Today, our guest is Doug Kirkpatrick. He’s the author of “The No-Limits Enterprise.” Hi, Doug. How you doing today?

Morning, Neil. Great to be here.

It’s excellent to have you on. This is a topic I’ve been personally interested in for a while. We’re talking about largely self managed teams and lots of different things. But I want you to kind of set that up. So explain a little bit about who you are and what you do.

So I was very fortunate when I got out of college three decades ago to meet a very exciting young entrepreneur named Chris Rufer. And he had a vision for a state of the art food processing facility. And I joined his team. And we started a company. It was a very successful company. We grew from zero to about $100 million in sales. And we had a little frustration, though, in that we organized our company as a traditional bureaucracy. So we had Chris at the top, and then we had a layer of managers of which I was one. I was a financial controller. Then we had a layer of supervisors. And then we had a layer of coordinators. And then we had everyone else that did the actual work of making the tomato products for the world market. And it was very frustrating. And so we began to notice things. And one of the things we noticed was that as people came to work, they were already managers and their own personal lives. So they were already making life changing decisions on their own without bosses. They were deciding what to do for a living, and whether to go to college, and whether to get married, whether to have children, whether to buy a house, gigantic decisions, without a boss. And so that begged the question, if people know what to do at work, and how to do it, why do they need a boss? So fast forward to 1990, exactly three decades ago, Chris left that company to start a new company called Morningstar, where I joined him as a financial controller. And at that company, we’re working out of a tiny little farmhouse. And he came into the farmhouse one day and said, I’d like to have a meeting and discuss governance, and organization. We said sure. So our little core team was 24 people. And we met in a dusty construction trailer at night and sat around in a circle facing each other. And Chris handed out a document called the Morningstar team principles. And in that document, he outlined two core principles. The first was that human beings should not use force or coercion against other human beings. And if you think about it, that’s the foundation of all law everywhere in the world. And the second principle is people should keep the commitments they make to each other. And that’s also a foundation of law, especially civil and contract law, which would mean nothing if parties didn’t do what they said they were going to do. And so we discussed and debated these principles for a couple of hours. The end of the night, we just kind of looked at each other and said we have no arguments against these principles. They are self-evident. And so we adopted them as pretty much the entire governance of the enterprise. We walked out of that trailer as a self managed enterprise.

So that’s a great story to lead into this idea of non coercion and keeping commitments. You feel like everything in really all human interaction, I guess, can boil down to these two things in terms of creating a positive, progressive society and company as well, correct?

I do, and we do at Morningstar. And if you think about these two principles, they are foundational to law, as I mentioned. But we think these are the most important principles of human interaction. They are to human beings what gravity is to physics. They’re the most fundamental principles in existence. And we know this because if you imagine a world where everyone abandoned the use of force against others, we wouldn’t need armies or navies or police or locks on our doors. And of course, we understand that’s not realistic. Got it. We know that’s not reality. Got it. But that’s not really the point. The point is the closer we get to that ideal state, the more space we open up for human happiness, harmony and prosperity. And if you take the second principle, imagine a world where every single person did what they said they were going to do. Wow, what an amazing world that would be to live in. And of course, we understand that’s not realistic. But again, that’s not the point. The point is the closer we approach that ideal, the better off we are as human beings. And the more space we open up for human happiness, harmony, teamwork, prosperity, and all the good things of life. And by the way, commitment keeping has quantifiable, measurable, economic and financial value. It brands us as enterprises, it brands us as individuals in the workplace, and humans in the community, measurable economic and financial value. And so when we embrace these two principles, we’re essentially the entire governance of the enterprise.

Let’s get a little bit practical for folks so they can understand what this actually looks like in a situation with an organization, you have people that no one can force somebody else to do something. But they also have all these commitments going around to each other. So can you give us just a snapshot of, in one department, what that might look like?

