July 1, 2015 by 
I have long admired Tony Hsieh, CEO of Zappos for his out-of-the-box thinking and workplace innovation. Hsieh pioneered the practice of paying people to quit, which is one very effective way of transitioning unengaged employees to other pastures. He and his team also adjusted Zappos’ interview process to increase the focus on a candidate’s attitude, rather than just aptitude. Assessing these two metrics became tasks for two separate interview teams; a spot-on best practice.
Then he introduced Holacracy to Zappos, and I started questioning whether his success streak will come to an end. The idea behind Holacracy is that there are no bosses. While the idea of a “no bosses” work environment may sound appealing to many employees, the reality is that a zero-management workplace structure flies in the face of leveraging the most impactful drivers of employee engagement. Many trust Hsieh’s ideas based on past results, but this particular idea seems especially risky.
The jury is still out on whether Holacracy will work in the long run at Zappos, but here are four reasons why I forecast it will fail:
1) While employees may love the idea of not having someone tell them what to do or offer criticism of their work, most people crave and value getting both direction and recognition “from above.” This desire is especially poignant for Millennials who, as of this year, represent the largest single generation in the American workplace. Millennials yearn to be taught how to do something as opposed to being told just what to do.
Without managers, work groups cannot fully leverage the power of recognition, one of the most important drivers of engagement. All of the best-in-class employers (top 10%) with whom I have worked over the years, nurtured the “thank yous,” “atta-boys/girls,” and “I noticed what you did,” from its most effective source, the manager. With Holacracy, a company can no longer do that.
2) Knowing that career development is also one of the top three drivers of employee engagement, who will coach, teach, and develop employees when there aren’t any managers? Who will have regular career-pathing conversations with employees about their goals within the company? Senior leaders or HR could take on these tasks, but it’s unlikely they would know employees well enough to help as much as a manager in a more typical corporate structure.
Furthermore, a major part of career development is the opportunity to become a manager, and flat management structures make this opportunity hard to come by. If tenured employees want to leave a flat company but they lack management experience, it’s often more difficult for them to get hired at a level that reflects their years of experience. Choosing not to have managers could make top talent leave the company for better career development opportunities elsewhere.
3) A key unanswered question about Holacracy is, with the absence of managers, who will hold people accountable for outcomes and results? Again, literally all of the best-in-class employers with whom I have worked and coached were masters of holding themselves and others accountable, nearly all of the time through a well-defined management structure.
4) There is no more powerful way to build employee engagement than through the behaviors and actions of authentic and caring managers. Such reality is evidenced by Gallup’s most recent American workplace study (2014), which details how important it is to have engaged managers. The enthusiasm and dedication of engaged managers inspires direct reports to become engaged as well. Without managers, employees will miss out on having the good influence from an engaged leader.
Perhaps in implementing Holacracy, Zappos is trying to eliminate all of the potentially negative effects managers can cause in the workplace. It’s an interesting strategy, but to get rid of the bad, they are also getting rid of the good. Will Zappos ultimately end up in a better place? The jury is still out.