In an excellent article in the 10 September 2015 issue of the Harvard Business Review Georges Romme analyzes the misconceptions in the press about Holacracy and about sociocracy, “The Big Misconceptions Holding Holacracy Back.” Romme has been centrally involved with Gerard Endenburg and sociocracy for decades. The following is a summary and commentary on Romme’s article, which I also encourage you to read.

A key management practices is concentrating leadership in top management and suppressing or ignoring any ideas or concerns from other levels of the organization. Self management, like that in sociocracy, is believed to correct autocratic leadership but the misconceptions about how it does that have seriously affected the willingness of organizationsThe Delibrative Democracy Consortium (DDC)u is an alliance o... More, businesses in particular, from adopting it.

Misconceptions about Sociocracy

Romme focuses on three misconceptions:

1. It is non-hierarchical,
2.  Implementation specifics aren’t important, and
3.  The board’s functioning shouldn’t be affected.

Since sociocracy approaches the whole concept of organization from an unfamiliar direction it is often misunderstood, as can be clearly seen in descriptions in the news media of the implementation of Holacracy at Zappos. While certainly not the first corporation to implement principles and practices of self management — there probably thousands of businesses, non-profit organizations, and associations using sociocracy and other self management structures—Zappos has received the most attention for doing so.

Misconception 1. Abandonment of Hierarchy

Although self management methods are fundamentally different from command-and-control structures, they still have a hierarchy that provides an overall purpose and direction for the organization. A lack of hierarchy leaves an organization without a clear sense of who is accountable for what. While some are moving to a structure more similar to a network, they still have a clear patterns of coordination and accountability between nodes.

Self management, self-organizationSelf-organization, sometimes called spontaneous order, is a ...,  and distributed policy decisions balance and complement the hierarchy of daily operations. “Power and authority can flow in virtually any direction, but with an eye to maximizing efficiency … Instead of conferring authority, the hierarchy establishes an unambiguous sequence of levels of accountability.”

Misconception 2: The goal justifies any means.

Once the blueprint of the new organizational structure has been adopted, the misconception is that any implementation strategy is acceptable. The ends justifies the means. At Zappos, the CEO sent a memo to employees — embrace holacracy or accept a buyout. Empowering employees was thus expected to be the result of exercising authority. A mixed message that could lead to mixed results.***

The implementation process must itself be empowering and include employees’ ideas and ensuring that they understand and embrace the change. The best approach is for the top executives to tend to their own responsibilities and allow the employees to self-organize with the help of a dedicated implementation team.

“The pace of change must also be deliberate and well-orchestrated. The brand-strategy consulting firm Fabrique, for example, first defined shared objectives and had a project team pilot-test whether sociocracy served to realize those objectives. Then, on the basis of the evidence collected, it had the project team, together with the executive team, make a shared “go/no-go” decision (the result was a “go”). An approach like this signals top managers’ deep understanding of distributed management and leadership and establishes them as role models.”

Misconception 3: The boardroom is unaffected.

Executives and directors often try to take themselves out of the process as if the change only affects operations and middle managers. They assume they will still have autocratic power over any decisions made. But sociocracy requires a fundamental redistribution of authority in the whole organization. There are mechanisms for measurement and correction but how a team or department accomplishes its mission is under their control as long as it doesn’t negatively affect the work of another or is in conflict with the purpose of the organization.

The distribution of management optimally extends to a financial restructuring so neither owner or shareholders can unilaterally sell or close the company. The company should “own itself” and be financially self sustaining. Endenburg Elektrotechniek and MyWheels,  in the Netherlands, and the Terra Viva Group in Brazil are examples of companies that have restructured financially to ensure their independence and continuity.

A self-sustaining company is different from an employee-owned company. Employee owned companies are just as often managed autocratically as private companies and stockholder owned corporations. A completely sociocratic company is controlled equally by all its members,  not the board.

Integral Education & Distributed Management

Another practice in sociocracy, one not mentioned by Romme, is that the move toward distributed management and self-organization is balanced with strong support for continuing education. Referred to as “Integral education” it requires a  plan for personal and team development as part of annual planning. One estimate is that organizations should devote 5% of their budget to education and research for employees, not only for top management and aside from that delegated to a research department. That is 5% distributed to each employee at all levels of the organization.

Integral education ensures quality in every detail of operations, engages the intelligence and energy of each employee, and develops the skills required to assume greater responsibilities. The expectation of self-organization develops leadership, which further ensures the sustainability of the company.

Georges Romme  has a background in economics and business administration, with a MSc in economics (cum laude) from Tilburg University and a doctoral degree in business administration from Maastricht University. Previously, he was on the staff of Tilburg University and Maastricht University. His current position is professor of Entrepreneurship & Innovation at Eindhoven University of Technology (TU/e). From 2007 to 2014 he also served as dean of the Industrial Engineering & Innovation Sciences department. He is author of the forthcoming The Quest for Professionalism: The Case of Management and Entrepreneurship (Oxford University Press). 

*** An added comment on Tony Hsieh’s memo of  26 March 2015 to Zappos employees:

While Tony Hsieh did say “we are going to take a ‘rip the bandaid’ approach to accelerate progress towards becoming a Teal organization (as described in the book Reinventing Organizations),” he also went on to explain at length how further implementation of Holacracy at Zappos would take place and how. The process was very well considered and explained.

The very long memo gave many options for understanding the reasons for acceleration toward self-management, including readings. His memo was described in the press as an “ultimatum” and there would be a tendency for employees accustomed to an autocratic leadership to view it this way. In fact, it was a request that employees inform themselves and offering a buy-out to those who did not want to accept self-management.

I softened the language in this passage and in several places used “self management” instead of “distributed management.” It is more accurate to describe the organizational structure as “self management” and “distributed policy decisions.”

The full memo is online in Aimee Groth’s article published on Quartz.