Morning Star

The founding principles for Morning Star's way of operating were set early in its history. When the first tomato processing factory was built, Chris Rufer and the company’s first employees met to define how they wanted to work together. They decided that two principles, two basic social values, should inspire every management practice at Morning Star: individuals should never use force against other people and they should honor their commitments . These principles are at the heart of the company’s conflict resolution mechanism, a process that is described in great detail in the “Colleague Principles,” a core document outlining Morning Star’s self- managing practices.

Colleagues at Morningstar noticed that lots of people were buying threadlocker (an adhesive that prevents nuts and bolts from accidentally loosening) in dozens of different formats and from different vendors. They were not only losing out on volume discounts, but the uncoordinated purchasing also generated unnecessary bureaucracy because regulations in the food industry required workers to track every format in a Material Safety Data Sheet. A worker suggested that he could walk around the plant once a quarter to coordinate orders. A similar solution emerged for purchasing packaging materials where volume discounts can quickly add up.^[1]

Another key mechanism for coordination at Morningstar is the Colleague Letter of Understanding (or simply CLOU). See “Role Definition and Allocation" and then Concrete examples for inspiration”/”Morningstar”.

As a Morning Star colleague, you write a personal mission statement (“Personal Commercial Mission” in Morning Star’s language) and spell out all of the roles you commit to perform in a document called the Colleague Letter of Understanding (or simply CLOU). Roles at Morning Star are defined very specifically, so you might well hold 20 or 30 different roles (one might be receiver of tomatoes at the unloading station, another might be trainer of seasonal whole peel sorters). For each role, you specify;

• what it does,
• what authority you believe you should have (act, recommend, decide, or a combination thereof),
• what indicators will help you understand if you are doing a good job, and
• what improvements you hope to make on those indicators.

In a continuous process like Morning Star’s, each person in the chain receives tomatoes or paste in some form from someone upstream and delivers them in another form to someone downstream. This might explain why colleagues at Morning Star chose to discuss the CLOUs, once written or updated, not in a team setting but in a series of one-on-one discussions with colleagues up and downstream.

Here is a sample CLOU document. A more detailed discussions of CLOUs can be found here.^[2]

Within Morning Star, there are 23 teams (called Business Units), but no management positions and no HR department. Colleagues operate entirely on self-managing principles that were established early in its history . When the first tomato processing factory was built, Chris Rufer and the company’s first employees met to define how they wanted to work together. They decided that two basic social values should inspire every management practice at Morning Star: individuals should never use force against other people and they should honor their commitments. These values are at the heart of the company’s conflict resolution process, which is described in great detail in the “Colleague Principles”. This is a core document outlining Morning Star’s self-managing practices. The conflict resolution process (called “Direct Communication and Gaining Agreement”), applies to any type of disagreement. This could be a difference of opinion about a technical decision, an interpersonal conflict or a breach of values. Specifically, it can be used in performance issues when one colleague believes that another is not pulling his weight.

Whatever the topic, the process starts with one person asking another to gain agreement: In a first phase, they sit together and try to sort it out privately. The initiator has to make a clear request (not a judgment, not a demand), and the other person has to respond clearly to the request (with a “yes,” a “no,” or a counterproposal).

If they can’t find a solution agreeable to both of them, they nominate a colleague they both trust to act as a mediator. The colleague supports the parties in finding agreement but cannot impose a resolution.

If mediation fails, a panel of topic-relevant colleagues is convened. The panel’s role, again, is to listen and help shape agreement. It cannot force a decision, but usually carries enough moral weight for matters to come to a conclusion.

In an ultimate step, Chris Rufer, the founder and president, can be called into the panel, to further reinforce the panel’s moral weight. Since the disagreement is private, all parties are expected to respect confidentiality during and after the processes. Of course, this confidentiality also applies to the two persons at the heart of the conflict. They must resolve their disagreement between themselves and are discouraged from spreading the conflict by enlisting support and building rival factions.

