Social business has the potential to change the way we work, but for the most part it has not. The social enterprise is not yet here, though many talk about it, and confuse it with using social tools. For that, we can blame management.

As many people, from W. Edwards Deming to Gary Hamel have observed, management is what really differentiates organizations. It was better management that allowed Japanese automobile manufacturers to dominate the North American market, using the same raw materials and work force. Most management practices have changed little since the beginning of the millennium. We still have many vestiges of early 20th century industrial management — hierarchies; work standardization; job specialization; planning; and control. Extrinsic rewards are then dispersed by management based on these principles.

The first elephant in the social room is compensation. As Gary Hamel describes:

… compensation has to be a correlate of value created wherever you are, rather than how well you fought that political battle, what you did a year or two or three years ago that made you an EVP or whatever.” —Leaders Everywhere: A Conversation with Gary Hamel

If compensation was really linked to value, then salaries, job models, and other ways of calculating worth would have to be jettisoned. As it stands, in almost all organizations, those higher up the hierarchy get paid more, whether they add more value or not. It is a foregone conclusion that a supervisor has more skills and knowledge than a subordinate. This has also resulted in the requirement for more formal education as one goes up the corporate ladder, whether it’s needed or not.

The other elephant in the room is democracy. For management to work in the network era, it needs to embrace democracy, but we are so accustomed to existing structures that many executives would say it is impossible to run a business as a democracy. But hierarchy is a prosthesis for trust, according to Warren Bennis, and trust is what enables networked people to share knowledge and innovate faster. A key benefit of social tools is to share knowledge quicker. Trust is essential for social business but management can easily kill trust. Democracy is the counterweight to hierarchical command and control.

As more people work in distributed networks they are beginning to realize how little they actually benefit from standard management practices. In an economy based on trusted knowledge networks of individuals, the organization should revert to merely a supporting role.

A hierarchy is nothing more than a centralized branching network. It is inadequate for the complex challenges facing all organizations today. Decentralized networks, based on intrinsic motivation, are a much better vehicle for rewarding work than hierarchies can ever be. Any organization driven by external direction, with social tools or not, cannot innovate as fast as self-motivated and hyper-connected workers can. Democracy in the workplace therefore makes for more resilient companies.

A stated commitment to democratic principles is often lacking in descriptions of social business practices. But without compensation for value in an open network, social initiatives likely will be seen in hindsight as just another management buzz-word. “Lipstick on a pig,” I believe is the term.

So what’s next in social business? A serious look at its foundations is needed. While social business may have changed the way some of us work, it has not changed the way most organizations are managed. As networked, distributed work becomes the norm, trust will only emerge in workplaces that are open, transparent and diverse.

In these trusted environments, leadership will be seen for what it is — an emergent property of a network in balance and not some special property available to only the select few. Leadership should be drawn from an aggressively intelligent and engaged workforce, learning with each other. Social business requires social management that marinates in and understands the work culture. This cannot be done while trying to control it.

Social business will become reality when management lets go of command and control, makes work transparent so that value is visible to all, and treats workers as adults, engaged in democratic work practices. We are a long way from that until management is reconnected to the work being done. People naturally like to be helpful and get recognition for their work. Leadership in a social enterprise is based on this assumption.

Connected leaders need to foster deeper connections with the entire enterprise, often through meaningful conversations. This is an ongoing process, not a “town hall” meeting from time to time. They have to listen to and analyze what is happening in order to help set the work context according to changing conditions, and then work on building consensus. Given the constantly changing conditions in hyper-connected work environments, a much higher tolerance for ambiguity is becoming a critical leadership trait.

This article was originally published in CMS Wire