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man in business suit, holding tieDavid Stuart Wiggs

The first thing the advocates of holacracy would like to clear up is that, even though it's a management philosophy about getting rid of managers, this doesn't mean pushing a company into anarchy, or even hippy-dippy Montessori indulgence. Quite the opposite: They suggest holacracy is about companies growing up.

Take Phil Caravaggio, the founder of Precision Nutrition, a 60-person Toronto firm specializing in tailored life coaching. As his firm grew past the point where it could be run informally on the strength of personal relationships, he went looking for a way to structure the company without setting up yet another deadening corporate hierarchy.

His search led him to holacracy, a governance method that emerged from a software firm in Pennsylvania, of all places, over the last decade. Since then, holacracy has racked up a number of big-name adherents, most notably Zappos, the 1,500-employee, Amazon-owned online footwear store, and the chatter has been growing.

"It's a system for giving everyone real clear autonomy without everything devolving into chaos," explains Caravaggio, speaking over sparkling water in a corner of the Soho club in downtown Toronto. Caravaggio might be said to head up the firm, though this is where things get fuzzy, because in addition to rejecting hierarchy, holacracy also eschews job titles. When pressed, he says he's technically the "lead link of the general company circle"; one senses that he's had a lot of practice explaining this to people.

In a holacracy, the organization is grouped into a series of concentric, autonomous circles—say, a finance circle, a marketing circle that might contain a web-design circle, all within a big circle that represents the company itself. Every circle has a leader, who does many of the things a traditional boss does, like deciding on priorities and assigning who does what on the team. But no circle's leader is allowed to butt in on the decision-making process of any other circle—even the smaller ones.

The way these circles speak to each other is one of holacracy's hallmarks. In a traditional organization, the team managers typically represent their teams in meetings. But this puts managers in a bind: On one hand, they have to champion their team's interests to the company; on the other, they have to be the ones to impose their superior's decisions on their team–two roles that can be completely at odds. In a holacracy, each circle elects a representative who's not the leader to sit in other circles, report on their team's progress, and express its concerns to the broader company.

In fact, everything about the way a holacracy works is determined by a set of written rules. It's all laid out in a detailed, but surprisingly concise, 30-page constitution: who is allowed to do what, how meetings are run, how decisions get made, and how to make changes to the rules themselves—which can be easily done, as long as the rule-changing itself follows the rules. Once a company signs up, the agreed-upon written tenets are the highest authority–not the founder or erstwhile CEO.

It's as if, after centuries spent listening to complaints that government should work more like business, somebody decided that business should work more like government. Managers still have power in a holacracy, but it's diffused and limited by the rules. "You can compare it to the way a society is run," says Olivier Compagne, a partner at HolacracyOne, the consultancy founded by holacracy pioneer Brian Robertson. "You can have a dictator at the top, or a constitutional system that distributes authority. Executives have limited authorities, and they cannot trump it."

As the story is told, Robertson developed holacracy after years spent running up against management as a software developer, only to start his own company and discover he'd replicated the exact same system he had once railed against. After sampling ideas from other management philosophies popular in the software world, like Agile and Getting Things Done, Robertson founded HolacracyOne in 2007 to promote the concept and offer software to support it.

The extent to which it will make a dent on the corporate world remains to be seen. Observers suggest that, predictably enough, it will be a better fit for some companies than others. "It tends to work well in situations where problems are difficult to define," says Kenneth Goh, an assistant professor of organizational behaviour at Western's Ivey Business School–for instance, he says, creating interactive media out of an alchemic combination of graphics, music, writing and programming. "Because the end product could be dominated by any of these elements at different times, team hierarchy needs to be flexible to respond effectively and promptly to feedback," he says. "These are scenarios that are likely to thrive under holacracy." Conversely, businesses that attack well-defined problems might benefit less, especially if they already have bureaucratic processes that might not embrace constitutional re-engineering.

For Caravaggio, the system's value hit home in 2012, about a year after Precision Nutrition adopted it. The company was set to launch its professional certification program—which normally would have required oversight from senior executives. But the timing coincided with a few trips out of the country. Having a governance system in place that can grow and change according to its own rules freed up employees from the overhead of organizational bickering and the need for managerial interference. "We did $1.5-million in one day. It was the smoothest launch we'd ever done, and nobody missed me," says Caravaggio. "To me, it was the demarcation point between being a collection of heroic individuals, and having a system that is trusted by talented people to do what needs to be done."