Chris Rufer, the founder of Morning Star, estimates that, on average, it takes a new associate a year or more to become fully functional in the self-management environment. When the company was smaller, Chris Rufer spent half a day interviewing every prospective employee, usually in the candidate’s home. The bulk of the conversation focused on assessing the fit between Morning Star’s philosophy and the applicant’s expectations. Today every potential hire gets a two-hour introduction to self- management and is interviewed by 10 to 12 Morning Star colleagues. Even then, mistakes happen. Paul Green Jr., co-founder, estimates that as many as 50% of seasoned hires leave within two years because they have a hard time adapting to the self management system.

A colleague who wants to expand a Business Unit’s pay-roll must sell the idea to his or her peers, who will ask for a job description and a business case. If there’s a consensus to move ahead, the mechanics of recruiting will get turned over to an in-house specialist.

Emphasis is on fit for role and fit for the organization. A major point in fit for organization is passion for learning.

The work schedule commitment captures how many hours a person can commit to work during low and high season (when the tomatoes are harvested and processed), providing a clear basis on which colleagues can discuss and manage their time collectively whilst still fulfilling the organization’s purpose. The work schedule commitment is captured in Morning Star’s colleague letter of understanding or CLOU, which also includes a personal mission statement and detailed information about the roles a person currently commits to, as well as improvements they hope to make. This more formal way of capturing commitment plays to Morning Star's need for continuous improvement to increase efficiency as it is essentially a low-margin, commodity business^[3].

As a Morning Star colleague, you write a personal mission statement (“Personal Commercial Mission” in Morning Star’s language) and spell out all of the roles you commit to in a document called Colleague Letter of Understanding (or simply CLOU). Roles at Morning Star are defined very specifically, so you might well hold 20 or 30 different roles (one might be receiver of tomatoes at the unloading station, another might be trainer of seasonal whole peel sorters). For each role, you specify what it does, what authority you believe you should have (act, recommend, decide, or a combination thereof), what indicators will help you understand if you are doing a good job, and what improvements you hope to make on those indicators.

Why this level of formality and granularity? In a continuous process like Morning Star’s, each person in the chain receives tomatoes or paste in some form from someone upstream and delivers them in another form to someone downstream. Therefore, colleagues at Morning Star chose to discuss the CLOUs, once written or updated, not in a team setting (which most self-managing organizations do), but in a series of one-on-one discussions with the handful of colleagues up and down-stream that people interact with most. People discuss and negotiate what’s written in each other’s CLOU documents very seriously— they want to make sure that people upstream commit to supplying them with the right input, so that they can in turn deliver to people downstream what they committed to.

Colleagues at Morning Star set themselves targets for their part of the process, to stimulate continuous improvement. They measure indicators, compare them to the self-set targets, analyze root causes, and experiment with new ideas. These targets are mostly set at a local level, for one machine or one process step, where the outcomes can be predicted with some certainty.

Morning Star Teams that do very different work (for example, tomato sorting, steam generation and packaging) don’t share metrics to get feedback on their performance. Instead, each team makes an annual self-evaluation presentation to a group of their colleagues. The group includes Chris Rufer, the President and anyone else who wants to join in. They are expected to talk openly about what went well, what didn’t, how well they have used company resources and what their plans are for the coming year. Each presentation lasts several hours and is carefully prepared. They expect tough questions from their colleagues and receive much input. This enables them to review what they have done and refine their plans^[4].

If you work at Morning Star, then once a year, along with all your colleagues, you write a letter stating the raise in salary you believe to be fair for yourself and why. In an uneventful year, you are likely to stick with a cost-of-living adjustment. But if you feel you have taken on more challenging roles or made special contributions, you can choose a higher percentage. You back up the letter with the peer-based feedback you received from your CLOU colleagues (the people with whom you concluded one-on-one contracts a year earlier) and any relevant data on performance indicators you are responsible for.

