The Sociocratic Method
A Dutch model of corporate governance harnesses self-organization to provide agility and a voice to all participants.(originally published by Booz & Company)
Business is the first truly global social organization. It crosses geopolitical and ethnic boundaries and has the potential to be a uniting force in the world, inspiring deep levels of cooperation among enterprises of all types. Yet our current corporate governance models dictate against this: They push companies toward unhealthy autonomy.
Five years ago, when we launched Ternary Software, we wanted to experiment with new methods of organizational governance. The typical structure and decision-making model of the modern corporation — a CEO with near-supreme control who delegates down a chain of command — is essentially a feudal hierarchy, and we knew that would not work for us.
In purely top-down structures, key information and insights from below are often missed. Decisions take too long and are not as targeted and effective as they would be if information from front-line employees were taken into account.
But what governance system to use? Not a model based on consensus or democracy. Consensus often devolves into the least-common-denominator approach. People give in to what the largest egos or most insistent people in the room demand. And democracy tends to crush minority voices. Besides, the majority rarely knows best.
After investigating several alternatives, we were impressed most by sociocracy, an organizational governance system envisioned in 1945 by a Dutch entrepreneur as a way to adapt Quaker egalitarian principles to secular organizations. The model was refined for corporate use in the 1960s by Gerard Endenburg, a Dutch electrical engineer who enhanced the concept with principles from cybernetics — the science of steering and control — and used it successfully to manage the family business, Endenburg Electrotechniek, for many years.
In its modern form, sociocracy harnesses self-organization to provide organizational agility and a voice in governance to all participants. Hundreds of companies in the Netherlands have successfully adopted it. Dutch companies using sociocracy are exempt from labor laws requiring the Dutch works councils (organizations similar to unions), because it is believed that the workers are already represented daily through the sociocratic method.
Sociocracy is composed of four primary practices.
Decision Making by Consent. Decisions are made only when no one involved knows of a significant argument against the decision; before that point is reached, each reasoned argument is included in the discussion. All decisions at Ternary must be made by consent, unless the group agrees to use another method. We wouldn’t want our office manager calling a meeting each time she wants to buy pencils, so we created a policy (by consent) that grants her autocratic authority to make decisions relating to keeping the office running smoothly.
Circle Organization. The organization’s hierarchy is made up of semiautonomous circles. Each circle has its own goals and the responsibility to execute, measure, and control its own processes. Each circle exists within the context of a higher-level circle. No circle is fully autonomous; the needs of its higher-level circles and lower-level circles must be taken into account.
Initially, the founders of Ternary worked together on one software development project and formed a single circle. Eventually, we grew and took on two projects at once. Two new circles emerged: our second project team circle, and a new higher-level development department circle that integrated both project teams. At the highest level, we have a “Top Circle,” which is similar to a traditional board of directors, except each member represents a distinct interest: One represents the workers, another the investors, a third the industry, and a fourth Ternary’s social purpose, which is largely to spread the sociocratic model.
Double-Linking. Circles are connected through a double link: One person is elected by the lower-level circle and one (who has overall accountability for the lower-level circle’s results) is chosen by the higher-level circle. Each belongs to and takes part in the decision making of both circles.
Elections by Consent. Individuals are elected to roles only after open discussion results in a clear choice, with no reasoned objections. First, each person writes his or her name on a ballot, as well as the name of a nominee. The meeting leader reads each nomination, asking members to explain why they chose their candidate. After discussion, people can (and often do) change their nominations. Finally, the chairperson formally proposes the person the group seems to be leaning toward (typically the person with the most nominations), and everyone then has a chance to present objections. This may continue for a few rounds, and when there are no more objections to a candidate, he or she is selected.
Decision-making meetings, as practiced in sociocracy, are an extremely efficient means of communication and an excellent way to establish trust. Early in Ternary’s history with sociocracy, a programming team circle held an election for its representative to the development department circle. Woody, who had been at the company longest, received the most nominations. But during the objection round, Najati, another programmer, noted that Woody was skeptical about sociocracy. At this early stage, he suggested, the representative should really believe in the process. Everyone, including Woody, felt this argument made sense, and another programmer (in fact, Najati) was elected instead. This was a potentially charged situation; Woody and Najati had butted heads before. But the process cut through the problem entirely; Woody was happy to have Najati elected in his stead. The group converged on the decision that actually made the most sense for the success of the organization, with egos set aside. Despite the sound of it, consent is usually much faster than autocratic decision making. The highly disciplined process helps the group stay focused and move swiftly through examination of an issue and actual decision making.
Sociocracy has been extremely beneficial for us at Ternary. We’re one of the fastest-growing companies in Philadelphia — with revenue growth of 38 percent last year and an average of 50 percent per year over the last three years. We could never have achieved this under a traditional management system. We plan to find or create other companies ready to adopt our governance model, in hopes of creating a sociocratic collective that would make it easier for our organizations to do business with one another.
Brian Robertson (firstname.lastname@example.org) is the president and CEO of Ternary Software, a provider of software development services that he founded in 2001. Previously, he was the chief technology officer of ReviewNet Corporation, a provider of online testing.