CHAPTER 3–FROM MISERY TO JOY Early on, two crises tested Bakke and Sant’s decentralized, values-driven philosophy. The first showed them that encouraging freedom to act and make decisions was as hard a sell to employees as it was to executives and boards of directors. In mid-June 1992, nine technicians at AES’s new plant in Shady Point, Oklahoma, conspired to falsify water test results reported to the Environmental Protection Agency and the state of Oklahoma. By this point, the AES shared-values and principles campaign was well under way. As AES brought the new plant on line and discovered operating violations, it had adjusted procedures and added new equipment to correct them. AES also conducted two confidential and anonymous values surveys during the conspiracy period, and no employee had mentioned anything amiss. So, when the guilty Shady Point workers said they had falsified samples because they feared losing their jobs if they reported a violation, Bakke and Sant were baffled. They thought that by now, employees understood the shared values and management’s commitment to trusting everyone and treating them as adults. They put that in writing in an AES open letter: “No one at AES has ever lost his or her job for telling the truth, nor will they ever, as long as we have anything to say about it.” The second crisis made clear that AES had further to go in living up to its shared values. Between the Shady Point news and a Florida interest group’s challenge to a new AES power plant, the company’s stock price sank 60 percent. Bakke saw that the stock price was more important than the breach in AES values to most AES leaders and board members. Those who had applauded the Bakke-Sant management philosophy when the stock price was high now believed AES was foundering because of the very same decentralization, lack of organizational layers, and unorthodox operating style. They urged Bakke to concentrate on making the profits that investors wanted to see and to tone down his values rhetoric, which they said made AES look hypocritical and arrogant. Bakke realized that he had done a poor job of teaching the intrinsic worth of the shared-values concept. The management of Shady Point reverted to a “proven” approach, and staffing there was increased more than 30 percent. Neither the business literature nor Bakke’s observations at AES suggest that operating AES in a more conventional manner would have protected it from mistakes. But weakening the shared values and principles, and the company-wide trust they fostered, would take the joy out of working there. To Bakke, work is “opus,” a voluntary, meaningful, and creative act. In his experience, pay has almost no effect on the quality of one’s work experience. People want to feel useful and creative, to know their work is significant, worthwhile, and trusted. They want to be part of a team contributing to a larger purpose. Failure and mistakes are as essential to learning as is success, in making games and work fun. Bakke strived to create such a learning environment at AES. His challenge became achieving economic sustainability while asserting his positive assumptions about people, all within established organizational structures—a tall order. CHAPTER 4–“HONEYCOMB”: DYNAMICS OF A JOYOUS WORKPLACE “What made AES unique was that we acted on our ideas,” Bakke writes. Some became policy, others were scrapped after one try, but gradually AES became a different kind of organization. For example, Bakke and Sant improved management and increased workplace joy by cutting the layers of supervision between the CEO and entry-level people. They disbanded “service” departments and central staff groups, integrating the specialists into local plant and office work teams, and into task forces that operated company-wide. In some cases, the company retained three layers from top to bottom and, in rare cases, four. Everyone, from entry-level worker to CEO, became an “AES business person,” with equal rights and opportunities, responsible for performing his or her functions in the context of balancing the interests of all stakeholders. Decentralized and integrated, the environment supported trust, freedom, and individual action. AES named it “Honeycomb.” Bakke and Sant also moved the organization to become transparent, so that information could flow in all directions and be shared by people working at all levels, from CEO to line worker. This became the basis for the “advice process.” Before making a decision, and to ensure the best possible balance of interests among all affected groups, everyone on a team or task force was required to ask for as much advice as possible inside and, if necessary, outside the company. Operating unit work teams took responsibility for everything in their areas: budgeting, workload, safety, schedules, maintenance, compensation, capital expenditures, purchasing, quality control, hiring and firing, education, risk and environmental management, economic performance, long-term strategy, charitable giving, and community relations. Every team member gets an on-the-job education in what it takes to run the business, as well as an appreciation of their colleagues’ work. After AES went public, employees overwhelmingly chose to continue getting full access to information, even though they would be considered “insiders” and restricted from freely trading AES stock. In the AES experience, the typical restructured organization can accomplish twice as much with half the number of people. Bakke favors 300 to 600 as the “right” number of people to staff any one facility, divided into roughly 15 to 20 teams of 15 to 20 people each. Above 500 or 600 at a facility, people have difficulty identifying with the organization, its values, and mission. The team size limit is pragmatic: Most of us have difficulty maintaining strong relationships with more than 20 people. Chapter 5–Scorekeeping, Accountability, and Rewards Workplace freedom must be balanced by accountability and feedback on performance. This starts at the top. Sant suggested basing executive compensation half on how the individual advanced the organization’s values and principles and half on his or her technical performance. Evaluating technical, earnings, and growth performance was relatively easy to do with standard tools. Business development was more difficult to track; decisions made today may not show results for years. Judging values performance was more subjective. So, AES started using a company-wide annual values survey. By 1988, the survey was generating tens of thousands of comments and took months to review, summarize, and distribute. The results presented such an accurate, current picture of AES that every business unit was required to read and discuss them. The comments were overwhelmingly positive, regardless of the AES business person’s nationality, religious affiliation, political system, income, or education level. From the United States: “You have to be blind not to realize what the corporation has done to change the way people view their workplace”; from Pakistan: “The AES values at work are basic human values and are similar to what we tell our families at home”; from South Africa: “These were our values before you came to our country.” Most negative comments came from those who had been part of the company fewer than three years. The surveys always reminded AES management that they ran a highly unusual company. Worker performance reviews were also unconventional. At AES, the subordinate did an extensive self-review, with the leader assuming a coaching role. Worker compensation was also the subject of experimentation. Bakke realized that arbitrary pay structures maintain two classes of people, management and labor. Regardless of where AES did business in the world or under what political system, the same gulf existed between the two groups, often aggravated by the elitism of management and the militancy of unions. Bakke found this system morally unsupportable and inconsistent with AES shared values and took a novel approach: Put everyone on salary. Such a step had never been attempted on this scale before. U.S. labor laws prohibit forcing such a change, to protect hourly workers from management exploitation. It took Bakke three years of lobbying to persuade AES plant leaders that they could experiment and create a voluntary program. People could choose to take salary (calculated based upon hourly pay and average annual overtime), then opt back into the hourly pay and overtime system at any time, no questions asked. As part of the package, everyone salaried was eligible for bonuses and stock options, based on individual, plant, and corporate performance. Each plant also kept a record of hours worked, for government accounting and for individuals who decided to opt back into the hourly system. When AES started the compensation policy change in 1993, only 10 percent of people worldwide were paid a salary. By the time Bakke left in 2002, more than 90 percent of 40,000 people in 31 countries were paid salaries, just like the company’s leaders. This giant step helped break down barriers between management and labor, bringing them together as AES business people. Most became more productive, took more responsibility, initiative, and pride in their work, and spent less time than before at their plants and offices. This gave them more time with their families and communities, and, most important, it built their self-respect.