Sure. Let’s take a department like steam generation. Our factories use a lot of steam. They use steam for sterilization, for powering turbans, and other purposes. So steam generation, essentially a utility supplier to the rest of the factory. So individual steam generation colleagues generate contracts. We call these colleague letters of understanding. And they’re one to many contracts. So I, as a theoretical steam generation colleague, will set up a contract. The contract consists of the who, what, why, when, where and how of work. And it starts with purpose. So I identify a personal commercial mission within the enterprise. And as a steam generation colleague, why am I here? Why do I come to work here every day? What does excellence look like in my role? How does what I do support the mission, vision, values and principles of the outside enterprise. And we think deeply about these purpose statements. We think purpose is central. And it’s the starting point for all other activity in the enterprise. And we encourage people to take their time and craft purpose statements that resonate not only with themselves, but make sense to the people with whom they work. So we start with purpose, then we go to the what. What are the processes for which one agrees to be fully accountable? And so we are careful in identifying those as individuals, and figuring out exactly what the substance is, the subject matter, the content of my work. Now, what are the services I’m providing to my fellow colleagues? And as an adjunct to that, we think about a concept called decision rights. So what is the scope and quantum of decision making authority that I agree to own with respect to each process for which I’ve agreed to be fully accountable? Am I the decision maker? Am I the decision maker but require input from others prior to making the decision? Am I merely making recommendations to another decision maker? Now, what is it? We want people to achieve clarity around decision rights, because this is a great untapped source of clarity, accountability, and transparency in organizations. So now we’ve got the why, the personal commercial mission, we’ve got the what, the process, activities, and decision rights. Now we need to know the who. So who are the colleagues with whom I need to be connected? And these are likely all the colleagues in my immediate work area, all my fellow steam generation colleagues, but also colleagues who may be just upstream or just downstream in the value chain. So I want to make sure that I’m connected to the people with whom I work most closely. Now, the connections tend to hover around 7 to 12 fellow colleagues, some have more, some have fewer. But if you get more than 20 to 25, it starts to break down and then it becomes more indirect communication. And that’s called stigmergy. So we believe in connecting with people with whom we work most closely, that tends to work out to a sort of a Dunbar’s number around 7 to 12. And then what are the measures? How do you know if you’re doing a good job? Because if we don’t have bosses walking around to pat you on the back or reprimand you, you have to be able to tell yourself how you’re performing. So we call these measures stepping stones because we consider them stepping stones toward perfection. We don’t benchmark other sectors, other industries, other competitors. We benchmark perfection. Perfection for a cost metric is zero. Perfection for an efficiency metric is 100%. Perfection for a quality metric is zero defects. And we’ve benchmarked perfection because we think that unlocks blue sky innovation thinking. And we’ve seen many examples of that. So we benchmark, we publish these stepping stones transparently across the enterprise, we tend to publish them as two dimensional line graphs showing trends over time. And these trigger conversations between peers. We call that peer regulations. So when a peer sees a trend line bending down, the conversation is what can I do to help you turn that around? We trigger these conversations throughout the enterprise on a continuous basis. And that’s much more powerful, we believe, than relying on a tiny cohort of managers to “motivate people” to do a better job. So we break these agreements. And that’s really the infrastructure that allows us to replace bureaucracy entirely.

So how do you handle things like what traditional and HR department would handle in terms of hiring new people, setting compensation rates, handling grievances that come through? Is that also handled through these contracts or how is that done?

