The sea change

Recently, organizations large and small have radically rethought company design by embracing human-favorable policies, including establishing livable wages, developing creative equity plans, offering paid parental leave policies, and even pulling out of an entire state in protest of discrimination. In addition to sending a strong signal that people come first, these organizations are also making an economic argument to investors that these policies pay dividends in reduced turnover and improved business outcome.

Some call this corporate social activism. We call this Human Company Design.

Human Company Design: a management approach that creates value by investing in people.

We define value creation broadly, taking into account both near-term business gain and long-term societal gain. We define “people” to include employees, their families, their communities, society, founders, and investors.

To be abundantly clear, Human Company Design is not about warm fuzzies. It’s about a new business imperative that makes for stronger, more sustainable businesses. It’s about the development of an inclusive talent pool. It’s about a smarter, more efficient way to do business. It’s about the choices you, the founder or CEO make, as well as the choices your investors make when placing a bet. Foosball or healthcare coverage? It’s just a decision. But it’s a decision that will dictate who wants to work for you, your company, and your industry — in the long run.

Why now?

We are 16 years into the 21st century, and yet businesses are still created, funded, and operated with 20th-century ideals. That is, we extract as much as possible out of resources, including people, in the name of shareholder value.

This is clearly not good for people. But it’s also not good for business.

The choices that CEOs and boards make—including employee compensation, executive compensation, eliminating the gender pay gap, and providing access to healthcare—directly contribute to income inequality. And income inequality contributes to wealth inequality, which is at its widest gap ever, with the top 1% of our population owning 40% of our wealth.

Furthermore, we are currently observing a growing inequality gap among businesses. While corporate profits in America are at an all-time high, distribution is uneven. Top-performing companies are outpacing the rest, which bolsters their position and creates barriers to competition, once a hallmark of American business. In this winner-takes-all model, the average life of an S&P company is just 12 years as oligopolies punctuate the corporate landscape.

In the 21st century, we chose to make America rich. We also chose not to make Americans rich. The middle class is no longer the majority. Nearly half of Americans can’t afford a $400 dollar emergency. We have become so used to the haves and have-nots that we’d rather foot the bill for universal basic income for the “idle class” than redesign companies to offer universal basic services — and dignity.

And so we cannot extricate business design from its effect on society. When we chose Friedman over Drucker, with a dose of Gordon Gekko for extra measure, we explicitly chose to design companies and economies for short-term gain, conditioning investors for growth instead of value, and disregarding the long-term effects on the very same people who produce our goods and services.

On Human Company Design

In early 2015, Luminary Labs convened a broad cross-section of founders, thinkers, and doers to identify examples of Human Company Design in early stage companies. Over the course the evening, we discussed the forces behind this sea change, generated examples of new and creative business imperatives and, together, started writing a guide for the more human company. Following the event, we curated examples from a diverse set of growth companies such as Plated, Birchbox, Pinterest, and General Assembly, to form The Human Company Playbook, v1.0.

In more recent months, we have extended our research, exploring how Human Company Design manifests in companies of all sizes and, more importantly, how it originates. Our early explorations suggest that human companies share these 5 traits:

1.  Intentionality. Leaders who engage in Human Company Design intentionally create new models for how organizations are formed, funded, and operated, often flying in the face of conventional business wisdom.
2.  The compass. Each leader we spoke to navigates critical business decisions through a unique set of values, if not a moral responsibility. This compass is emulated by staff, and often verbally expressed as a refrain.
3.  Congruent policies. Human Company Design is not reactionary. Nor is it accomplished in a one-off policy. Rather, it is evident throughout all policies, including compensation, equity structure, healthcare benefits, family leave, working hours/time off, education and trajectory, and inclusion. While we are not absolutist in what constitutes a “human policy,” we observed practical examples that align with leadership’s compass.
4.  Role-modeling. Human companies don’t make exceptions for founders and management. If the boss doesn’t take family leave, the policy is not authentic. Conversely, if the CEO benefits from a greater family leave than staff, it is not truly a human company. Human Company Design is almost exclusively top-down.
5.  Projections and progress. Human companies set goals for how they invest in people, much as they set goals for product development or revenue projections. They foster and fund workstreams that will achieve the projections on a rolling basis based on company size and budget. This is in direct contrast to relatively small, one-time investments in “culture” or perks.