The gender wage gap is the most hotly debated of all the gender gaps. So when a large U.S. bank commits to correct it, will U.S. Tech companies bow soon? [1]
In mountaineering, there’s a technique known as crack climbing — a method which uses gaps or cracks in the geology to ascend. Citigroup, known to most consumers for its banking and credit card services, has just announced its first step toward gap mastery.
Two weeks ago, Citigroup [2] announced it would publicly report the pay gap (and goals for closing them) for women and minorities in three major geographical markets — the U.S., United Kingdom and Germany.
With 209,000 employees, half of which are women, Citigroup is the first major US bank acceding to fix its gender pay gap. Is this a harbinger of change in the Tech sector soon as well.
It’s worth looking at how this story unfolded to see how it might occur in the Tech sector.
Citigroup’s Climbing Partners
The lead climbing partner, is Arjuna Capital. This investor advisor group delivered the triggering event for Citigroup’s announcement with their shareholder resolution proposal, calling for the company to disclose its gender pay gap statistics. (This is a document well worth reading for it one-page compression of facts and why the request is important business-wise).
There are other climbing teams gathering to pressure financial, tech and a broad swath of U.S. public companies: In 2017, the California State Treasurer invoked CalPERS and CalSTRS ( the two largest pension funds in the US) to increase diversity to 30% women and 30% other minorities on the boards of its portfolio of companies. And if you read Pensions & Investments magazine online, there appear to be an avalanche of insurers and activist investors calling into their portfolio companies to move up the diversity bar. To understand the rock-hard resistance here, Fast Company notes that, to date, Facebook has not yet been particularly cooperative on gender reporting statistics, even with a CFO who is the icon of the Lean In movement.
Like Facebook, Citigroup has a substantial investment in gender economics, as well as history with inter-governmental panels on world-wide women’s issues. And a giant universe of studies — from industry reports, management consulting reports to socio-econometric research – reach consensus: The presence of women in decision-making positions leads to superior corporate performance.
Women have contributed vastly to the economy: One well-regarded calculation [3] estimates that female participation in the U.S. workforce since 1970 accounts for one-quarter of the current GDP.
So what company educated on the gender-economy would not act when seeing women leave?
And Citigroup did see them leave.
Women Managers Falling off the Ropes
As a woman with roots in the Tech sector, it’s startling to see a dark mirror reflecting back at you: Just like in Tech, women in the finance sector are (20–30%) more likely to leave mid-career [4].
Inline with that trend, Citigroup’s workforce data (shown below as published by Bloomberg ) reveals women in first and middle-level manager positions fell from 48% in 2007 down to 41% in 2016. So there go the future executive and C-levels —down into the snowy ravine.
This loss of talent increases recruiting and retraining costs. And this is happening while there is an ever-tightening US labor market.
European-engineered climbing ropes
Perhaps the most influential factor influencing the Citigroup wage policy is regulatory compliance. After all, there is the upcoming Paycheck Fairness Act going before the US Congress. Today there are gender pay gap reporting regulations in Germany as there will be in the UK in April 2018. (U.S. women should be particularly grateful for these EU climbing ropes, as there is some evidence of recent tampering with US-made ropes [5]).
So how can these statistics possibly be released publicly on the internet and social media without women in other geographies demanding similar treatment?
Is it Time for Women Activists to Cheer?
On the one hand, the situation is gloomy: Immense gender and racial gaps persist in not only wages but in equity compensation, promotions and board representation[6]. And to the horror of many women activists and gender parity advocates, the global gender gap, is widening.
On the other hand, there are at least three reasons women activists may want to let out a loud, 200 Hz squee of delight here. (Then please be so kind as to resume your impatience. ;-))
First, there’s a secret win. In addressing the wage equality gap as a priority, Citigroup and Arjuna Capital better ensure that tens of thousands of Millenial age Citigroup employees will be less vulnerable to the financial compromises which +50 age women often suffer in retirement.[7]
Second, it seems the European Union regulators have thrown a rope to other women worldwide to climb up. Many multinational companies will conform to the new reporting rules, extending them to different geographies where economically feasible. Amazon, Facebook, Twitter, and Google all qualify.
