Blog Post

The Trouble with Rules


I love running. I wake up at 5am three times a week, run for an hour, and by 6:30am I’m ready to start the day. When I run, sometimes I listen to music, and sometimes I listen to TED Radio Hour. It’s a podcast based on TED talks. I learn many innovative ideas from this podcast, and I highly recommend it.


A couple of months ago, while I was running and listening to the weekly podcast, there was an item about Ricardo Semler based on his TED talk. Ricardo was the CEO of Semco Partners, a Brazilian company, between 1980 and 2004. He replaced his father as CEO when he was 21, and the first thing he did was to fire 60% of all top managers.

He started asking questions, like “Why do we need to know when people arrive to the office?”, “Why do we care where people are at any given time?”, “Why can’t we let people set their own salaries?”…

Led by a strong motivation for a better life balance, he formed a radical and innovative form of management. By doing this, he led the company from 90 employees and a revenue of $4M in 1982 to 3,000 employees with a revenue of $212M in 2003 – an annual growth of 40%.

I find his ideas, his philosophy and his acts very inspiring. This is the type of ideas that thrill me. This is the kind of culture and spirit that we are trying to promote in Madeira. I can proudly say that we already act in many ways according to this philosophy, but we still have a long way to go.

Ricardo wrote two books: Maverick: The Success Story Behind the World’s Most Unusual Workplace and The Seven-Day Weekend: Changing the Way Work Works. I am currently reading the former, and I have just reached chapter 12 titled “The Trouble with Rules”. Ricardo describes how they used to have tons of papers filled with rules about anything you can think of, from when to replace tires in company vehicles to what colors to use in marketing brochures.

Rules are a by-product of company expansion and growth. When more people join the company, there are more activities and use cases to deal with, and in order to facilitate things, companies tend to create rules. When you have clear rules, you don’t need to waste time of thinking what to do. And as the company grows, it creates more and more rules for every new use case encountered. “If it’s not in the manual, then let’s create a new rule and add it to the manual…”

But the problem with rules is exactly what they are meant to do. They turn people into robots, acting automatically based on rules instead of thinking. They kill spontaneity and innovation.

Ricardo goes on and describes how they collected and eliminated all the manuals and  rules. “We were trading written rules for common sense”, he says.

As an example, he talks about clerks in the financial department who were used to a very clear set of rules for everything they had to do, and suddenly they had to think and take decisions. For example, they weren’t comfortable deciding how much Semco should keep as minimum balances in its checking accounts. “Use your common sense”, Ricardo would say, “just think of them as your own accounts”.

A couple of months ago we decided to make some changes to our employment agreement in Madeira, because we thought it didn’t cover all kinds of topics (it was already 12 pages long, but we wanted more). The legal department was more than happy to add more sections to the agreement, and we found ourselves discussing all kinds of use cases, like whether we should pay travel expenses to employees during and after maternity leave.

At some point it was obvious that this is not going in the right direction, and we realized that we actually need to do the exact opposite – get rid of all these rules and trade them for common sense. So now we are replacing our long and tedious employment agreement with a welcome letter that says something like: “Welcome to Madeira, use your common sense and have fun with us”.


This is not the only thing we’re replacing. We’re in the process of eliminating rules and transferring more and more responsibilities to our people, encouraging innovation and progress.

Instead of rules, we are trying to run the company with common sense, transparency and trust.

Ricardo ends the chapter with the following words: “A turtle may live for hundreds of years because it is well protected by its shell, but it only moves forward when it sticks out its head”.

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