Pando

Staff at Tony Hsieh’s Downtown Project decided to abandon Holacracy nine months ago

Employees apparently used their Holacracy authority to rollback the untested, unworkable workplace experiment that Hsieh is now forcing on Zappos.

By Paul Bradley Carr , written on July 8, 2015

From The Disruption Desk

“Listening to this, if I were one of those people [Tony Hsieh convinced to bring their family to Vegas], I’d be horrified. I'd be picking up the phone to my attorney.”

You’ll have to check that quote on the radio — it’s hard to take accurate notes during a shouting match, especially when you’re the one doing the shouting, and the other guy seemingly just admitted that his boss is a serial bullshitter.

I was in San Francisco yesterday morning. At the other end of the line, in KNPR’s Las Vegas studio, was Mark Rowland, CEO of Tony Hsieh’s Downtown Project Ventures.

Host Joe Schoenmann had invited me on his show to discuss my recent Pando article in which I described the craziness of the Downtown Project and Hsieh’s next plan: to ruin the careers of every employee at Zappos by implementing “Holacracy” — a management system which involves getting rid of all managers.

Rowland, poor bastard, was tasked with defending Hsieh. His position: Anyone who believed a word his boss told them was a fucking idiot.

“They were being naive,” he said. “I think you have to take that stuff with a pinch of salt.” He then likened the Downtown Project to a tech startup that promises to become a billion dollar company when — c’mon — everyone knows it won’t. Then again, he admitted, “Some of the things that were said [by Hsieh] I probably wouldn’t have said.”

And what, I asked, are the people at Zappos supposed to do when Holacracy inevitably fails?

Rowland said he isn’t concerned. “They’ll dust themselves down and do something else.” According to figures published in October of last year, a few months before Hsieh told Zappos employees to get on board with Holacracy or go work elsewhere, Nevada had the highest unemployment rates in the country for both white and African American workers — 7.2% and 16.8% respectively.

You can listen to our conversation on KNPR this morning around 9am — or online sometime later at KNPR.org. What you won't be able to hear, unfortunately, is the conversation Rowland and I had after the tape stopped running.

“Did you know the Downtown Project has abandoned Holacracy?” Rowland asked me.

No, Mark, I did not. For one thing, the move happened entirely without publicity, and Tony Hsieh has continued to tell reporters that Downtown Project is governed by Holacracy. For another, five minutes earlier on the radio, Rowland had cited the Downtown Project as a successful example of a Holacratic organization.

Later, I emailed Downtown Project ’Chief of Staff’ Maggie Hsu who confirmed that “we paused the Holacracy implementation in late September / early October 2014.” Others with knowledge of the decision tell me that Holacracy was officially abandoned on September 30th, the same day as 30 staff were laid off by the project.

According to the rules of Holacracy, any decision to abandon it has to be ratified by the person who implemented it in the first place. At the Downtown Project that person was Tony Hsieh, meaning Hsieh knew that Holacracy had failed at DTP as he boasted to Re/Code’s Nellie Bowles about its effectiveness:

After confirming that his position at the project had changed but disputing that he was ever the [Downtown] project’s leader, Hsieh explained: “It’s complicated. It’s Holacracy. Do you know about Holacracy?

So what went wrong?

According to Rowland, unlike at Zappos, the Downtown Project lacked the “core values,” "openness," and “trust” that exist in a company like Zappos, which is much better suited to Holacracy. Without that trust, self-management tends to fall apart very quickly. In short: nothing was getting done, and no one knew whose fault that was.

Rowland, who admits he hasn’t read Brian Robertson’s Holacracy book (“I probably won’t”), says he’s “not a fan” of the system which he finds “a bit restrictive.” He uses a motoring analogy: In good self-management, we all agree what side of the road to drive on, but individuals can choose their own speed and route. In Holacracy you’re told the route and speed and everything else. In other words, implementing Holacracy means replacing a thinking, feeling human boss with a rigid, unthinking, unfeeling system.

Brian Robertson, the inventor of Holacracy, admitted as much when he said that, in a Holacratic company,“Your responsibility is not to support the people but to protect the process.”

“So, you decided to get rid of it at Downtown Project?” I asked Rowland.

“No, the employees did.”

Yep, according to Rowland, the holacratic employees of the Downtown Project had used the power of Holacracy to vote to abandon Holacracy. 

I asked Rowland if he thought something similar might happen at Zappos. Could Hsieh’s remaining employees use their new autonomy to band together and vote for Tony Hsieh to stop dicking around with untested management theories and go back to being their boss?

“Well, they might vote to get rid of Holacracy and implement some other kind of self-management,” he said. “Or, yes, they could vote to restore Tony’s authority.”

In fact, he told me, staff at Zappos have already started using Holacracy to undo some of Hsieh’s nuttier ideas. “In the new Zappos headquarters there was a covered walkway between the parking lot and the main office building. One day Hsieh had decided to seal off the walkway and force everyone to use the building’s one front entrance. “He wanted to increase the number of ‘collisions’ between employees,” Rowland explained.

Hsieh has previously boasted about the scheme, telling Inc:

At Zappos, we do a lot to get people running into each other. At our office, for example, there are exits on all four sides of the building. We've locked them all except one. It's more inconvenient, but we prioritize collisions over convenience. The Downtown Project, our drive to revitalize downtown Las Vegas, does the same thing, but on a much bigger scale.

The problem, of course, is that in summer Las Vegas temperatures can reach ridiculous heights. “The employees decided they didn’t want to walk in hundred and five degree heat from their cars,” Rowling said, “So they used Holacracy to reopen the walkway.”

Openness!