Is a Manager-Free Company a Good Idea?

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By Martin Berman-Gorvine

Feb. 16 — The manager-free organization, or “holacracy,” such as Zappos, is generating a lot of buzz, but some of that buzz is negative, with news reports claiming fed-up employees are quitting their jobs at the online shoe retailer in large numbers.

According to a website maintained by Zappos, “Holacracy is a comprehensive practice for structuring, governing and running an organization. It replaces today's top-down predict-and-control paradigm with a new way of achieving control by distributing power.”

The polling organization Gallup drew on surveys it has conducted to discuss in an article why the holacratic approach may not work: “Managers account for at least 70 percent of the variance in employee engagement scores across business units,” so getting rid of them may worsen employee engagement.

Employees Crave Attention

The results may be like those at organizations where managers don't pay attention to their subordinates. “Engagement plummets to just 2 percent among teams with managers who ignore their employees, compared with 45 percent for teams led by managers who focus on weaknesses and 61 percent for teams led by managers who focus on strengths,” the Gallup article, released Feb. 5, said.

“I think there's a core flaw in the concept” of holacracy, Dick Grote, founder of performance management consultancy Grote Consulting Corp. in Frisco, Texas, said in a Feb. 16 interview with Bloomberg BNA. “The flaw is the abandonment of a structure, hierarchical management, that has worked for thousands of years.” He cited figures as diverse as Moses and Julius Caesar and organizations like the Catholic Church as examples of successful use of hierarchy.

“There are bumps in the process, but there is nothing that has come along that beats hierarchical structure,” Grote said. Experiments like Zappos are “like trying to put 1800s Shakers into modern corporate culture,” he said.

Moreover, Grote said, employees are terrible judges of their own performance and need immediate supervisors for a realistic performance appraisal. All employees want to know “one, what do you expect of me, and two, how am I doing at meeting your expectations? Organizations have an ethical obligation to answer those questions,” Grote said. “Holacracy removes the ability to give that to people.”

The news about Zappos' trying “holacracy” made Mark Murphy, founder and CEO of Washington, D.C.-based LeadershipIQ, recall a study his firm did last year about the link between employee engagement and the amount of time subordinates spend with their immediate supervisors, he said in a Feb. 17 interview with Bloomberg BNA.

Secret of Employee Engagement

Employees who spend six hours a week with their bosses are 30 percent more engaged on average than those who spend only one hour a week in their bosses' company, Murphy said, adding that this finding holds up even when employees don't particularly like their supervisors.

The reason, Murphy said, is that time with the boss means “access to information, guidance and structure,” which helps employees feel like they're not “drowning” in uncertainty. “Most of us don't want complete freedom—we want guidance, clear direction, the assurance that tomorrow's going to be similar to today.”

Like Grote, Murphy invoked long-established historical precedent to defend the idea of hierarchy, noting that the renowned psychologist Erich Fromm discussed how human beings do not want complete freedom in his 1941 book Escape From Freedom, an examination of the psychological roots of totalitarianism.

There are exceptional people who do thrive without external direction, Murphy said, and Zappos CEO Tony Hsieh may be one, but his mistake was applying an entrepreneur's dream of freedom to everybody in his company.

Zappos did not respond to a request for comment by press time.

To contact the reporter on this story: Martin Berman-Gorvine in Washington at mbermangorvine@bna.com

To contact the editor responsible for this story: Simon Nadel at snadel@bna.com