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Trend of the Day: Bossless Companies

photo of Michel Bauwens

Michel Bauwens
7th January 2013

Two different sources discuss both Valve and GitHub as examples.

Rachel Emma Silverman introduces the topic by referring to the mixed results of the research into the topic:

“Recent research on the value of flat organizations has been mixed. One study, by researchers at the University of Iowa and Texas A&M University, found that teams of factory workers who supervised themselves tended to outperform workers in more traditional hierarchies, so long as team members got along well. “The teams take over most of the management function themselves,” says co-author Stephen Courtright. “They work with each other, they encourage and support each other, and they coordinate with outside teams.They collectively perform the role of a good manager.”

Other studies, however, have found that hierarchies can sometimes boost group effectiveness, and that having a clearly defined role can help people work more efficiently.”

She goes to describe the example of the Valve gaming company:

“Valve, whose website says the company has been “boss free” since its founding in 1996, also has no managers or assigned projects. Instead, its 300 employees recruit colleagues to work on projects they think are worthwhile. The company prizes mobility so much that workers’ desks are mounted on wheels, allowing them to scoot around to form work areas as they choose.

Welcome to the bossless company, where the hierarchy is flat, pay is often determined by peers, and the workday is directed by employees themselves.

So, how does anyone get things done?

“It absolutely is less-efficient upfront,” says Terri Kelly, chief executive of W.L. Gore, the Newark, Del., maker of Gore-Tex and other materials. Her title is one of the few at the company.

“[But] once you have the organization behind it…the buy-in and the execution happen quickly,” she adds.

Companies have been flattening out their management hierarchies in recent years, eliminating layers of middle management that can create bottlenecks and slow productivity. The handful that have taken the idea a step further, dispensing with most bosses entirely, say that the setup helps motivate employees and makes them more flexible, even if it means that some tasks, such as decision-making and hiring, can take a while.

At Valve, there are no promotions, only new projects. To help decide pay, employees rank their peers—but not themselves—voting on who they think creates the most value. The company declined to provide information about how much salaries vary.

Any employee can participate in hiring decisions, which are usually made by teams. Firings, while relatively rare, work the same way: teams decide together if someone isn’t working out.

As for projects, someone typically emerges as the de facto manager, says Greg Coomer, a 16-year veteran of Valve who works on product design. When no one takes the lead, he adds, it’s usually a sign that the project isn’t worth doing.

When colleagues disagree on whether to keep or scrap products, the marketplace decides, Mr. Coomer says. “When we honestly can’t come to an agreement—that’s really very rare—we ship and find out who was right. Over time we’ve become comfortable with the idea that we might be making a mistake when we do that; our customers know that if we screw up, we’ll fix it,” he says.

Hiring highly motivated workers is vital to making a boss-free system work. And it isn’t for everyone. Most employees take anywhere from six months to a year to adapt, though some leave for more traditional settings, Mr. Coomer says.

The system has its downsides. Without traditional managers, it can be harder to catch poor performers. Even the employee handbook, a packet that explains Valve’s philosophy and processes, notes that bad hiring decisions “can sometimes go unchecked “.” (online.wsj.com/article/SB10001424052702303379204577474953586383604.html)

Yanis Varoufakis, a Greek economist hired by the company to witness their practices, introduces the concept of the bossless capitalist firm:

“There are two kinds of non-capitalist firms: (a) Mutual, co-op like, firms whose ownership is formally dispersed among members (who may be customers, employees or both); and (b) Valve (or similar companies) where management is completely horizontal (i.e. the company is boss-less) even if ownership is held in the hands of a selected few.

Valve is, at least in one way, more radical than a traditional co-operative firm. Co-ops are companies whose ownership is shared equally among its members. Nonetheless, co-ops are usually hierarchical organisations. Democratic perhaps, but hierarchical nonetheless. Managers may be selected through some democratic or consultative process involving members but, once selected, they delegate and command their ‘underlings’ in a manner not at all dissimilar to a standard corporation. At Valve, by contrast, each person manages herself while teams operate on the basis of voluntarism, with collective activities regulated and coordinated spontaneously via the operations of the time allocation-based spontaneous order mechanism described above.

