City Link, co-determination, and destiny
14.30, Tuesday 30 Dec 2014 Link to this post
The courier firm City Link went into administration on Christmas Eve. We were waiting for some gifts to be delivered, so we went to the Swindon depot a few days later to pick up the packages.
Pretty bleak as you can imagine. Workers milling around, finding out whether they’re being officially laid off or not. Staff will get redundancy, but the deliveries were mostly subcontracted and those folks are at the bottom of the heap. One guy we met found out about City Link going under just after he finished his turkey on Christmas Day - when the unions broke the news - watching the BBC. He’s owed £25k or so, he said he might-as-well have put all that money he paid for fuel into a big heap and burned it. We heard about another guy inside, owed £125k for the deliveries he’s done in the 2 or 3 weeks over December, unlikely to see any of it.
It was the RMT union who went public with the City Link news – they had been informed and asked to keep it quiet. But they also have members in the various subcontracted companies and they felt it was wrong for those people not to know.
My first reaction was that the UK should adopt the German system of co-determination,
worker representatives hold seats on the boards of all companies employing over 500 people.
But although I like Mitbestimmung, thinking a bit more, I’m not so sure it does what I think we need.
Early signs of the Coasian flip
Do you have enthusiasm, determination and ambition? If you would like the flexibility of being self employed, with the support of a large established company, choosing to become a Service Delivery Partner with City Link offers the perfect partnership.
The subcontracting companies weren’t delivery companies that happened to work for City Link, amongst others –
they were individuals encouraged to start companies with City Link as primary client… the City Link website says how much they will earn, that they get training, a uniform… they sound like employees, right?
But then, as an Owner Driver, you lease your van - in City Link livery - under your own credit; you insure it, you provide safety equipment.
How could you work for anyone else, with a van painted like this?
It makes me see that City Link was run by externalising their risk onto others – primarily with credit (they receive money for deliveries up-front, Owner Drivers pay for fuel up-front, but City Link pay later under the terms of the invoice), and capital expenditure (Owner Drivers lease their own vans and equipment).
Lots of companies run like this:
- Uber’s drivers are independent contractors – but feel more like staff paying for the privilege, given the leasing schemes of Uber and their partners
- Lyft drivers were encouraged to buy a particular SUV… but then the marketing scheme changed,
They pulled the plug, leaving us high and dry.Lyft gave drivers a payout to cover the difference, which is good for some and not for othrs.
- TaskRabbit has pivoted from eBay-for-jobs to a kind of temping agency… in a way that radically changes working conditions:
Anyone left working for TR is an indentured servant.Now a company changing its business model is fine and good and necessary, and some of the community of “Taskers” will no longer fit in. But the cost of - effectively - laying these people off has been handed to the workers, instead of being a cost borne by the company as part of their pivot
- Airbnb turns apartments into hotel rooms, an external cost for other residents:
There are the regular incivilities like the cigarette ends and the constant parties. But more than that, it is destroying the sense we used to have of the building being a shared space where we all knew and respected each other.
- When Instagram sold to Facebook for $1BN, the community of users had done all the value-creating work of posting photos and recruiting more users, but they saw none of the reward.
Although I’m picking out the downsides, I do not believe that running companies like this is bad or wrong.
On the contrary, I like that City Link, Uber, Airbnb and the rest are networks of companies big and small, sharing risk across the whole network.
It breaks down the producer/consumer divide – it’s a kind of Mitbestimmung or co-determination in its own way. It allows small, agile companies to push back against the incumbents who use their position to treat us badly. It puts people closer to their own destiny, it’s a de-alienating force.
This funny mix of heavily meshed companies is what I was getting at the other day in that ramble about Ronald Coase and the future of the firm. As the internet cuts transaction costs, firms will get smaller, and we’ll see a lot more of this:
So as markets and pricing get easier still, firms can get much smaller – ad hoc value chains assembled out of code and culture, barely anyone working at the company at all.
The second implication is that the firm, no matter how small, can have a kind of hinterland of value providers - a community of users who post pictures, drivers who transport passengers - who, although technically not inside the firm, are as part of it as a spider’s web is part of the spider, or a beaver’s artificial lake is part of the colony.