Third, our story unveils a roiling backdrop in the U.S., one which benefits women, particularly those working in large multinational corporations. The changing labor market coupled with women leaving mid-career may spur other companies to pull pay equity into the present. Add in the regulatory requirements working in a global economy, and we’re likely to see more Citigroup-like announcements from the tech economy and other sectors.
It’s a little cloudy in Davos now, but let’s see how many new climbing parties gather at the base of the Matterhorn to give gender pay equality a try. Oh, there goes Bank of America starting up the ridge. Whose’s next?
Notes
[1] Be forewarned: My profile describes me as a former market analyst gone rogue. By “rogue” I mean I do quite a bit of research but it is unplugged from any institution.
[7 ]According to the Joint Economic Committee, a $10,470 dollar pay disparity can add up to nearly half a million dollars over a career. Source: #Real News: Women Still Earn Less Than Men” US Congress, Joint Economic Committee, April 3, 2017.
In April 2014, this post was updated to reflect the then-current employee counts for these bossless companies. LGT
My last post covered Valve Software and the more general topic of “bossless work environments”.Tac Anderson kindly pointed out to me that I didn’t mention the well-known case of the Morning Star Company.
This started me thinking: Were Valve, Semco and Morning Star outliers? What was the “Googleable” count of companies who are known to be “bossless”?
So I set out to do a first-order count based on the loose Google query “bossless company”. Sorting through results, I counted only those where I could verify through their websites and/or trusted news sources that had some degree of “bossless” culture. By this somewhat hybrid Googlish- public relations definition, I found the following.
The Answer: There are Some 18 Well Publicized Bossless Companies
The table below shows, in alphabetic order, the company names, headquarters location, number of employees, industry and/or vertical market and reference describing a “bossless workplace”. Now as much as I don’t like messing with small numbers for statistics, still, I note that there are some surprises.
Update 4/4/2014: Based on reader comments in 2014 as well as significant hyper-growth in some of the companies discussed (eg. Github,Shopify and Stripe) estimates of the number of employees per company have been updated where noted.
[ultimatetables 1 /]
Beyond the United States
While many 12 out of 18 are in the U.S., particularly West Coast tech spots (eg. Austin, Los Angeles, San Francisco, Seattle), 6 out of 18 were based internationally, including Australia, Brazil,Canada,France, Singapore and Spain.
These are Not Just Small Companies
Of these, six were less than 100-person companies. Some 12 out of 18 companies were less than 1000-employee companies. One third of the companies had organizations over 1000 employees, with the largest being the Basque province’s Mondragno with 85,000 worker-members. (Update: One year after the date of this post, Github, Shopify and Stripe have undergone tremendous growth – supporting the view that bossless org structures are not incompatible with growth.)
Not Just High Tech
While the majority (11/18) are in tech-related areas, over one-third were not, representing industries as diverse as s automotive, aviation manufacturing, tomato processing to a natural foods supermarket chain.
Not Just Young Startups
Some of these organizations have a long history. Mondragon has been around since 1956. France’s Favi is over 50 years old and has operated without a personnel department for over 30 years. GE Aviation’s self-managed teams began over 20 years ago.
Caveats
So some of you are thinking, “Oh no, dweep blonde. You are off by orders of magnitude.”
After all, some might argue I should count all open software companies, those where there is the thinnest of dividing lines between producers and consumers, where the software can be modified and redistributed by recipients. Wikipedia today counts over 50 free open software companies alone. Are those not self-managed collectives?
Some might argue that hackathons should be considered. One list of hackathons compiled in the first quarter of 2012, counted 160 hackathons taking place worldwide. If we extrapolate that, it’s likely some 640 hackathons, groups of self-organizing code teams, take place each year.
