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If Richard Branson’s recent decision to abolish the Virgin vacation policy for a pilot group of 170 employees didn’t force you to sit up and reexamine your company culture, you’re not paying enough attention. Branson is the cultural icon for mainstream business. Virgin’s vacation “non-policy” legitimizes the idea of greater freedom for workers and leaders around the world.

The main message, however, isn’t about vacation. It’s about company culture.

The only way to thrive in the digital economy is to trust your employees. Vacation policies, bi-annual reviews, and other dated practices build artificial power struggles within the organization, leading to the same predictable result: mediocrity.

When Branson Moves, the World Watches

The vacation non-policy isn’t a new concept. Netflix already does it, as do a handful of tech companies, including VMWare, SurveyMonkey, Eventbrite, and Evernote. However, Branson was the one to carry the idea from the halls of tech out into the mainstream.

Branson built his reputation by embracing the “why not?” Why not build a spaceship? Why not establish the new benchmark for luxury travel with Virgin Upper? And although not every “why not?” venture was so successful — see his experiment with vodka — it sent a message to employees that anything is possible and that failure does not mean the end of the road.

Branson’s relentless pursuit of innovation is rightfully admired by the business world, because it demonstrates that even the most outlandish business ventures can succeed as long as you have the culture back them up. Inspired success like Virgin’s evolves from enthusiastic, hardworking employees. The most brilliant team in the world will eventually go fallow if the work environment and corporate culture don’t motivate success.

The Bottom Line is Trust

During the week, the average employed American spends more time on work-related activities than sleeping. Whether those hours pass pleasantly or painfully impacts everything from employee satisfaction to top-line revenues.

Harvard Business School professors James Heskett and John Kotter once found that firms with “performance-enhancing” (no, I’m not talking about steroids) cultures had, on average, 416% more revenue than their non-culture-focused counterparts. Branson put it more bluntly: “If it weren’t for a bunch of well trained, motivated and, above all, happy people doing their bit, we’d never have launched a record label, never mind a fleet of 747s.”

While the specific ingredients for a good culture vary, the bottom line is trust.

Only in a trusting environment can workers communicate openly, know roles and expectations, be honest about progress and, in the end, function as a real team. Management’s role is to provide the connective tissue for trust and feed communal motivation. Vacation abusers and freeloaders won’t last in a collaborative, transparent environment. Still, many companies do the modern equivalent of glaring onto the factory floor and frightening workers into moving their hands faster.

That’s a recipe for mediocrity.

Company Policy Must Become Flexible

Every workforce mirrors the technology that enables it. Hunter-gatherers collaborated in small teams around spears, knives, and baskets. Industrial Revolution workers performed simple tasks in massive factories, overseen by managers in elevated windowed offices. Today, mobile devices and cloud-shared information put the means of production into everyone’s hands, decentralizing collaboration and requiring managers to take on an enabling, rather than a commanding, role.

Draconian relics like bi-annual reviews, excessive bureaucracy, and, yes, vacation policies establish artificial windows of control when the real focus should be on how to nurture trust. There’s no reason to stress out employees twice a year — and prove your managerial lack of awareness — when you could have an ongoing conversation with your workforce instead. Requiring sign-offs for time off is moot when one-quarter of your employees are remote contractors, distributed around the world. Imposing 10 days of vacation puts company rigmarole before employees as humans.

Company policy, in other words, must become flexible. Otherwise, it will continue to create friction with the realities of the digitized workforce.

Branson’s Cultural Brain

What Branson has figured out — and other CEOs should acknowledge — is that if your company is growing, your culture is working. If your company is stagnating, tweak the culture. It’s not about tradition or management’s sense of control. As Apple, Google, Netflix, and Virgin have shown time and again, a flexible, collaborative and trust-based culture feeds the bottom line.

Vineet Jain is co-founder & CEO of Egnyte, a privately held enterprise file services startup based in Mountain View, CA.

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