A Socialist Grows Up

His company tries to, too.

Jul 1 2008
Hannah Clark Steiman

The problem with socialism, Oscar Wilde reportedly remarked, is that it takes up too many evenings. Paul Millman concurs and adds his own bit of wisdom: "The problem with socialism is all the socialists." Millman, 61, knows a thing or two about socialists; he was raised by two of them in a Brooklyn, New York, housing project. His father taught high school and sold rare books, while his mother worked to overthrow the government of the United States. In high school, Millman spoke up at a school board meeting he attended with his parents. "I could hear people saying, 'Another Millman,'" he says. "We knew we were different."

Millman has learned another thing or two about socialism while founding and running Chroma Technology, a Rockingham, Vermont, company that makes optical filters, which are components in scientific microscopes. Namely, he has learned it doesn't fit that well with capitalism. Running is a rather strong word for what he has done, because Chroma has had no official leader for most of its 17-year existence. Millman was a key member of the six-person founding team, and as head of sales, he has long been the company's public face. But Chroma is entirely employee-owned and run. Most major decisions are made by employee committees rather than by executives. And shares are distributed equally every year, so the founders no longer own a majority of the voting stock.

Such experiments in corporate governance are not unheard of. But few have lasted as long as Chroma, which now has 81 employees and $18 million in sales. In recent years, however, growth has begun to slow. And with competition on the rise, Millman is struggling to reconcile the political ideals that have driven Chroma with the realities of the business world. He has realized that a company can't thrive unless someone is in charge. It's a self-evident fact for most entrepreneurs but a painful lesson for Millman, who faces his biggest leadership challenge yet: shepherding through reforms that will allow his socialist company to thrive in a capitalist world.

Millman has never been very good at handling authority. In early 1991, after talking back to his boss, he was fired from a sales job at another optical filter company in Vermont. It was the seventh or eighth time he had lost a job. Chroma, however, would be different. Millman quickly recruited a team of founders, all of whom came from his former employer, and within a few months, their start-up was shipping optical filters out of a cotton mill. Millman insisted on employee ownership. "I thought if I wanted to be an owner, everyone else must want it, too," he says.

Early on, employees made decisions on their own or by consensus. Most major decisions -- whether to raise salaries, for example -- were made with a one-person, one-vote system, so a worker with two months' tenure had as much say as a co-founder. No one was officially in charge of strategy or long-term planning. "I never expected the company to grow to the size we are now," says Wendy Cross, a co-founder and Millman's partner of almost 20 years. "My best hope was that we would keep ourselves employed and have some of our friends work here. We never really planned for the future."

Now that has become a problem. In the past few years, the filter industry has changed, and Chroma has struggled to keep up. Optical filters selectively transmit light, so a researcher can dye a portion of a cell -- say, the nucleus -- and then look at it exclusively, without viewing the rest of the cell. In 2002, a new competitor emerged: Semrock, a small company in Rochester, New York. By some standards, Semrock's filters worked better than Chroma's, but it took two years before Chroma started developing its own version of Semrock's technology. "There was nobody who thought that he or she had the authority to push the issue," Millman says. Meanwhile, one of Chroma's biggest customers started shifting its orders to Semrock. Chroma began selling its new, improved filters in 2005, but by then, growth had slowed to less than 3 percent.

Meanwhile, Chroma's customers were becoming increasingly demanding. Millman watched as a problem with one order festered for almost a year. The customer would return the filters, Chroma's employees would make new ones, and the customer would send them back again. Millman hoped the workers involved could deal with it, with help from the company's steering committee. But once again, a lack of leadership hampered progress. "Nobody stood up and said, 'Our job is to solve this problem,'" Millman says. "Somehow working on the problem was supposed to be enough. Well, it's not." Finally Millman, exasperated, stepped in and traveled to Germany with one of Chroma's engineers to meet with the customer and try to figure out what was wrong.

Millman realized that a lack of clarity about his role was hindering the company's progress. Because Chroma supposedly had no bosses, workers complained when Millman acted like a boss. And because he was frustrated by his lack of authority, he frequently lashed out when other employees questioned his decisions. "He can be punishing," says co-founder Wim Auer. "If he thinks the company is doing something wrong, he can punish people in a public way." Tension reached a high point in early 2007, when the steering committee sent a memo giving members of the sales team guidelines on the hotels they could choose when they traveled. Millman was furious at the interference and sarcastically proposed eliminating the entire committee, which in turn infuriated committee members, who felt Millman was undermining their authority. The tension lasted for months. "Sales had always been my domain," Millman says, "and everybody else knew to stay out of it."

last year was a time of transition for Chroma. Co-founder Dick Stewart decided to retire. For more than 15 years, he had held the title of president. Millman quickly announced that he wanted the job -- and that he wanted it to be more than just a title. Auer, who sits on the board, says most of the board members have realized that Chroma could benefit from a little authority. "We almost never fire people here," he says. "We're beginning to realize that might not be a good thing."

This spring, the board approved a new pay structure, after a year and a half of tense debate. Before, the starting salary was $37,500, and every worker's pay would rise, over time, to a maximum of $75,000. Skilled employees could start somewhere in between, but after 10 years, a secretary would make the same as an engineer. Now, there are tiers; salaries for top tier workers are capped at $97,000, while the bottom tier is capped at $72,500. The minimum salary stayed the same, and every employee gets an equal share of the profits, usually at least $16,000 a year. Auer is not sure such high pay will be sustainable. "If we see a really effective competitor from India or China, what will we do? Will we have to have pay cuts?" he asks. "I don't know what the answer is, but I do know we're going to face those problems."

It's the first time Chroma has acknowledged that some jobs are worth more than others. Millman pushed for the move, because he was struggling to hire skilled employees. But he had hoped for more change. The initial proposal would have lowered the salary cap for some positions to $65,000, but workers protested, and Millman gave in. "I just didn't want to confront it anymore," he says. "I think it would have caused too much disruption to do anything but this."

Next, he wants to establish clear lines of authority, to get in writing that certain people are in charge of certain things -- though he refuses to admit that this will turn anyone into a boss. He knows it will be a tough sell; Chroma's employees are enthusiastic about the benefits of ownership but not always willing to make the hard decisions that it requires. Millman used to think a company could be structured as an inverted pyramid, with the leader largely subservient to the employees. Now, he believes there needs to be someone on top, a person with a long-term outlook. He wishes it were different, but he is not looking back. Says Millman: "I just wish more people had a broader view of the world."

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