Still others might argue to include the spontaneously organizing crowd challenges where teams of “Solvers” cooperate to address business, social and technical challenges for a large prize reward. As an example, Innocentive has enlisted over 285,000 Solvers across 200+ countries, addressing over 1600 challenges.
Whatever definition of “organization” you are willing to accept and the period of time over which they operate (one day as in a “hackathon” to decades for corporations such as Favi, Mondragon or Semco ), it’s clear that bossless workplaces are much more prevalent than one might first suspect.
Did I miss any obvious candidates? Who would you include? Or exclude?
On December 30, 1853 a dinner party was held in London that took place inside a life sized model of an Iguanodon created by Benjamin Waterhoue Hawkins and Sir Richard Owens. Today, if many corporate executives and managers were aware of the sea change afoot, they might realize that they too were sitting similarly, encapsulated inside the skeleton of a long extinct dinosaur.
Our existing hierarchical command and control management structure is much like an Iguanodon – a by-product of the Industrial Age, when businesses needed lots of middle-level workers to manage information inefficiently, so layers of management existed between the shop floor and the executive suite. Over the past few decades, a great many of those jobs have been lost, replaced by automation.
These thoughts were in mind as I listened to a recent podcast on Russ Robert’s EconTalk, interviewing Yanis Varoufakis, on the highly unusual work structure at Valve. As Varoufakis , Economist-in-Residence at Valve Software, reminded me, command and control management hierarchies are in fact a “glue in” of a pre-capitalist society.
There is no need for such structure at Valve. A maker of multiplayer video games, Valve’s Steam is the de facto open platform for the distribution of not only the games and media produced by Valve, but also by its large software competitors as well as small indie developers. As Varoufakis pointed out in his interview, what this affords Valve is a helicopter view of a very large online barter economy, one fueled by a freely available application programming interface, Steamworks. It turns out the free-form interaction of the Steam community and its barter economy have a lot to do with how the Valve work environment is shaped.
What’s Different About Valve
A Bossless Environment.
At Valve, there are no bosses. There is no explicit hierarchy. A more radical version of Googles’ 20% free time, where employees are allowed to pursue their own projects, employees at Valve have free time 100% of the time. If you read the Valve Employee Handbook (a must-read!), employees are advised “You run the company”.
A Social Economy Fueled by Intrinsic Motivation and Intrinsic Rewards
At Valve, the secret sauce which drives the organization is the social fabric, or as Varoukakis puts it, “self-regulation on the basis of social conventions” shaped by employee hires who “are at the top of their game”, and who are motivated by rewards beyond money. Per Varoufakis, “The sheer satisfaction of having shipped something that then gets rave reviews by the customer base on Steam is not to be scoffed at. It is a major reward system.”
Knowledge Workers on Wheels
There’s a very physical differentiator between Valve and most companies: Employee workstations are on wheels, with movable network connectivity. This means that when an employee wants to join another project, they simply unplug their workstation and connect into the local group. This is not unlike the Brazilian manufacturer Semco, which also offers a very unstructured work environment and which encourages swapping chairs with other employees.
Self-Governance by Peer Review
Hiring is central: It’s the all essential hydrogen element of fueling the Valve star system’s nuclear fusion.
This ethos carries over to employee performance assessments where retention and reward are assessed by a group-view of how the contributor did or did not contribute to company performance. Valve’s is a meritocracy held together by a tight, but far from constraining social fabric. Indeed, there is the potential for as much as a 5X performance bonus over salary available to all employees, not just a select elite.
We’ve seen foreshadowing of similar forms of enlightened autonomous employee culture earlier from both Whole Foods and Netflix. (Note the latter’s employee handbook published online in 2009 inspired 3.9 million downloads.)
The Emerging Knowledge Worker Manifesto
Many corporate managers, reviewing the above, are surely astonished. And more astonished still to learn that Valve company’s Founder, Gabe Newell, candidly describes the company as operating under the principles of anarcho-syndicalism. Yes- the same anarcho-syndicalism mentioned in this Monty Python skit below. And as with Monty Python’s “annoying peasant” who regards centralized, hierarchical structure as repressing , Valve’ s culture regards the C&C structure as repressing innovation of knowledge workers.
