Joy at Work

How Can Work Be Fun?

Dennis W. Bakke, the co-founder and former president and CEO of the Applied Energy Services Corporation (AES), acted on his belief that work should be enjoyable. He has some other strong beliefs as well. For instance, business leaders should think beyond increasing profits, reducing costs and improving efficiency. Highly centralised, hierarchical management stifles initiative. Managers should not regard employees as disposable “assets.” Each job should have meaning and employees should share in some exalted purpose. Integrity, ethics and transparency should be bottom-line considerations.

“Creating economic value is a prerequisite to being a viable business, but the value cannot be limited to shareholders.”

Bakke and his partner, Roger Sant, applied these ideas as founders of AES, an international energy firm with thousands of employees and millions of customers. They built a company where worker satisfaction and “fun” were as important as profits. Bakke and Sant put their money behind their beliefs to shape a remarkable corporate history.

“Methods are many, principles are few. Methods change often, principles never do.”

The two men met when they worked for the Federal Energy Administration in the early 1970s. They jointly prepared a Mellon Institute study that called for a new energy industry paradigm: separating the generation of electricity from its distribution. Bakke and Sant contended that the absence of government regulation of electricity generation would result in cheaper prices, and would enable improvements in operations and service. In 1982, they secured a $60,000 bank loan and $1 million from investors to form AES, the type of private electrical generation firm that the Mellon study had proposed. They wanted AES to be radically different in another significant way. They intended to create a company as focused on principles and values as on profits. “Let’s make it fun,” Sant said, and Bakke enthusiastically agreed. Their employees would enjoy coming to work.

“Joy at work starts with individual initiative and individual control.”

What did “fun” mean to Bakke and Sant? They wanted their employees to experience “joy at work,” to feel empowered and in charge. They wanted to make workers as responsible for the company’s achievements as senior executives. They wanted people to find their jobs inspiring and rewarding. To achieve these goals, AES deliberately departed from the Industrial Revolution attitudes that still prevailed in many businesses: Employees are lazy. They can’t make logical decisions. They need guidance. At the time, most companies still treated workers with tactics that dated back 250 years. Bakke and Sant vowed things would be different at AES.

“We have made the workplace a frustrating and joyless place where people do what they’re told and have few ways to participate in decisions or fully use their talents.”

They set out to create a company that used its values as bedrock directives governing daily operations. Bakke and Sant decided that AES would honour and practice its values not just because they “worked,” but also because that was right thing to do. “Social responsibility” would be primary. To Bakke and Sant, this meant delivering reasonably priced, reliable, clean, safe electricity while serving society and AES shareholders. Bakke, Sant and their executive team saw themselves as “servant leaders.” They based internal advancement on attaining individual goals and practising ethical behaviour. As it expanded internationally, AES clearly communicated these values to its employees. New hires had to accept these principles as a condition of employment.

Centralisation versus Decentralisation

Most organisations operate in a hierarchical, centralised fashion. Decisions emanate from the top and filter to the bottom. This model prevails – particularly at large corporations, though less so at start-ups – because most executives do not want to cede power and control. The business world operates in a hierarchical fashion for these additional reasons:

• “Information and data-gathering technology” – Many managers can now observe, assess and control their operations from their desktops.
• “Top-down responses to mistakes and problems” – Businesses circle the wagons in time of trouble. The tendency is to force everyone to use a common script.
• “Government regulation” – Government agencies that oversee business operations focus on senior executives not on ordinary workers.
• “Service suppliers” – Outside vendors prefer centralised purchasing.
• “The acquisition of knowledge and expertise” – Companies place their most knowledgeable executives and experts in positions of power. This makes sense. However, one result is that lower-level employees routinely defer to senior executives.
• “Boards of directors” – Board members want to deal with senior executives, not mid-level employees, though mid-level staffers make most of an organisation's decisions.
• “Paternalism” – Managers always want to feel in charge. This leaves employees to function as if they were children.

“A joy-filled workplace gives people the freedom to use their talents and skills for the benefit of society, without being crushed or controlled by autocratic supervisors.”

True iconoclasts, Bakke and Sant decided to use AES to deflate the classic hierarchical system. They introduced the “honeycomb system of self-management teams” in 1987 at AES’ Houston power plant. This flat, open management method was a radical departure from the standard top-down business model. Everything centred on freedom and trust. In this decentralised, self-regulating system, employees and managers served on self-managed teams and shared decision making. No one made decisions alone or in a vacuum. Bakke and Sant eliminated procedure manuals, shift supervisors and work titles. Staffers simply classified themselves as “AES people.” Within limits, employees could even set their own wages. All employees received salaries; hourly pay ceased to exist. To make the new system work, Bakke and Sant were remarkably willing to cede much of their authority to others.

Thriving Beehive

Bakke and Sant’s honeycomb management system quickly became self-sustaining, mostly because it fulfilled workers’ desire to feel responsible and in control of their jobs. Workers who share in the direction of a company and of their own affairs are content and satisfied. Deny them this opportunity, and morale will suffer because powerless workers cannot feel true “joy at work.” And, when workers’ morale declines, so does the company.

“The primary factor in determining whether people experience joy or drudgery in the workplace is the degree to which they control their work.”

