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Comment by dheera | Hacker News Reader

What are the arguments for incorporating democracy into a company? Why must it be a democracy? What if your employees all have short term personal interests in mind, want 6 months a year of PTO, and overthrow the CEO to get it?

I always felt like seeking input from employees, especially those who have contributed significantly and that you value a lot, is extremely important, but it's not necessary for them to have board seats and votes to consciously take steps to obtain their feedback and make good use of it.

Since participation in a company is entirely at-will, what's wrong with "Join if you agree with the founders' vision, leave if you don't"?

Too many cooks spoil the broth.

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> What if your employees all have short term personal interests in mind, want 6 months a year of PTO, and overthrow the CEO to get it?

How does being a non-employee make an outside board member less self-interested? What if an outside board member wants to get paid $500K a year in cash for serving on the board and overthrows the CEO to get it?

At the end of the day board members have a fiduciary duty to shareholders that applies regardless of whether they're an employee.

The idea that someone who spends almost all of their waking hours on a company would be more likely to tank a company than someone who spends a few hours a month as an outside board member seems odd to say the least.

> What if an outside board member wants to get paid $500K a year in cash

That's the thing, they (assuming you're talking about an investor or cofounder) wouldn't want to. They're holding onto a chunk of equity that would be worth maybe $10M, $100M, maybe even $1G, if the company gets to IPO, so they would NOT want to sabotage the company by taking a $500K salary from it now and have their shares be worth nothing.

Employees who have peanuts in equity have different incentives. They couldn't give three hoots about the company's long term success if they can get $500K this year for a downpayment on a house to send their kids to a good school district.

That equity is still a short term interest, no? Sell it now and you don't have to care what it's worth in 10 years. It's a meme nowadays that companies have been entirely short term oriented for the past while, influenced by stock buyback programs for executives.

An employee has incentives like needing the company to survive so that they can maintain their healthcare, pay rent/mortgage each month, maintain a work visa, and recieve a pension. Getting a big downpayment on a house makes the employee even more tied to their employment, since now they have a bigger monthly cost to fill than before.

> Sell it now and you don't have to care what it's worth in 10 years.

Unless you're already clearly a unicorn it's not particularly easy to find a buyer for your founder equity in a startup at the prices it might IPO at if things go well.

Founders selling their own equity too early will also destroy morale and investor relations to the point where the company isn't likely to succeed anymore. Buyers realize this, and aren't going to hand you IPO prices for it.

If it's a VC-backed company, the board member merely represents the VC fund and wouldn't personally enjoy the entire upside of the equity the fund owns. I think it's possible that they would still take $500K risk free today over the value of future potential compensation that might trickle to them.

However, they also don't sabotage the company since word would get around that they or the VC they represent are terrible board members that sabotage companies.

Besides reputation damage, they can also be sued by the shareholders for failing to uphold their fiduciary duty.

It's similar to why the CEO doesn't just pay themselves their entire series C, close the company, and retire (assuming the bylaws allow the CEO to pay themselves).

> merely represents the VC fund and wouldn't personally enjoy the entire upside of the equity the fund owns.

Not always true. I've had VCs who want to split their investment between fund and personal at the last minute when you pretty much don't have a choice and don't have time to shop around.

Employees aren't idiots. They'll realize that the business still needs to run, but instead of a top-down approach from someone who thinks they're smarter that the people actually doing the work, the decision making is made by people who really know what they're deciding on.

I'm suggesting NOT being top-down, getting their feedback and letting them make decisions, without formal board seats and votes.

It's possible to not have a top-down approach on a day-to-day basis, but for the founders to still maintain veto power at the end of the day if shit happens.

I guess the question I would ask is the following. Assuming you're already doing a decent job of soliciting feedback from employees, what's the argument for effectively giving one employee a louder voice than everyone one else? Because I don't see how that doesn't happen to at least some degree.

What kind of honest feedback can a manager get from the employee he has firing authority over?

And what employee would prefer a promise to represent their best interests on the board over actual representation?

The issue is that they're not idiots but rational intelligent people that can understand different rewards. They can always get a new job and if the payout if higher from nuking the company along the way then it's rational for them to be biased that way.

Next, describe traditional board members and CEOs.

Exactly my point except their interests tend to be aligned with the other stockholders of the company since they all make money from the stock. The cases where they don't are well known such as VCs insisting on massive growth (go big or go bankrupt), activist investors and so on.

> Exactly my point except their interests tend to be aligned with the other stockholders of the company since they all make money from the stock.

...because of how executive compensation is typically structured. Non-executive employees can also receive stock grants.

Board members often have the same issue, but in a different way. Probably the favorite two step approach:

1. Guide the company to do things that boost the stock price in the short term (1-3 years) but destroy the company's ability to compete on longer time lines

2. Dump your stock position

This doesn't usually happen with founders, but I can personally attest to the fact that this has been done intentionally by board members of billion dollar businesses.

There are also more subtle approaches, e.g. board members pushing for strategies that hurt the company, but boost the board members' other holdings.

Not malice, not stupidity, but a third even more prevalent failing: incentives.

The argument is along the lines of John Rawl's theory of justice: I would prefer to work at a company where the culture is such that I feel comfortable joining it regardless of my place in the org structure. (Or at least -- the company where I would feel least uncomfortable doing so.)

A democracy would certainly give a company a huge advantage. I would take a significant pay cut for that. But it does have to produce tasty soup as well, and in order to exist at all, pay salaries.

I'll be candid in saying that I haven't found a company that meets my high expectations. :)

Participation in a company is not entirely at will. We all have to work for some company to survive. If all companies that I have access to are all authoritarian dictatorships, I'm forced to live under that kind of rule.

Your thinking doesn't seem to take into account the social and economic power dynamics at play. The working class has less bargaining power than the capitalist class right now in general. We are forced to live under their terms and have very little say in what the status quo is.

What are the arguments for incorporating democracy into a state?

Quite different than those arguments for incorporating democracy into a company, and also quite different to those arguments for incorporating democracy into a family structure.

In many cases, you don't have a choice to be born into a state. You're subject to it just by virtue of being there. It's not a choice. That's the difference.

That said, like pure authoritarianism, pure democracy as a state governance system also has failure modes, and its merits are also debatable.

You don't have a choice in workplaces either. Basically all workplaces are run undemocratically.

I believe workers as a class should democratically control the economy so that production can occur for human need rather than profit of owners of capital.

That's only possible if every workplace is organized along those lines, and workplaces are networked together to coordinate their action. It's not possible by people just leaving a company, you need to also construct the structures of democracy.

> Too many cooks spoil the broth

I don't understand how this applies. If anything, having only employees on the board would mean fewer total cooks (i.e. stakeholders influencing decisions) compared to having those same employees in the company plus a board of outsiders.

What if the far more common occurs, and the C level execs raid the company for their own short term interests?

Or isolation of the board from information at all levels of the company leads to poor decision framing?

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