Urging them that their talents may be wasted sitting at the dinner party inside the Iguanodon, the battle cry to knowledge workers is quite clearly expressed in Varoufakis’ closing paragraph on Valve culture.
The current system of corporate governance is bunk. Capitalist corporations are on the way to certain extinction. Replete with hierarchies that are excedingly wasteful of human talent and energies, intertwined with toxic finance, co-dependent with political structures that are losing democratic legitimacy fast, a form of post-capitalist, decentralised corporation will, sooner or later, emerge.
The eradication of distribution and marginal costs, the capacity of producers to have direct access to billions of customers instantaneously, the advances of open source communities and mentalities, all these fascinating developments are bound to turn the autocratic Soviet-like megaliths of today into curiosities that students of political economy, business studies etc will marvel at in the future, just like school children marvel at dinosaur skeletons at the Natural History museum.
If you have experienced the waste of human talent and energies inside traditional corporations compared to the free-wheeling innovation in start-ups, you can’t help but takes some glee in Varoufakis’ bold pronouncement.
Time to Short Command and Control?
We cannot be cavalier in dismissing the status quo. After all, this is the very system that brought about a 50x increase in productivity to the U.S. economy. In fact, the commenters on Varoufakis’ post on Valve culture, as much as they were enchanted, brought up some cogent objections. Let’s look at and respond to several …
The Valve Workplace Model isn’t Scalable
Valve has managed to grow to 300 employees today and claims it can handle hiring some 30-40 new ones per month. Can it grow further? Look at Brazil’s Semco as an possible predictor: Also operating a fairly work-time unstructured, peer review-dominant workplace, Semco today has some 3000 employees.
There’s a bigger question here: Is scalability as relevant in today’s networked economy, where consumers are also producers? The importance of scalability comes from a traditional corporate perspective, where the distinct barriers between producers and customers exist. If one considers that a good deal of Valves’ producers are creator-customers (eg. the independents and employees of small and large software houses creating the 1400+ games and tools for Steam), the effective workforce is probably more 800.
The Model Doesn’t Support Fast-Paced Decision-Making
For Valve as for many other companies in the current digital networked economy, the end-consumers include a large number of producers, so-called “co-creators”. Even between platform releases, the product is under evolution from these consumer-customers: One indie developer may create a special hat with magical powers that confers advantages to a game player’s avatar and makes that available for sale, adding to the game complexity and providing a new potential transaction. Another developer may devise a virtual hammer useful in certain game situations, again making the digital tool available for a price. In effect, co-creator consumers create more time for the company to produce the next platform.
This is true for all companies which open their platform to partners and customers for sharing and transacting. Consider the app world of Apple iOS and Google Android: Between platform releases, consumers can enrich and deepen their interaction with the current platform through the new features created by app developers. Recognizing this factor of a co-creator digital economy, underscores the earlier point that the “virtual workforce” in such platform companies is larger than the nominal employee size, making for greater productivity, off-setting the fixed costs of development while also scaling.
As I’ve posted earlier, Eric Von Hippel of MIT and colleagues have shown that in the U.S., U.K. and Japan alone, product modifications by some 18.5 million consumer-innovators generate $31.2 Bn a year. This decreasing dividing line between producers and consumers signals one roaring game-changer for conventional corporate structures.
The Valve Model Only Applies to Knowledge Workers
It can be said that such rarified work environments as Valve’s only apply to knowledge workers, such as Ph.D. researchers, software developers and designers; it can’t possibly apply to the average worker. But there’s a growing viewpoint that the “average worker” with the “average job” is becoming a relic of the past too. I see this as an extension of a view described in David Bollier’s Power Curve Society: The Future of Innovation, Opportunity and Social Equity in the Emerging Networked Economy ( a highly recommended read) which examines in depth the decreasing relevance of “average” and bell curve distributions in our working society.
