Just finished reading "The Invisible Hook" by Peter Leeson, about pirates, economics and workplace democracy.  The main takeaway is to let the needs and structure of your market drive your organization, not the other way around.  Pirates did so and very successful at it.

Peter Leeson is an economist who also happens to be fascinated by pirates and he manages to combine the two in "The Invisible Hook" beautifully.  The most surprising thing to me is how these pirates practiced what we'd recognize today as advanced democracy.  According to Leeson,

Pirates' system of constitutional democracy predated constitutional democracy in France, Spain, the United States, and arguably even England. (pp 20)

And they did this "nearly 100 hundred years before [James Madison] suggested it." (pp 29)

Workplace Democracy

By present-day standards, a pirate ship would be considered a model of workplace democracy.  Pirate crews were based on "constitutions" that spelled out the rights and responsibility of its crew.  These constitutions exhibited many, if not all, of WorldBlu's 10 Principles of Organizational Democracy,

1. Purpose and Vision.  A pirate crew came together for one single purpose: profit.  This, according to Leeson, drove every other aspect of pirate crew organization and governance.
2. Transparency.  As mentioned, pirate crews were bound by a constitution that spelled out the rights and responsibility of its crew.
3. Dialogue + Listening.  Crew members had a say in the running of the ship (except in battle, when the Captain reigned supreme).  They could at any point vote out the Captain or Quartermaster and elect another.  This kept the conversation going.
4. Fairness + Dignity.  Every crew member had an equal vote.  Pirate constitutions also "created what economists call 'common knowledge' among crew members… this enabled pirates to coordinate on a common response to quartermaster abuse, which was to depose him and elect a new one." (pp 78)  Injured members got extra compensation according to a scheduled spelled out in the ship's constitution, " for the loss of a right arm, 600 pieces of eight… " (pp 59)
5. Accountability.  The Captain's and Quartermaster's responsibilities and limitations were spelled out in the ship's constitution.
6. Individual + Collective.  Crew members were "valued for their individual contribution," with specific bonuses paid out for extraordinary accomplishments.  "Those who behaved courageously and performed any deed of extraordinary valour, or captured a ship, should be rewarded out of the common plunder." (pp 72)
7. Choice.  The one-man-one-vote rule gave these crews a "meaningful choice."
8. Integrity.  Integrity is the name of the game, and democratic companies have a lot of it. They understand that freedom takes discipline and also doing what is morally and ethically right.
9. Decentralization.  As opposed to commercial ships, which were run as a dictatorship, pirate ships split executive powers between the Captain and the Quartermaster.
10. Reflection + Evaluation.  Pirates moved from one crew to another at the end of each "account."  In so doing, they shared best practices and learned from each experience since each crew member had a say in a new crew's constitution.

Silicon Valley-Style Startups

Pirate ships had parallels to today's most progressive startups, including the fact that they were employee-owned,

• The profit from the loot (after expenses) was divided in equal shares according to written rules.
• Each pirate got one share.
• The Captain and Quartermaster got two shares.
• Others with special skills, like the ship's surgeon and "Carpenter, Boatswain and Gunner" got somewhere between one and two shares.
• Sometimes they distributed bonuses.

Bottom line, it was a very equitable sharing system.  By contrast, the ratio between the highest and lowest paid employee is a lot higher today—and less equitale,

In 1980, the ratio between highest paid and average compensation in a Fortune 500 company was 42 to one.  By 2000, it has risen to over 500 to one.  In 2007, the ratio was 411 to one.

They were also "equal opportunity" employees.  Pirate crews included homosexuals (pp 171) and even non-whites, "some pirate ships integrated black bondsmen into their crews as full-fledged, free members." (pp 21) There were also at least four documented female private, but, alas, they served disguised as men. (pp 172)

More than Mere Fancy

Although Leeson acknowledges his fascination with pirates from the start, this is no starry eyed, romanticized version of pirates. His analysis and conclusions are based entirely (and sometimes, narrowly) on the "rational choice" economic framework. (pp 5)

The book is well documented, with a whole lot of references to primary and secondary sources.  Which was good, too, because some of the facts were hard to believe at face value.  As much work as it turned out to be (see box), I did check most major claims for references—I just had to.

Arrr! We'd Be Pirates, Too.

On page 180, Leeson summarizes what's, for me, the book's most significant takeaway: Let your business drive your thinking about managerial organization, not the other way around.  In a few words, this principle lays out nicely the basis for how Nearsoft is organized,

• We work exclusively with software businesses, ISVs, SaaS companies and consumer-facing sites.
• Key success factors for these types of companies are 1) ongoing innovation and 2) world-class talent.
• Therefore, Nearsoft must be organized to meet those needs in order to help our clients succeed.

And, indeed, we have 1) created a company culture that nurtures and sustain innovation and 2) created a very attractive work environment.  And that's not just our opinion: for three years in a row we've been ranked in the TOP 20 Great Places to Work in Mexico and last year Nearsoft was inducted in WorldBlu's list of Most Democratic Workplaces.

All we need to do now is to make every day a dress-as-a-pirate day.