Elen Macarthur Foundation

 

Point of view: Re-thinking business structures

That government is best which teaches us to govern ourselves

Johann Wolfgang von Goethe

“How’s it going?” the CEO asked me casually, on a rare visit to the department where I worked in the head office of a FTSE 100 retailer. “Everything under control.” I responded, eager to impress and thinking that this was the sort of thing you should say to your CEO in such circumstances. “Oh dear” was his response.

Years later, I am coming to understand his remark. Smart people, I have learned, don’t try to control themselves or their environment, rather they respond spontaneously to what comes their way in the dance of life. Trying to control anyone or anything is ultimately self-defeating. As the Tao Te Ching puts it: “True mastery can be gained by letting things go their own way”. This notion is also supported by the modern science of complexity, which pictures life as a set of complex, self-organising and adaptive systems where nothing causes anything but everything mutually responds to everything else.

Rather than seeking control, we need to let go. Yet letting go is hard – perhaps the single hardest thing to do, whether as a manager, a parent or a politician. At the same time, it is the single most important thing for us all to do if we are serious about transitioning to a circular economy. We need to let go of our old ways of thinking, old ways of acting, old ways of relating to others and to the planet. And we need to let go of the need to control ourselves or others.

This takes courage. There are all sorts of pressures on us to try to control, to look as if we are in charge. It is part of our dominant cultural paradigm. Barack Obama was ridiculed in some quarters after he was photographed reading a book entitled “Nobody in charge”.

Of course letting go doesn’t mean disengaging, closing our eyes. It means engaging in a different way, as equals. It means that rather than trying to control, we engage in a creative dialogue with others and with life. It is scary stuff, opening ourselves up to our vulnerability. And it is just the sort of leadership we need for the circular economy.

Unfortunately the legal structures and governance processes in our businesses are not designed to encourage this sort of leadership. They are designed to encourage conformity, docility even. As Margaret Wheatley put it, “Organisations of all kinds are cluttered with control mechanisms that paralyze employees and leaders alike… We never effectively control people with these systems, but we certainly stop a lot of good work from getting done.”

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It is time, I believe, to start experimenting with the corporate structure. The joint stock company in its current form dates back to 1856, an era when slavery was still fresh in the memory. We need, I suggest, a more enlightened model for a more enlightened age. At Riversimple, an innovative car business I am involved with, we have adopted such a structure.

Our starting point was to change the ownership structure, a sacred cow of Western business. We questioned the traditional ownership model not because we wanted to start a revolution, but because we felt there are better ways of inspiring people than to ask them to serve shareholders and shareholder value.

There are plenty of positive behaviour habits associated with ownership – responsibility, caring, taking a long-term approach. But they’re not generally associated with shareholder ownership, and certainly not on a large-scale, where remote speculators exchange shares like playthings.

We prefer to ask staff to serve their neighbours, meaning in our context other staff, customers, suppliers, the local community, investors and the environment. To speak on behalf of these stakeholders, we have created six custodian bodies, separate legal entities who are the sole members of Riversimple LLP. They jointly appoint the board. The board is directed to serve them all and balance their interests.

Another significant innovation is the introduction of a "compound board”. We felt that having diluted the power of shareholders, we also needed to dilute the absolute power of the board. Thus our board is split into two – an “operating board”, in function very like a conventional board, appointing and monitoring the CEO, and a “stewards board”, acting as a critical friend of the operating board and responsible for auditing and dispute resolution. The latter is not, I emphasise, a supervisory board – the two parts of the board sit next to each other in the structure, both being appointed directly by the custodians. They are mutually accountable.

Below the board, we aim to develop a self-organising and fluid system designed to foster personal initiative, a network rather than a hierarchy. Inspired by W. Gore, Ricardo Semler and others, we will do without chains of command or predetermined channels of communication.

Accountability is something we have thought hard about in devising our structure, aiming to balance it with power. In most businesses, we believe, shareholders have too much power and too little accountability, whilst managers and staff have too little power and too much accountability.

It is still early days and there will no doubt be plenty of trial and error as we work with this novel structure. A particular challenge is to persuade potential investors to accept this approach. We are fortunate in our current investors, a family with a successful habit of taking a long-term perspective. They share our view that by ceding control, they set free the potential of the people within the business and thus have a greater chance of creating long-term value than in a conventional structure. Time will tell.

In the end, I believe, what matters is to try. Try and then let go. The Tao Te Ching again: “Do your work, then step back. The only path to serenity.” Sounds good to me.

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