Regarding remuneration, both the co-op model and the Valve model differ substantially from conventional capitalist corporations. Capitalist firms is organised along the principle that the owner is the residual claimant once factors of production are paid their market-determined prices. E.g. shareholders are assumed to retain dividends that equal total revenue minus fixed costs, minus labour costs, minus interest on capital borrowed, minus planned investment, minus all other variable costs. Employees thus receive income that is determined by the conditions of the labour market at large and which is a reward for their labour time (estimated at the market determined price of it). Bonuses blur the distinction between profit and wage income but, to the extent that they constitute a stable proportion of one’s wages (and are incapable, courtesy of imperfect monitoring, of being properly tied to individual marginal or average productivity), they can be thought of as part of wage income (except for CEOs and the like whose position of power over the shareholders creates the well known tensions resulting from the ‘managerial revolution’, which saw ownership separate from hierarchical control). In contrast, co-ops and Valve feature peer-based systems for determining the distribution of a firm’s surplus among employees.

Having spent a few months working at Valve, I can testify to the truth of its own self-image as a boss-less corporation. As a political economist who spent a great deal of time debating alternatives to capitalist corporations, working at Valve is affording me a valuable opportunity to watch one such alternative corporation in action. In this post, I attempted to place Valve’s quirky management structure in the context of time-honoured debates and perspectives. Central to my narrative of ‘Valve’s way’ was the notion of an ‘alternative spontaneous order’: one that emerges within a corporation (as opposed to within a market-society) on the basis of individual time allocations (as opposed to price signals). The tantalising thought arose, during my musings, that this organisational structure may be as scalable as a market mechanism (assuming that the right technologies are in hand, ensuring transparency and low communications’ costs within the company).

There is one important aspect of Valve that I did not focus on: the link between its horizontal management structure and its ‘vertical’ ownership structure. Valve is a private company owned mostly by few individuals. In that sense, it is an enlightened oligarchy: an oligarchy in that it is owned by a few and enlightened in that those few are not using their property rights to boss people around. The question arises: what happens to the alternative spontaneous order within Valve if some or all of the owners decide to sell up? Granted that Valve’s owners do not intend to do this, the question remains, at least at the theoretical level.

One possibility is that Valve will divide and multiply into a number of different Valve-like companies, as its talented employees leave for greener pastures and, possibly, with the intend of re-creating the horizontal management structure that they grew happily familiar with. Another possibility is that the owners may actually sell their stake to Valve employees, thus combining the features of a co-op with the Valve management system.

Whatever the future of Valve turns out like, one thing is for certain – and it so happens that it constitutes the reason why I am personally excited to be part of Valve: The current system of corporate governance is bunk. Capitalist corporations are on the way to certain extinction. Replete with hierarchies that are exceedingly wasteful of human talent and energies, intertwined with toxic finance, co-dependent with political structures that are losing democratic legitimacy fast, a form of post-capitalist, decentralised corporation will, sooner or later, emerge. The eradication of distribution and marginal costs, the capacity of producers to have direct access to billions of customers instantaneously, the advances of open source communities and mentalities, all these fascinating developments are bound to turn the autocratic Soviet-like megaliths of today into curiosities that students of political economy, business studies et al will marvel at in the future, just like school children marvel at dinosaur skeletons at the Natural History museum. I trust that Valve’s organisation will become, if not a central chapter, at the very least an important footnote in this historical turn.”

Rachel Emma Silverman also discusses GitHub:

“Many employees feel it is easier to grow in their careers without layers of management, says Chris Wanstrath, the CEO of San Francisco collaboration-software company GitHub, who insists his title is nominal. The company, whose products let teams work together to develop software, often without the aid of management, has 89 employees.

At GitHub, a small cadre of top brass handles companywide issues and external communications but doesn’t give orders to workers. Teams of employees decide which projects are priorities, and anyone is free to join a project in whatever capacity they choose. “You have the power to be where you are most useful,” Mr. Wanstrath says.

Tim Clem, 30, was hired at GitHub last year for a back-end coding job. A few months into the job, he persuaded other colleagues that the company needed to develop a product for users of Microsoft Windows. He spearheaded the project, hiring a team of staffers to help him create the recently released application.

The bossless structure can be chaotic at times, he says, but “you feel like there is total trust and an element of freedom and ownership. It makes you want to do more,” says Mr. Clem, who had previously worked at a large tech firm and smaller start-ups.”


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