Companies With ‘Flat’ Structures Rarely Work. Is There a Solution?

Elizabeth Claypoole was taking her dog to day care when she bumped into Eric Ward, one of the chief executives at Ag Biome, a North Carolina biotechnology company where she is head of human resources. When the day-care receptionist asked how they knew each other, she said, “Well, he’s kind of my boss.” Mr. Ward cringed. Ag Biome operates with a “flat” business model: It eschews managers, favoring committees instead. Despite their titles, the co-founders, Scott Uknes and Mr. Ward, are, Ms. Claypoole said, “anti-C.E.O.s.”

Ag Biome is one of an array of modern companies and organizations that have experimented with or embraced a flat, or nonhierarchical, corporate structure; other examples include Suma, a wholesale company and workers’ cooperative, and the video game studio Valve. For these companies, the unusual structure may be driven by principle, politics or revenue. The result involves removing layers of management and designing businesses around democratic decision-making.

Flat structures tend to work best at smaller companies, including start-ups, according to Saerom (Ronnie) Lee, an assistant professor of management at the Wharton School of the University of Pennsylvania. “As firms hire more employees and grow in their size, they typically encounter significant challenges in coordinating these employees.”

But do flat structures work? André Spicer, a professor of organizational behavior at the Bayes Business School in London, said that, while the “cultural zeitgeist when I was growing up was that hierarchies are bad,” there’s been an increasing recognition of both the need for them and the fact that they often reappear in businesses ‌that, at least theoretically, reject them. “People aren’t just willing to jump on the bandwagon and say, ‘Yeah, let’s have this nonhierarchical structure.’ There’s some degree of suspicion around it.”

In 2012, Valve’s handbook for new employees was leaked, revealing its defining feature: eschewing managers in favor of an autonomous system in which employees can move between projects when they chose.

But in a 2013 interview, Jeri Ellsworth, a former Valve employee, said that at the company, “there is actually a hidden layer of powerful management structure in the company and it felt a lot like high school.” A report in 2022 by People Make Games, a YouTube channel of investigative journalism about video games, highlighted Valve’s issues with diversity and job assessment, among others. (Neither Ms. Ellsworth nor Valve responded to requests for comment.)

Clifford Oswick, a professor of organization theory at Bayes, pointed out “inherent risks” of discrimination in companies with extremely flat structures. The companies may reflect the same biases as society, without safeguards to avoid them. This means that often in such companies, Mr. Oswick said, “you’ve still got middle-aged, privileged white men making decisions at the top.”

Mr. Spicer is particularly critical of start-ups that have attempted, or claimed to attempt, flat structures, suggesting that failures — and at least one major scandal — have emerged from these workplaces. He pointed to Elizabeth Holmes and Theranos, her health care technology start-up. In a 2015 interview, Ms. Holmes said that Theranos was “a very flat organization and if I have learned anything, we are only as good as the worst people on our team.”

“The claim that companies like Theranos had a flat structure meant the company fitted into a well-recognized type of agile tech firms,” Mr. Spicer said. In addition to attracting investors and employees, the myth “meant that these companies don’t have to do the difficult and tedious process of putting into place all the systems and controls you would normally find.”

He added that he believed those systems “would have likely stopped much of the wrongdoing.” Ms. Holmes and Ramesh Balwani, the former chief operating officer of Theranos, were each recently sentenced to prison time for defrauding investors and patients.

The notion that start-ups in particular are ill suited to a flat structure was supported in a 2021 study by Professor Lee of Wharton. A flat structure “can result in haphazard execution and commercial failure by overwhelming managers with the burden of direction and causing subordinates to drift into power struggles and aimless idea explorations,” he wrote.

With those challenges in mind, some companies in 2023 think that keeping hierarchy at bay is less important than challenging labor practices that prioritize profits over ethics. For example, Dark Matter Labs, a social nonprofit, operates under the idea that the future of work cannot be about the monetary needs of big bosses.

“In some ways, I think we might be described as nonhierarchical, but we don’t describe ourselves as such internally,” said Annette Dhami, who works in organizing and governance at Dark Matter Labs. “If we needed to refer to it, we would call it a dynamic hierarchy.”

“We recognize that hierarchies exist,” she added. “But we don’t structure them in terms of bosses.”

Instead, they use virtual “role cards” that employees can choose, outlining responsibilities and tasks for which they are accountable. There are also “stewards” who forecast the bigger picture but do not manage teams.

Rather than removing hierarchy altogether, companies like Dark Matter are trying to use alternative structures that don’t focus on how conventionally productive employees can be.

So what of Ag Biome? In recent years, as it has grown from a tiny business to a larger one, it has brought an accountability element to its structure, meaning that someone is responsible for every area of the business. Ag Biome has also made other structural shifts away from consensus.

But the underlying ambition to do things differently remains. At a “normal company,” decisions can be made fairly easily by individuals; with a flat structure, “all of a sudden here, you have to listen to all these people,” Ms. Claypoole said. “But what I’d like to think is that when you get a bunch of smart people together, that challenge, hopefully, helps you get to a better place.”

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