Basecamp’s policy changes around diversity, employee communications, and benefits provides a case study in how not to perform organizational change management after 30% of their employees quit. Jason Fried and David Hasson should have been careful to limit the scope of their changes; been thoughtful in their communication plans for major changes; and been realistic on employee response to those changes. This bungled change contrasts highly with that of Coinbase where the similar “No Politics” rule was applied with much less fallout.
A short recap
On April 26th, 2021, Basecamp founder and CEO Jason Fried posted a blog entry titled Changes at Basecamp announcing major organizational changes at Basecamp. The changes included removing certain benefits, eliminating 360 reviews, eliminating the diversity and inclusion group, and most controversially, eliminating discussion of politics at work. These changes were in response to a diversity and inclusion committee formed by Basecamp employees; as well as disagreement between staff and owner David Hasson over a list customer service maintained of racially insensitive ‘funny names’. Intense discussion followed internally at Basecamp as well as publicly on social media like Hacker News and Twitter.
Four days later, Basecamp leadership held a disastrous all hands meeting to discuss the recent policy changes. Hasson who opened up the call was in bed due to illness and was off camera. Ryan Singer, head of strategy, argued with a black employee that people championing diversity were the real racists. Fried and Hasson were mute in response to the argument despite being pressed by employees to respond.
Fallout from the meeting was intense. Thirty percent of Basecamp’s staff resigned in the days that followed. Jason Fried would go on to write an apology on his blog on May 4th. Basecamp is now trying to replace the developers who quit. Needless to say, the entire situation was a failure in communication, management, and leadership.
Coinbase had made a similar change of not allowing political discussion at work. Coinbase had turnover of only 5% in the immediate aftermath. Coinbase’s much lower turnover rate speaks to the fact that they handled the change much more effectively.
Communicating change
Form and Method
Communicating change is tough. People are adverse to change – even when the change is to their benefit, the change is well communicated, and change management is done flawlessly. Communicating effectively is a large part of change management. Organization-wide change requires multiple levels and types of communication.
Basecamp Rule 29 – The right communication in the wrong place might as well not exist at all.
37 Signals: How We Communicate
At Basecamp, Jason Fried simply posted a blog entry with these large sweeping changes that impacted Basecamp’s employees’ lives in a very real ways. Passive channels like a blog post are very impersonal and not the right way for significantly impacted stakeholders to learn of changes.
When communicating change, different methods of communication are required and needs to match the level of impact to the stakeholder. It’s bad form to breakup with someone via text; nor should you fire someone via email. In the Basecamp case, changes to the diversity and inclusion committee should have been communicated to them in a personal way – say an in person meeting or a small group Zoom call. Less impacted stakeholders can be notified in less personal ways – say via telephone call or an all hands meeting – and those barely impacted can be notified via written word or not at all.
It’s also important to communicate first to the most impacted stakeholders – the people at ground zero – and work your way out to the least impacted stakeholders. No one wants to hear that a beloved project is being ended via office gossip. It’s like being told by your boyfriend’s friend that he’s going to dump you. Office gossip can’t be stopped, but by communicating to the most involved people first, they are much more likely to hear directly
Jason Fried’s approach of writing up a blog and simply posting it for the entire company and world to see all at once failed both in using the right form for the right audience; as well as communicating to the most impacted people to the least. A better approach would have been to have a one on one with the key leaders of the DEI initiative; a Zoom meeting for the team members; and then finally an internal note to the rest of Basecamp. There was no need to communicate this change to the wider Internet.
The All Hands Meeting
I assume that the Jason Fried’s and David Hasson’s goal of the all hands meeting was to try to repair the damage from the poorly thought out blog post. This meeting went incredibly wrong in a few key ways. The recap is available from The Verge.
Basecamp Rule 8: If your words can be perceived in different ways, they’ll be understood in the way which does the most harm.
37 Signals: How We Communicate
First, an all hands meeting has a very large audience, and a large audience will be a diverse audience. That means it’s really important to prepare the message ahead of time, and to consider how different groups in the audience will interpret the message.
At a previous company I worked for, the CIO wanted to communicate that HR was creating a new program for emerging managers of the company. Instead of saying that, the CIO used a technical term – Potential – to identify people who have management Potential. The CIO discussed that most people don’t want to be managers and so consequently they had Low Potential. The IT staff, instead of hearing that there was a new leadership program, heard that they were a bunch of Low Potential Flunkies. Staff morale took a hit. I suspect that an HR executive read Mattone’s Talent Leadership and went full bore organization wide and brought along the CIO for the ride. The CIO should have thought how the choice of the word Potential would be taken wrong.
