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Fiefdoms went out with the Middle Ages, So Why are We still Using The Same Organizational Structures in Corporations

I’ve been in a number of situations over the years where people refer to some senior level executive being in charge of his own little fiefdom.

After spending more than 20 years working (most of it in large companies), it is amazing that when you take a close look at corporations they really are run like Medieval fiefdom. There is a king, his cadre of nobles, freelance knights, a small merchant class and loads of serfs. It’s kind of amazing.

To be more specific:

  • There is a senior executive who in many cases has a significant amount of decision making power. In public companies where the Chairman is also the CEO, he (and it’s almost always a “he” in these cases) usually controls the board of directors and can act with near impunity. As a result, these senior executives are usually paid like a king, despite the performance of their kingdom.
  • The nobles consist of either the senior leadership team, the board of directors, or both.  They usually do the bidding of the senior executive and make decisions based as much on personal opportunity/gain as on the potential well being of the company. This group is frequently completely out of touch with the front line workers under them and makes decisions and rulings based on heavily filtered information.
  • When you look at the lower ranks of corporate management it has a very similar structure to the feudal noble ranks with similar opportunities to advance and prosper. In feudal societies, the lower ranking nobles were the ones responsible for keeping the masses in order, ensuring the serfs worked as needed and stayed in their place. Basically, middle management for the fiefdom.
  • In the corporate world, the equivalent of the medieval knight is the “outside consultant.” Much like in feudal times, when knights were available as hired swords to defend or enforce the king and noble classes, consultants provide a convenient buffer for executives who need justification for making tough decisions. Need to make painful cost cuts to increase shareholder returns, “efficiency” and profitability (plus increasing executive compensation), but don’t want to make any of the decisions about what to cut? Hire a consultant and point the finger at them for all the pain. That’s what they are there for.
  • This is not to say that all consulting projects are nefarious covers for executive greed, Consultants often provide necessary outside counsel and advice on areas where a company does not have expertise, much as knights would help kings improve their defenses, mend relations with neighboring kingdoms and provide support in other ways when needed…all for a price.
  • The merchant class is an interesting one. In the corporate world, these are the people and companies who provide outsourced support for basic functions such as custodial, food service and groundskeeping. While they don’t necessarily fall under the direct management of the company, the executives have the power to determine whether they will continue working for their company.
  • Finally, there are the serfs – aka “worker bees” in corporate vernacular – who actually do the work. Rarely do these employees have much if any decision making authority (despite what companies say), and usually they are the ones whose necks are most on the line if a company runs into difficulties, has a bad quarter or suffers from poor executive decision making. You virtually never hear about a company “slashing the ranks of it’s executives,” but when a company says it is cutting headcount you can generally assume that the serfs will be hit the hardest.

Even more amazing is when companies have multiple fiefdoms with thick castle (silo?) walls between them. There are few things more amazing to observe than an executive making a “business” decision based solely on their desire to keep a project to themselves and not share it with another executive. I have seen examples where one executive offered to co-fund a campaign or project and another executive declined because they felt that it might make them appear weak and that they could not manage the entire project themselves. Unbelievable.

Admittedly, I am a bit cynical about corporate structures and the decisions making process – 5 times in a 20 year career I have been either reorganized, bankrupted or terrorized out of a job. I have held senior level positions and seen how decisions are made, how outside consultants can influence executive decisions and how personal priorities can trump business imperatives. Even more amazing is when decisions are made based on business need – not personal appearance – and you have to explain to other executives why the big flashy campaign is not cost effective (It’s better for the business?).

Is there a better structure for businesses and corporations? Honestly, I don’t know, but I am willing to bet that when you look at many of the more successful small and medium companies out there, you will find a very different approach to managing the business.

For a number of years, I had the privilege of working at the company rated as the best place in the word to work and believe me, everything you’ve heard about the workplace is true. The interesting thing to me is understanding why it is the way it is. Many of the “amenities” were implemented for purely business reasons. Critically important women were considering leaving when they had children because of the cost of daycare, so the company added on-site daycare. The company determined that it took half a day for the average employee to go to their doctor, so they added on-site healthcare. Workout facilities, gourmet food, everyone getting their own office, all of these decisions were made for a reason. The result is very low turn-over and deep institutional knowledge that goes back to the founding of the company. Financially, the net result is that the company probably saves around $100M per year in productivity gains and saved recruiting costs. Those are things you’d be hard pressed to find in the accounting books, but they are very real in terms of business success.

Much of this company’s success can be traced to business focused decision making (and really, really good software) and a deep seeded belief that employees are the core competence of the business. The fact that’s it’s a private company without shareholders screaming for maximized returns helps, but still the overall decision making process, structure of the company and attitude of it’s leadership is very different from most other big companies. It is not a perfect model, but it breaks many of the rules of the prevailing corporate fiefdoms.