You then share your letter with a handful of colleagues that were elected into a compensation committee (there is one such committee in each of the company’s four locations). The committee’s job is to review all the letters it receives, calibrate them, and provide feedback. It might tell you that you’ve been too humble about your accomplishments and that you should consider going for a bigger raise. Or it might tell you that, in comparison to your peers, the salary increase you granted yourself seems on the high side. The committee has only advisory power and cannot impose its decision, but the process to set salaries is understood to be part of Morning Star's "Gaining Agreement" process. If you choose to ignore the committee's advice for you to lower your salary raise, the committee can choose to enter into the Gaining Agreement process (a conflict resolution process) with you to create a space and time to explore in more depth where your and the committee’s assessments diverge and to help you and the committee reach agreement.

Morning Star’s experience is that people prove to be remarkably skillful at assessing a fair compensation for themselves. In any given year, roughly a quarter of people choose salary increases above the cost-of-living adjustment. Only a handful of people throughout the company receive feedback that they might have aimed too high. ^[5]

At Morningstar, every year in January, teams present a self-evaluation to a group of colleagues, which inludes Chris Rufer (the founder and president) and anyone else who cares to join. They are expected to talk candidly about what went well during the past year and what didn’t, how effectively they used company resources, and what they plan to do in the next year. It’s not a superficial effort; each presentation lasts for a few hours, and teams can expect challenging, sometimes grilling questions from their colleagues. In the course of a month, all teams make presentations; teams that haven’t performed well have received much input from their peers and know they have homework to do ^[6]

1. Individuals shall work with no use of force or coercion. 2. Individuals shall keep commitments.

Chris Rufer founded Morningstar in 1970 and to this day owns 100% of the company and is its sole board member. Recognizing the potential hazards of having partners who might not unconditionally support his pursuit of self-management, he has foregone taking in new investors but rather has relied on loans to fund his growth. Growing in this way from a single truck operation to the world’s largest tomato processor (a traditionally low margin as well as capital intensive business) is extraordinary, but perhaps Chris would argue, essential to its success.^[7].

A few years ago, before the advent of internal social networks, Chris Rufer, the founder, owner and CEO of Morning Star, felt the need for a new strategic direction at Morning Star. He wrote a memo that he sent to all colleagues, with an invitation to a company-wide meeting (the different locations joined by videoconference). He shared his idea, and the reasons for it. He asked everyone to contact him personally after the meeting with any questions, concerns, comments, and advice on his plans.

At Morning Star, the process is almost identical to the one used at Buurtzorg, except that it is initiated by an individual rather than a team. Morning Star views a dismissal as the final step in a conflict and therefore uses its conflict resolution mechanism to deal with the situation. The process starts when one person asks another to leave the organization. Suppose that someone finds that a colleague has fundamentally breached a company value (perhaps the person made an important decision without requesting advice from colleagues) or that a colleague is failing time after time to live up to his commitments, despite a number of previous attempts to improve the situation. She can initiate a conflict resolution process, asking her colleague to resign. If the person asked to leave does not agree, a four-stage conflict resolution process begins:

In a first phase, they sit together and try to sort it out. In the discussion, the person asked to leave can suggest ways to restore trust. Or perhaps he will come to see that he has irrevocably lost the trust of his colleagues and that he is better off looking for work elsewhere. If they can’t agree on an outcome, another colleague is called in as a mediator. If necessary, in a third step, a panel of colleagues is asked to mediate. As a last resort, Chris Rufer, the founder and president, is asked to join the panel. People asked to mediate or sit on a panel take their role very seriously. Morning Star’s principle of not using force against anyone is at stake. They are not a jury, passing a verdict on a colleague. Their role is to explore every possible way to restore trust in the relationship. The process can take a long time if needed. Only when the person who has been asked to leave sees that colleagues genuinely tried to find a solution and that none could be found, will he come to accept that resignation is the reasonable outcome. Therein lies the power and legitimacy of the process.

Because Morning Star views a dismissal as a private conflict between two persons, everyone is under the understanding of full confidentiality (as is always the case with the conflict resolution mechanism). As a result, no data exist of how often this happens. . Some more senior employees report that they have been part of a handful of panels over the years. They are advocates for the method. The panel discussions are never easy they report, but they do help people reach fair and reasonable outcomes^[8].