To prepare a communication for a large audience, it’s important to first plan the goal of the communique, to decide the key message, and to consider the reaction of multiple groups and team members. If the stakes are particularly high – such as Basecamp’s – it’s best to test the message on a targeted internal audience first. By understanding the point of view of different team members, the message can be distilled to be more effective.
Second, all hands meetings are usually done for the benefit of staff and lower level managers. Executive leadership should already know the message. If they have a question or feedback on the message, then a conversation should happen prior to the meeting. In the Basecamp debacle, Ryan Singer should have either known the message and stuck to it; or should have simply remained silent. Arguing with a black employee that the woke people were the real racists is just about the worst thing any executive could say in that moment. Staff in the room took Singer’s comments and the “No Politics” rule as a message that racism was tolerated at Basecamp.
Basecamp Rule 26: Time is on your side, rushing makes conversations worse.
37 Signals: How We Communicate
Third, David Hasson was sick and not on camera during most of the meeting. The norm for Basecamp is that people are on camera. Not being on camera was a norm violation on one of the most important conversations in his company’s history. While being sick is certainly reasonable, being there but not on camera probably struck people wrong. It would have been better to either reschedule or to not be on the meeting at all.
Harnessing Employee Energy
A key hurdle to making a better organization is management convincing employees to go beyond their ‘day job’ in pursuit of that vision. The day to day grind distracts from making long term improvements. At Basecamp, 20 of the 58 employees formed a diversity, equity, and inclusion committee with no prompting from management. Getting 30% of any company to spontaneously take steps to improve a company is amazing. It speaks to a culture where employees feel empowered to take action and are committed to making the place they work better.
When many employees take action to make a company better, management has only one course of action: to validate and support their efforts. Managers can try and harness the energy and direct it in their preferred direction. At the same time, actively blocking or cutting down a grass roots group will certainly destroy morale and will certainly lead to employee departures.
This is where Fried and Hanson also made another crucial mistake. They cut down a passionate, grass roots group in their company who wanted to improve Diversity & Inclusion at Basecamp. Even if the group was misguided and chasing objectives that weren’t the right ones, they could have started meeting with the group regularly – and collaborated to set objectives and listened to the group’s experience. That could have set the committee in the right direction and validated their work. Instead, simply ending the DEI group at Basecamp made the committee members really angry.
How much change is too much change?
In Jason Fried’s blog post announcing the “no politics” rule, there was actually a list of six changes:
- No more societal and political discussions
- No more paternalistic benefits
- No more committees
- No more lingering on past decisions
- No more 360 degree reviews
- No forgetting what we do here.
Which is about four or five changes too many. Make one change at a time; communicate that change really well; execute the change; measure the change; talk about the change; and re-calibrate if necessary. Making six changes at once means that you have to communicate well on six changes; execute those changes well and so forth. It’s more change to juggle which requires more management attention. Furthermore, if there is a backlash on more than one change; then you’re playing defense on multiple changes all at once.
In the Basecamp case, it’s clear that the reaction to at least change #1 will be explosive. Basecamp executives could have easily known this by looking at the reaction at Coinbase. I would also have considered changes #2 and #3 to be pretty dicey as well. Halting a grass roots employee efforts is risky as noted above and messing with benefits almost always makes staff upset regardless of how good the change is. Taking all three of those changes together was a recipe to severely impact employee morale.
Diversity and Inclusion
I originally intended to write why Basecamp’s “no politics” rule is boneheaded. I’m going to save that for another post focused on why Diversity and Inclusion is critical in technology firms.
Conclusion
Basecamp has already started to suffer due to how poorly these changes were communicated. Jason Fried wrote “Last week was terrible.” 30% of the staff resigned in the immediate aftermath including many managers and senior leaders. The lost of staff will immediately slow down development of new features; will require significant management attention to replace lost staff; will lead to higher payroll; and will hurt overall profitability.
The poor implementation of these changes – never-mind the change itself – was truly an example of shooting the firm in the foot. In contrast, Coinbase recently instituted a similar and controversial “no politics” rule. While the Coinbase rule prompted lots of argument and discussion; only about 5% of the employees took a very generous six month payout.