Zappos and the search for a better way to run a business

January 29, 2014, 3:00 PM UTC

FORTUNE — When I first heard about Holacracy, a management system that online retailer Zappos plans to roll out across its organization this year, I was intrigued. Holacracy had been described as an organizational approach in which everyone participates in shaping the company’s future. Here, I thought, might be a strategy to foster employee engagement and give managers a shot at really understanding employees’ capabilities.

Many bosses operate under a false belief in their own superiority, clueless of the full breadth and depth of their employees’ strengths. This blindness weakens companies — and fosters the inequality in pay we see today.

I caught up with Brian Roberston, who, as he puts it, “discovered” Holacracy. His enthusiasm is infectious. Holacracy came out of “experimentation and adapting” as a “better way to run a company,” he told me. It was more a “discovery process than a creation process,” he says.

Robertson describes Holacracy as operating with a series of circles of authority that allows people to put their insights, perspectives, and frustrations on the table. He says the approach helps circumvent bosses who are bottlenecks, too busy to carry ideas forward, and it eliminates long and painful meetings, filled with political posturing.

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Unlike what you may have read, Holacracy doesn’t eliminate hierarchy. The head of an organization (at Zappos, that would be Tony Hsieh) serves as the lead link in what is referred to as the general circle — and that person appoints the leads for other circles, Robertson says. Leads have the power to remove individuals from their roles, but, under Holacracy, Hsieh and everyone else are discouraged from micromanaging specific individual actions — and members of a circle, not leads, decide on changes to the scope of an individual’s roles and authorities. Robertson says the approach is similar in spirit to another organizational system called total quality management (TQM).

I’ve had some experience with TQM. In the early 1990s, the organization I worked for decided to give a Xerox-style TQM process a try. I was quite skeptical that a management process based on employee decision-making would work. However, with the right questions in play (e.g. “Who are our internal and external customers? How can we best serve them?), I found to my delight that my team didn’t really need me all that much.

The TQM experience increased my appreciation and trust in my team’s ability to steer itself. It also helped free me from a kind of managerial arrogance. Robertson wrote that Holacracy also breaks these common patterns that cause us to “derive some of our sense of self-worth from that illusion that we control and lead more than we actually do.”

The TQM process gave my team a sense of ownership, so much so that when I announced I was moving cross-country, the group I led met on their own and recommended who they thought should be my replacement. John Bunch, lead link of the Holacracy implementation circle at Zappos, hopes Holacracy will “empower an entrepreneurial culture” and allow the company to be “more adaptable to real-time conditions.” He also hopes it will be a model for others.

One criticism of Holacracy has been that it involves a lot of rules. For now, Zappos intends to run Holacracy “as fully prescribed and not make alterations,” Bunch told me. But Holacracy would be more powerful if it actively encouraged organizations to experiment and uncover the rules for themselves. By doing that, participants could innovate beyond Robertson’s thinking — and feel the exhilaration that Robertson himself experienced during his exploration and discovery.

The idea of broad-based rule setting is neither far-fetched nor new. The U.K.-based school Summerhill, which was founded in 1921, allows students to develop the rules that govern the school. All students and staff have equal votes when deciding on the school’s laws.

In the 1980s, when U.S. corporations began to inquire about Edward Deming’s TQM work in Japan, many wrongly associated TQM with other Japanese management approaches, including early morning calisthenics. So too, today, it seems that adopting Holacracy at some companies is being done in conjunction with other practices like meditation.

In a wide-ranging discussion at the Wisdom 2.0 conference last year, Twitter co-founder Evan Williams discussed his efforts to create a mindful organization at Obvious Corporation with practices that include both Holacracy and meditation. Regarding meditation, he said, “this is actually encouraged and it’s not encouraged because … we want this to be a nice, fluffy place to work, but because it makes you better, and it makes the company better, and we really believe in the hard science aspects of it as well, and so that applies to everything.”

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But here’s the rub. To argue for methods such as these not for their intrinsic goodness but because they are a means to an end (i.e. to allow the capitalist to extract more out of workers) can open up the potential for all kinds of practices, such as unscrupulous mind-control, with the same intent. Besides that, isn’t it about time we addressed questions we tend to easily dismiss, such as, “What’s so wrong with nice and fluffy work environments?”

Jon Kabat-Zinn, founding executive director of the Center for Mindfulness in Medicine, Health Care, and Society at the University of Massachusetts Medical School, also spoke at the Wisdom 2.0 conference. Following Kabat-Zinn’s speech, author Jay Michaelson interviewed him for an article in Tricycle. “This whole issue of ethics is really important,” Kabat-Zinn told Michaelson. “It’s not like Goldman Sachs can just do a little mindfulness and then be driven by greed, hatred, and delusion all the more. That’s not mindfulness. This is about restructuring things so that your business is aligned with the deepest domains of integrity and morality.”

Done right, innovative ways of doing business can address the inherent problems we see in capitalism today. But it’s paramount that businesses be remade in a way that ensures that the dignity of — and care for — human beings is integral to the transformation. The best approaches will be those that require leaders to work less on the company and more on themselves.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (
), a board education and advisory firm.

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