Touch on grievances quickly, if you have an issue with a fellow colleague, it could be a huge issue, or a very minor issue, take a huge issue, I think you should culminate your services to the enterprise based on your performance. That’s a direct request from one colleague to another colleague. And sometimes, people agree to those requests. And you do have a professional responsibility to respond to requests. But if the person of whom you make that huge request disagrees, then you can invoke a process called gaining agreement where you then invoke a mediation step, a second mediation step with a panel of mediators, and another step after that, which is final binding arbitration. And this gaining agreement process can be used to address any conceivable difference between colleagues on any issue throughout the enterprise. Again, there are no bosses to go to so people have to initiate these direct conversations themselves. It can also be used to handle very trivial issues, like we should change the weight of the copy machine paper in the copy machine, okay, it’s the same thing. You make a request, then if you believe in your request, and the person doesn’t agree, you can invoke this process. So that’s how we solve issues between people. Compensation hiring, every single person in the enterprise has an affirmative obligation to identify the need for additional talent, and to initiate the acquisition of additional talent. And the way that works is that, for example, if I’m an industrial electrician, and we add horsepower to the factory, and I realize I don’t have the physical capacity to maintain it, I know we need to hire another electrician. So then I will partner with a colleague who has expertise in accessing the talent market. And we’ll put together a job description of some kind that meets the needs of that market, and we’ll identify candidates. Once we’ve identified candidates, it’s completely up to me as an electrician and my fellow electricians to hire the person. So the electricians hire electricians, the clerks hire clerks, accountants hire accountants, because no one is more invested in getting the right people on the bus than the people who will be conceivably working side by side with those people for perhaps years to come. So then the electricians decide which candidates to interview and they decide which candidate to make an offer to, and they make the hiring decision. So that’s how hiring works. Compensation is every factory has an annual compensation committee. It’s a representative committee. It consists of people from production and distribution and accounting and marketing and sales and every other part of the factory. And they get together at the end of the year. And everyone associated with that factory puts together a package of information consisting of their colleague letter of understanding and their stepping stones or performance measures. And if a person wants a pay increase above the cost of living for that year, they need to make a business case to the compensation committee and sell that business case and so they enter into a negotiation process. I would say that most people don’t do that. Most people are happy with the cost of living increase because salaries are quite fair. But sometimes people create those business cases, and they negotiate with the committee. In the initial salaries are really set by the marketplace for talent. So when I was doing recruitment, I knew exactly what the salary rate was, for example, again, for an industrial electrician in our particular geographic area. And I knew that. So we start with that marketplace rate. We add a premium, usually to represent the fact that everyone is a manager involved in planning, organizing, controlling, selecting and coordinating. But it was pretty clear what the marketplace for talent is setting as the initial salary. And then everything after that is handled by the compensation committee.

So one of the things I liked in your book is that you talked about lots of different types of self management that is out there. So the type that you’re describing now, is this one that if you’re going to do self management, it has to be some form of this? Are there lots of different options that are out there? How different are the different options that exist?

Yeah, thanks, Neil. I think of it as a spectrum. So I would say Morningstar is at the far end of the spectrum. There’s literally zero command authority. No one has any authority to tell another person what to do or to unilaterally terminate their services. Everything is accomplished through request and response. So that’s radical. So I would say most organizations do not go that far. Then we have a very severe top down command and control authoritarian regimes. And think of the Sunbeam Company and Chainsaw Al Dunlap. Everything’s just conducted through coercion and force, essentially, complete bureaucracy. So the idea is to move up the spectrum and to figure out how much agency, autonomy, and freedom can we really unleash an organization so that people are free, the organization can be as creative and as innovative and provide as much richness of leadership as the people who are working inside that organization. So we move along a spectrum. We try to get as far as we can. So every organization has to determine that for itself, as I write in the book. So we had to start up in the same town as Morningstar, convenience store disruptive model for a convenience store, and the owners held on to the hiring process. They thought that was important. And they wanted to be the champions of the culture, and really hold on to decision rights in that process, and probably still do. And so that’s an example of, we’re going to not completely jettison all command and control, but we’re going to give people a large quantum of agency, autonomy, and freedom. And we’ll see how far we can move over time. And that’s legitimate. And a lot of companies approach it that way.

Let’s talk about the perception of self management. I know one of your least favorite words out there is probably empowerment, that people feel like they can go out and empower their cultures. One quote from your book said, organizations may sell themselves as young, entrepreneurial, and futuristic, while still operating as archaic models of the industrial age. So from someone like you who’s been in this for decades now, what do you feel like? Are we kind of fooling ourselves that we’re farther along in this process than we actually are? Are there examples where you see that we really have a long way to go before we can get to some of these models? What’s your perception on that?

