Should employees get to elect their CEOs?

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Back in 2013, a German company, Haufe, introduced a unique democratic CEO selection process. The employees of the company are given the right to choose the CEO through elections. Kelly Max, who was elected by the employees, as the CEO of the US branch in 2016, revealed to a media outlet how the practice came into being. He shared that Hermann Arnold, founder of Haufe, felt he wasn’t the ideal candidate for the post of global CEO as the company widened its roots all over the world. He stepped down from his role and became the chairman of the Company. That’s when he felt “If we truly believe employees run companies–as our fundamental market approach says–what better way to prove it than to have our employees elect the next CEO and other top leaders?”

Resultantly, all 200 employees at that time were given the right to choose their CEO and they selected Marc Stoffel. This led to voting becoming an annual practice for all key leadership roles. Clearly, workplace democracy was the biggest objective in their minds here. The reason behind it is that it brought to light many shadow organisations, keeping pace with the changing world, even while earning motivated, dedicated and engaged employees. The election process was akin to what one sees in a democratic nation. The nominated professionals had to get into campaign mode three months before the polling day. Every year, the employees voted anonymously after hearing out the elected leaders’ feedbacks on how far they had accomplished their goals during a company retreat. As per Business Insider, the one who lost either accepted a new less senior role or left the company.

“Management is not a popularity contest. Leaders cannot be chosen because they are popular. I don’t think it is practical at all, as benefits don’t outweigh the concerns.”

Sudheesh Venkatesh, chief people officer, Azim Premji Foundation

Seven years down the line, however, the policy is no longer in practice. Hermann Arnold explained to Xing, “Due to the continuous growth of Haufe-umantis and the increasing number of locations, it has become more and more difficult in recent years to organise democratic elections, and above all, to ensure a prior exchange of views on the respective expectations of good leadership. In addition, differences of opinion and conflicts between employees and superiors were sometimes “postponed” until the time of the election, which reversed an important advantage of the elections, namely the increase in leadership quality. And last but not least, elected superiors are also part of a particularly prominent hierarchy, which increasingly contradicts today’s demands on agile companies.” HR Experts believe chinks in the armour should have been spotted at the conception stage itself, as it was highly impractical.

Ranjith Menon, senior VP, head – international HR operations, Hinduja Global Solutions, doesn’t think it’s any different from what happens inside the boardrooms. However, doing this as a democratic process makes him question whether a CEO is a campaign person or running for the company’s results. “CEOs exist in an organisation to provide shareholders the value. In a private company, where one is not answerable to shareholders, one can probably do something like this. However, the moment one becomes a listed company, there are laws and regulations to adhere to. Even if one goes through it, one will have to take the board of directors’ approval as a public limited company. So this may work with a 50 to 100-people company but not a 5000-people company,” he elaborates.

“Populist movements in leadership roles don’t make sense. One takes difficult decisions as a leader, and some of these decisions can make one unpopular too.”

Jayati Roy, director – HR, Barco

A CEO is supposed to bring revenues to the company and not go meet and popularise himself. It’s nice to read about it but Menon doubts the practicality of it the moment it becomes a big organisation. “What if the CEO’s five strong supporters go away? Should the CEO be focusing on creating value for the company and its people or on elections?’ are some of the questions that Menon has about the whole process.

It also heavily depends on the organisation dynamics. Most of the time, if the organisation is doing well, everyone will try to put their bet on the safe person. Between innovation, creativity and sustainability, one needs to have a clear balance. At the end of the day, organisations have to make money. “If it’s done for a sense of empowerment, is it also recognising the competence a CEO should have? I may want to go out for a drink with that person or a movie as well, but in the corporate structure, I may think twice to have the person under me. In the real world, it is mostly the unpopular guys who get the work done,” Menon adds. He, however, asserts that he isn’t stifling the idea but it may work in a situation where everyone knows everyone.

Jayati Roy, director – HR, Barco, says strongly that if the policy is no longer in place, it is clear that it was not applicable. “A strategy can never be a short-term thing. The CEO is expected to drive visions, lead by example, go through a strategic roadmap and all that. Elections may not be the best way to do that. This whole democratisation of everything is not making any logical sense. How can a technician understand who is better? Practically, it doesn’t sound like a great idea, which is probably why it has not been toyed with.” She too is of the view that for a smaller organisation or a startup where one wants to give them an exposure, it could be introduced. “But if the other person is demoted or thrown out, it will be a loss of good talent because two good talents will be in competition here. Populist movements in leadership roles don’t make sense. One takes difficult decisions as a leader. During this pandemic, in particular, where there were many pay cuts, CEOs may not have been as popular as they were at a time when the organisations were in a boom and in a position to dole out more money. Therefore, a CEO at that time may become more popular,” reasons Roy.

“This may work in a company with 50 to 100 employees but not in a company with a 5000-strong workforce.”

Ranjith Menon, senior VP, head – international HR operations, Hinduja Global Solutions

Sudheesh Venkatesh, chief people officer, Azim Premji Foundation emphasises that a CEO is responsible for multiple stakeholders. “A CEO’s job is not about being the chosen one for the employees. The employee element is just one part of it. This kind of a system will diminish the completeness of a CEO’s responsibility because when one chooses a CEO, one will factor in everything. Second, management is not a popularity contest. Leaders cannot be chosen because they are popular. Third, in some cases, such a situation may be thrust upon the team. Also, people do not have perspectives to choose such leaders. I don’t think it is practical at all, as benefits don’t outweigh the concerns. If it has to be done, it still has to be in a small circle of people.

It is abundantly clear that such a policy of electing one’s own CEO is unfeasible and has a lot of loose ends. Leading an organisation is not a popularity contest, as suggested by the HR experts. That is probably what prompted Haufe to look for other methods to empower its employees.