While Power Curve Society vexes as to what exact shape our organizations need to take to meet the increasing pressures of fast-paced technology innovation, a quote from Joi Ito, Director of the MIT Media Lab and a contributor to the Roundtable described in the book, suggests we are not far-off from a Valve-like future.
The most interesting and rewarding jobs of the future are likely to require entrepreneurial talents, practice-based skills and a healthy sense of anti-authoritarianism.
The Valve Workplace Model Only Applies to Near Monopolies
This last point is raised by Varoufakas himself. Opponents argue that this form of bossless workplace is a luxury that can only take place where there is no scarcity, for instance, there can be no struggle to meet revenue targets or fierce need to meet a new product deadline due to competitors nipping at your heels.
This is perhaps the more cogent of the objections. Valve is valued, by Forbes estimates, at $2- $4 billion, owning some 50%-70% of the $4 billion online PC games distribution. So too, Netflix can be said to a near-monopoly in video distribution. Topping the pile, there’s no argument that Google has a near-monopoly position.
Interestingly, each of these companies grew by virtue of networked effects, where the value of their product or service increased with the number of users. The more users used these products, the more the value of their products grew in the perception of other users.
There are two reasons we expect to the growth of such tech monopolies to reshape the workplaces of the future: 1. More companies overall are migrating to the networked economy where they will be able to harness high growth network effects. 2. As stated earlier, increasing competitive pressure associated with greater intelligence derived from Big Data analyses, will tend to favor knowledge worker-based companies (or at least those with a strategic group of knowledge workers). Tim Wu’s Wall Street Journal piece, In the Grip of the New Monopolists does a great job of describing this ongoing trend.
Why It’s Time to Go Short on Command and Control
The objections and risks associated with a Valve-like future work environment, when evaluated against the trend toward a networked economy, open platforms and the emergence of co-creators consumers, leads to the exact opposite conclusion: There’s greater risk not to support a decentralized bossless knowledge-worker environment.
Yet the majority will tenaciously hang onto the dinosaur skeleton of command and control. Open reception to revolutionary change is about as likely as someone having convinced them to short sub-prime mortgages in 2006. And we know there weren’t many that foresaw that.
Bone-hanger-oners, beware. The libertarian view of Varoufakis’ inciting pronouncement pales against another (not mutually exclusive) version of the future workplaces, one more synergistic with a digital economy. Consider that the anarcho-syndicalist culture of a Valve isn’t quite complete: In its pure form, the owners of an anarcho-syndicalist organization transfer the capital, the ownership, to the workers. Yup – there’s still a more open structure that might cause even a Valve to “Shut TF up and run”: Guilds.
This greater threat is described by Bill Coleman, Partner in the venture capital firm Alsop Louie Partners, in “Power Curve Society”,
The productivity revolution being ushered in by the Internet and digital technologies will reprise the Industrial Revolution in a new guise. In the coming century, capital costs and barriers to entry will be fundamentally disrupted, and human self-actualization on an individual basis, will drive participation in an open, global chain of commerce. In this “pull world”, where everyone has the opportunity to participate, people will work through “guilds”” in every specialty – music, writing, film and even law, medicine and financial services. I also believe in a revolution of monetization, in which guilds (not unions) will lead innovation and demand compensation commensurate with their contributions. Meanwhile, the concept of a vertical enterprise will morph as it becomes more adaptive and fluid.”
If you think guilds are far, far away, look no further than to what Threadless and Etsy have done. In other words, large-scale enterprize, may and need to adapt – much as Peter Drucker describes below. The most important, and indeed the truly unique, contribution of management in the 20th Century was the fifty-fold increase in the productivity of the MANUAL WORKER in manufacturing. The most important contribution in the 21st Century is similarly to increase the productivity of KNOWLEDGE WORK and the KNOWLEDGE WORKER There’s no doubt: Everyone could use a tad more anarchy in their tea. The very important question is: How much anarchy is too much? How much (my innovators of the “One Day Employee Exploration Day”) is too little? Credit/Source for The Iguanodon Dinner Party engraving