As software eats the world, and companies get smaller and we enter a networked economy - as the Coasean flip takes place - there’s a sharp end:
TaskRabbit workers paying the cost of the company pivot. Neighbours of Airbnb hosts soaking the externality of strangers in their space without choosing to accept it. Drivers who used to be employees being encouraged to be independent Owner Drivers - still in City Link livery - bearing the risk of the company’s capital expenditure and future success… without seeing any of the potential upside.
And then that risk being cashed in, on Christmas Day after the turkey, invoices unpaid.
So what can be done?
A new class of worker
The commonality here is there is a new class of worker.
They’re not inside the company - not benefiting from job security or healthcare - but their livelihoods in large part are dependent on it, the transaction cost of moving to a competitor deliberately kept high.
Or the worker is, without seeing any of the upside of success, taking on the risk or bearing the cost of the company’s expansion and operation.
These aren’t just subcontractors or employees-by-another-name, they feel like something new.
So I’m looking for a mechanism to govern the relationship between the company and its worker-community. Something that fulfils these goals:
- Reduces friction for people to work with well run, well cash-flowing companies, and vice versa
- Keeps workers and the company on the same side of the table with interests aligned, not making them adversarial
- Protects the worker
The premise is that it’s fine to share the risk, otherwise small companies could never do weird ambitious things – but it needs to be equitable.
reddit’s scheme to give company equity to the community is good. So something like that? It’s interesting, maybe similar to what the Guardian are reaching for with mutualisation…
but maybe a bit hard to implement, until the right toolkit exists? I don’t like regulation. Regulation increases friction. I don’t want to inhibit something that - on the whole - feels like it’s going in the right direction: I’m pro the Coasean flip to a networked working world. I’d prefer to reduce friction along the vector of Doing The Right Thing.
What about, simply, inventing a proper word for this “worker community” and making a code of conduct that companies can sign up for, to make it clear that this genuinely is a community of Worker Owners who share in the risk and upside both, not virtual residents of a virtual company town, buying goods from the company store with company scrip.
The code of conduct could start small: Payments could be made using escrow, instead of 30 day invoicing terms like regular suppliers. Stock options could be traded one-for-one between the company and the Worker Owner’s company. Working for competitors could be explicitly allowed.
I don’t know.
But it would be a fascinating thought experiment, to draft a code of conduct that would be equally applicable to Uber, City Link, and Airbnb. The test would be whether their worker communities would grow faster because of it, without unduly slowing the company’s expansion.
A metric for financial destiny
If you don’t have some kind of measurement - some kind of metric or indicator - you can’t see what effect you’re having. So there’s no feedback and you can’t improve what you’re doing.
The right kind of metric will provoke interesting forward conversations, and reveal interesting experiments. Even if, to begin with, the metric is inadequate.
For every person, I’d love a measure of how many other people’s financial destiny they control.
So… let’s say a company pays 100 people, and none of those people have any other income. The company has four equal shareholders, so each shareholder has 25% each. The shareholders have no other shares in other companies, and receive no other income.
In this case, each shareholder controls 25 peoples-worth financial destiny.
Let’s say I pay three freelancers. For each of them, I am responsible for a tenth of their annual income. This year, I control 0.3 peoples-worth financial destiny.
That’s how it would work. You would work it out using invoices, income or revenue, payroll, and shares.
What would it mean, to have this balance sheet for financial destiny?
What if we said it should be capped at 1,000? Nobody should be allowed to have that much control other other humans. That means, for a 10,000 person company, no single shareholder should have more than 10% of the shares.
What if it was capped at 100?
What if we based taxes on it… what would a progressive destiny tax look like?
What does too-big-to-fail look like, for destiny? Does the measure need to be moderated where there are barriers to switching jobs? If we made visible such a destiny network, could we test trickle-down? Could we identify geographic economies and see if local currencies work?
Regulation and governance are not about stopping things happening or slowing things down. Governance is also the system of eyes and senses that we build, as a society, so we can see ourselves as in a mirror – and work to accelerate what we endorse.
We’re entering a new, networked world where the old categories of companies and consumers no longer apply. We need to find new frames of reference or we’re flying blind.