction. But money should not be ignored; it is critical to chase profitable business and deliver superior results to justify the charges made.

Learning; not training

Semco employees are encouraged to learn all the time; the company offers lots of routes to learn, including its ‘rush hour MBA’ where staff teach each other about what they have learned. Training is not focused upon – instead employees are encouraged to ‘amble and ramble’ as they work out the best way to do their jobs.

Long-term relationships and a partnership approach

Semco is adamant that it will not do business where there is any hint of corruption, particularly bribery. Even if a contract is worth millions of dollars. Companies should aim to build really long-term relationships with customers, suppliers and partners.

Semco aims to build long-term relationships with its employees who are properly engaged with a partnership approach. This may include looking at new ways to work with staff, including if necessary allowing them to purchase assets from the company and then subcontract with Semco to deliver services using those assets. This philosophy also permits giving staff unlimited time off, if required, to deal with personal issues such as family illness. Semco also endeavors to find solutions which will leave ex-employees with a positive attitude to the company.

Win difficult, complicated-to-deliver business; not low-hanging fruit

This is a key competitive protection for Semco. It focuses on winning business that others already find difficult and expensive to deliver. By delivering efficient and better results for these activities than its competitors, Semco can achieve premium pricing for the contracts it obtains.

Growth is not necessarily the route to success

Semler takes the view that a business unit can reach an optimum size and position. Growth thereafter may be detrimental. Semler believes that if you follow the logic of perpetual growth, you will end up with a handful of monolithic enterprises and this is the opposite of what is required to generate growth – namely, innovation and enterprise.

Despite all this, systems are important

The underlying theme of Semler’s management style is about finding better ways and processes to achieve a superior outcome. By preventing rigid structures in a business it is able to flex itself to meet changing market conditions. It also creates a competitive, peer-led pressure to perform, which probably explains why the company has performed outstandingly well over decades.

Validity today

As Semler’s concepts are so unconventional and are impossible to implement to make a quick difference, they are not usually adopted by other businesses, although the principles of greater freedom for employees, with the obvious corollary of judgement only on performance, is a theme that many companies are paying increasing attention to.

Challenging assumptions, 360° management and employee empowerment, prioritisation of the customer, close attention to cost control and encouraging flexibility of thought have never been more important than in today’s business world.

Business Gurus, edited by Ian Wallis and published by Crimson Publishing, is available to order now.

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