Well, it’s kind of a both and. I think we have a long way to go, very long way to go. Most people still work in large companies. Large companies are still for the most part, sclerotic bureaucracies, top heavy chains of command, command authority, my way or the highway, power trips, and our business goals are largely set up to support that regime. And so we do have a long way to go. But there are lots of flowers blooming out there in the meadow, too many examples now of self managed success stories to ignore. And so I think, frankly, the management tax, what Gary Hamel calls the management tax, the cost of bureaucracy, the disengagement costs, the sharp anxiety of being felt by leaders not just because of the COVID but because of the accelerating pace of technology and the inability of humans to absorb the change. All these factors are, I think, leading us to a better state of workplaces, but it’s going to take a lot of work, and it’s going to take all of us, you and I, and everyone else that’s working in this space to help catalyze these changes. And so, we’ve got a lifetime of work ahead of us, for sure.

Yeah, I feel like with the issue of remote work, there were some people who were doing it early on, it was building a lot of popularity very slowly, people would slowly move to these options. Then obviously, something like COVID hits, and everyone’s trying it, and it becomes something that everyone’s talking about. Is there a potential for a similar type of event for self managed teams? Or is this just going to kind of be continually like 1% better each time, a few more people trying it, a few more, a few more? Or is there a potential that this could really take on in a big way?

I think the potential is there for it to take in a big way. There’s some exciting technology coming down the pike. And I can tell you that there’s artificial intelligence being developed right now that will allow people to self manage their own career development, the development of their own skills, and interests, and talents. There is some amazing blockchain technology being developed, which will perhaps transcend the very nature of employment itself, where people will subscribe to missions based on commitments. And there’s also technology that will allow people to decompose roles in traditional organizations into relatively higher and lower value components, and self manage their way to optimize and higher value components. I think the confluence of all these things, and the sheer weight and inertia of bureaucracy are going to compel us, impel us in the right direction. So I’m quite hopeful. And yet, we’ve got some restraining forces. People often like power, and perks, and authority. And so we’ve got a number of cultural components to overcome as well. But I see progress on the horizon.

When you’re working with a company and trying to get them to adopt some of these principles, what are the very typical hurdles that are difficult for them to cross? Is it more of they’re not aware of their own ego trips and the power struggles that they have? Or is it confusion over the mission, they haven’t really defined that well? What are some of those things that you see?

I think it’s fear of the unknown. And oftentimes, I’ll come across a visionary CEO who has a fairly clear vision of a better future state. And yet when introducing this concept to middle management, that’s where the antibodies kick in. I’ve had middle managers stand up in workshops and say, well, what am I going to do if we do this self management thing? So it’s a fear of loss of authority and prestige and power that is a very serious internal conflict that many managers have, especially middle managers. And so, it’s definitely a constraint that we’re going to have to work through as we make progress in this dimension.

Yeah, when I think about even AI, like you’re talking about, there are certain jobs out there that you just know are not going to be around much longer. If you’re doing a job that is very repetitive, that’s very obvious what can be done, either a robot or a system would be able to complete that. And I think we can add to that list, if your job is to force other people to do their work, you better get some new skills pretty quick because that’s not going to be something that’s going to be in demand in the future.

For sure. Couldn’t agree more.

Doug, this has been great to chat through. I wish we could talk for a long time. Because I think when I hear you talking about things, especially early on describing it, it’s almost like, I mean, you are setting up your own government. And I think every company does that and they just don’t realize it. They copy from what other influences they’ve had and things so that they have this very loose Articles of Confederation type thing that isn’t well defined. And some people hearing what you’re describing may sound like, oh, gosh, that’s a lot of work. It’s a lot of paperwork. It’s a lot of things that are there. But when you look at what actually makes it a nation or a company really survive, it’s really those foundational documents, like what’s your constitution? Can it last for 200 years? Can it push beyond those things? And if you’re not willing to accept that you are creating a government whenever you’re starting these things out, then you’re going to struggle in this. So Doug, where can people go? Obviously, they got the book, “The No-Limits Enterprise,” out there. Where else should they go to connect with you?

The best place to connect with me is on LinkedIn. My handle there is Redshifter3, but I’m easy to find on LinkedIn and that’s the best place to connect.

Excellent. We are excited to continue this journey. I feel like this topic aligns well with our thought about progressing the future of work, where leadership is going and these things. I’m excited to stay in touch with you and to hear about what’s coming up next and we look forward to learning more.

Sounds great, Neil. Good to be with you. Take care.