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INS517

Ricardo Semler:

A Revolutionary Model of

Leadership

04/2014-5982

This case was written by William W. Maddux, Associate Professor of Organisational Behaviour at INSEAD, and

Roderick I. Swaab, Assistant Professor of Organisational Behaviour at INSEAD,

in conjunction with Betania Tanure,

rofessor of Organisational Behaviour at PUC/BTA, and case writer Elin Williams. It is intended to be used as a basis

for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

Financial support from INSEAD Alumni Fund is gratefully acknowledged.

Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at

cases.insead.edu.

COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, REPRODUCED OR DISTRIBUTED

IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER.

For the exclusive use of S. Wirtz, 2016.

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The Present: 2014

Ricardo Semler lets out a sigh of frustration. Leaning over his favourite Les Paul guitar in the

basement of his house in the mountains near São Paulo, surrounded by a pile of musical

equipment that would be the envy of any rock star – drum sets and keyboards and sound

mixers, Fenders and Gibsons lined up like soldiers at attention in racks around the room. He

frowns as he works through the Led Zeppelin song for the tenth or twentieth or hundredth

time. How does Jimmy Page make the music sound so effortless, so powerful, so true? he

wonders. But then he smiles to himself, because the kind of skill and passion that he hears in

the rock legend’s guitar work is exactly what Ricardo Semler has been getting from the

thousands of colleagues and employees he has worked with over the years. And despite the

naysayers who have always scoffed at his trying to run a business like a rock band, he has

ended up succeeding more often than not.

Ricardo smiles because he’s come so far and yet has ended up exactly where he started: in his

basement playing his guitar. Today it is 2014, and his home country of Brazil is busy

preparing for its long-awaited time on the world stage: the World Cup in a few months and

the (summer) Olympics in 2016. The Brazilian economy, cooling a bit after years of torrid

growth, is still the envy of much of the rest of the world. In Brazil, things are happening. The

world is arriving soon.

And even though Ricardo Semler is tucked away in his own little world, trying to unlock the

mysteries of an enigmatic guitar genius, you could say that he, too, is working, working in

much the same way he has been for decades at the head of some of the world’s most

innovative and profitable organizations: a multinational company called Semco that he

reluctantly took over from his father, a hugely profitable NGO, a Brazilian business

association, a luxury eco-resort, and a set of successful charter schools.

The one thing common to all these organizations is that they are run using Ricardo’s

overarching leadership philosophy, a philosophy that has ignited controversy and acclaim in

roughly equal measure – but one that has proven successful by any standard, whenever and

wherever he has tried it. The philosophy could be summed up as follows: that leadership is

often most effective when the boss is hunched over his guitar on a Wednesday afternoon; or

feeding the ducks with his kids during the visit of an important client; or hiking in the

mountains in Africa during a shareholders’ meeting, or off somewhere else that is nowhere

near the office, nowhere near his employees, not doing any special thinking about contracts or

investments or strategic planning or the future of global business. In a word – gone.

The Past: The Origins of Semco

Antonio Curt Semler left Austria just before World War II to make a new life in South

America. He took advantage of Brazil’s first ‘economic miracle’ in the 1950s and 60s to build

his company, a major supplier of marine pumps for the shipping industry. But he wanted to do

more. He wanted to build a family business, a lasting legacy.

His young son Ricardo was not, however, a natural successor. He did not do well in school

and preferred strumming his guitar to poring over his books (though he did manage to wind

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up as class president and captain of the track team.) But he started to show some

entrepreneurial flair in high school, where he took on the responsibility of running the

school’s snack shop. By altering the existing price structure, extending operating hours, and

re-negotiating supplier contracts, he increased profits and invested them in the stock market,

eventually earning enough to fly his entire class to a resort for the weekend.

A few years on, at São Paulo’s prestigious law school (and centre of a political movement

against the military dictatorship), Ricardo’s grades were still mediocre. However, once he

realized his guitar skills were similarly undistinguished, he decided to give the family

business a shot.

Things did not start well. The father did not like the son’s habits of sleeping late, putting his

feet on the desk or working from home. And the son did not like the father’s overly rigid

schedule, excessive punctuality and tendency to barge in on his client meetings. To make

matters worse, by 1980 the Brazilian miracle had gone into reverse and the shipbuilding

industry that Semco supplied with its marine pumps was particularly hard hit. Twenty-year-

old Ricardo was convinced diversification was the only solution; 68-year-old Antonio was

adamant that Semco’s specialist focus was its best asset.

Eventually, Antonio realized that father and son could no longer co-exist in the same

company and made a leap of faith. He simply handed over the entire operation to his son and

walked away: “Better make your mistakes while I’m still alive,” he said somewhat ominously

to his son.

Ricardo wasted no time in setting out to transform Semco. One Friday afternoon in 1980, he

cleaned house, firing 60% of his father’s top executives. He hired his own people and began

modernizing the company, making it more efficient and productive. Ricardo recalled:

(We) installed dozens of new procedures and invented new forms almost daily.

(…) persuaded salespeople to fill out customer-visit reports and keep statistics on

orders closed versus quotes offered. Files were rigorously organized all over the

company. (…) Everyone was issued a plastic ID card and compelled to wear it.

Production schedules were displayed on boards in our new planning and control

department. Members of our new time and methods department were dispatched

around the plant, searching for ways to speed our workers up.

By 1982, Ricardo and the other new blood had turned the company around. They were

manufacturing a wider range of products and secured some major contracts and new

acquisitions. They had nearly doubled the workforce and tripled the number of plants, where

they set about applying the new systems and financial controls.

However, there was a great deal of tension just below the surface about to make itself felt. “I

knew our new tough-minded, statistical approach, along with our acquisitions and all the new

employees, had created a lot of stress,” he admits. “Semco appeared highly organized and

disciplined, but we still could not get our people to perform as well as we wanted.” People

were working long hours and families were complaining. Deliveries were always late.

Most of our managers were proponents of classic authoritarian solutions such as

rigid controls and long, gruelling hours. But a few of us were starting to doubt the

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effectiveness of this approach. I was particularly distressed by the malaise that

was all too apparent in our factories. Workers just didn’t seem to care.

Then, at the annual corporate retreat, things came to a head. During a lunch break, someone

snuck into the conference room and drew a cartoonish Grim Reaper on one of the flip charts,

holding a scythe and surrounded by bleeding stick figures. The message was clear: Ricardo’s

autocratic leadership style was wreaking havoc on his employees and the company. Ricardo

hastily convened a group session which cleared the air but also revealed two very different

philosophical camps had formed: those who felt the controlling culture was necessary to get

people to do their work; and those who found Semco’s environment suffocating.

The final straw was Ricardo’s realization that Semco’s malaise was also having an effect on

him physically. During a visit to a pump factory in the U.S., he collapsed on the factory floor.

He went to the Mayo Clinic where doctors put him through a battery of tests, all of which

came back negative. The final diagnosis? “The most advanced case of stress I have ever seen

in a person of 25.” As one doctor put it, “Either you continue your current life, in which case

you will be back with us, or else you change.” Ricardo asked for advice. “That’s not for me to

say,” the doctor answered. “All I will say is that everything about your life has to change.”

Botanique Hotel, 2014:

The man lies on a massage table, face down, a towel around his waist, eyes closed, the sun

streaming in the floor-to-ceiling windows, warming his tired body. As the masseuse works

over his shoulders and back muscles, he feels the tension built up from years of 12-hour days

For the exclusive use of S. Wirtz, 2016.