Under the honeycomb model, AES employees worked in teams to make operational decisions based on advice and consensus. No one was allowed to make a decision that affected the business without going through the “advice process,” and seeking the counsel of his or her peers and leaders. On more important issues, the person had to cast a “wider net” and get more advice. Did this work? Bakke and Sant determined that letting workers run much of their own operations doubled “the effectiveness of new acquisitions with half the original number of employees.”

“My notion of leadership does not require a John Wayne or a General Patton or a Jack Welch to swagger on the scene and save the day.”

In keeping with decentralisation, Bakke limited the central staff to a minimum. He and Sant insisted that AES compensate its senior executives based on their individual business units’ performance, and on how well they promoted the company’s principles and values. They instituted an annual employee survey to determine how well the company was achieving its goal of providing an enjoyable work environment.

“Special Risk Factor”: AES’ Values

In 1990, Bakke and Sant decided to take AES public, but they wanted to continue to ensure that it would justly serve society as well as its shareholders. They worried that it could be difficult to maintain their values while meeting stockholder demands. In a memo written to accompany AES’ public offering, Bakke and Sant said that if a conflict arose between the firm’s values and its profits, AES would always choose to maintain its values, even if that meant a decrease in profits. Officials at the U.S. Securities and Exchange Commission (SEC) suggested that Bakke and Sant move this memo to the “Special Risk Factors” section of the public filing. The SEC apparently felt that a company that adheres to its stated values over profits presents a risk to investors. AES displayed the profits and values statement front and center in its offering. When it opened on NASDAQ, AES’ share price was $19.25 (it later traded on the NYSE).

Stock Problems

AES’ stock value dropped steeply in 1992, prompting Bakke to embark on a special mission with board members and other senior people at AES. He contended that a business must do more than create shareholder value. He said AES’ true assets were its values and principles, as well as its strong economic position. But in 2001, AES’ stock price again fell sharply, from $70 to $26. Bakke’s continued messages about values and principles fell on deaf ears among his board members. Panic set in when the stock price slid to $12.

“Leaders serve an organisation rather than control it.”

AES was not the only energy company in trouble. Falling share value was an industry-wide problem. In December, Enron went bankrupt. When AES stock hit $5, board members quickly began to make changes. They centralised decision making, de-emphasised principles and values, and turned away from trying to provide a “fun” workplace. Bakke was saddened that many board members had merely parroted his allegiance to values because it had worked, not because it was right. Now that the company had problems, board members were willing to scuttle its philosophy.

“The primary reason leaders experience joy at work is not prestige or status or even financial success. It is the control they have, the decision-making authority that gives them a chance to make organisations succeed.”

With its stock price tanking, AES quickly became the subject of major internal and external criticism. Its decentralised structure was a primary concern, though Bakke and the board had played central roles in all key decisions. AES’ business problems did not stem from its focus on making work enjoyable. Indeed, if it weren’t for its high ethical standards, devotion to service and focus on transparency, the company would not have been able to refinance after its stock price plummeted. But it was able to. AES was not the only big energy firm that took a bad hit in the early years of the 21st century. Nearly every major industry contender suffered stock price drops as bad or worse than the AES’ woes. Its business performance was stable, though its stock price was not. The main problem was a recession exacerbated by Enron’s collapse and the 9/11 attacks.

“Today, the emphasis on earnings and share price has crowded out the important human qualities needed to run a healthy business.”

When these troubles occurred, Sant had not been involved with AES’ day-to-day operations for six years. However, the board asked him to rejoin the firm to supplant Bakke, who retained his CEO title “in name only.” The board changed the company’s focus from providing “sustainable” electricity to increasing shareholder value. Undercut, in 2002, Bakke decided to retire from the firm that he co-founded, built from scratch, led for eight years and dearly loved.

Roadblocks

Bakke continues to believe that his and Sant’s idealistic and highly original model is the correct way to run a company, though he understands why it may never fully catch on within the corporate world. First and foremost, managers do not want to cede control. This means they may adopt the fun workplace model in name only. If so, employees will see through the sham quickly. Employees will never feel joy if they work for an organisation with a superficial mission and no real purpose other than making money. Board members and management may attribute all their problems or mistakes to decentralisation, when the real culprit is simple human fallacy.

“The most important questions in business are often never asked: What is our motive? What is our purpose? Are they worthwhile?”

Without transparency, senior executives will hoard financial information and other pertinent data. As a result, employees will feel that management does not trust them. The certification of data on government standards may remain the prerogative of senior management, thus marginalising workers. Board members and senior executives may handle all decision making, leaving workers to feel like they are not really playing a meaningful part in the organisation. Finally, management may set itself up as paternal or as a superior class to labour, which becomes an adversary.

“People want to be part of something greater than themselves. They want to do something that makes a positive difference in the world.”

Advancing in business requires humility. The humble person understands that nothing is completely controllable, including profits. Once executives accept this reality, they will be better able to understand that a business must strive for more than a healthy bottom line. This means treating everyone within the company with dignity. It means holding onto the highest ethical standards. And it means working toward some transcendent purpose, more than just money and profits. No person should sell himself or herself so cheaply, and neither should a company.

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About the Author

Dennis W. Bakke is the president and CEO of a U.S. charter school company. He co-founded AES, and served as its president and CEO for eight years.