In January 2016, US-based online shoe and clothing retail giant Zappos reported that 18 percent of its workforce had taken buyouts in the previous 10 months. That made Zappos’ employee turnover rate 30 percent for 2015, compared to an average of 20 percent in the previous two years. The exit of employees followed the company’s CEO Tony Hsieh (Hsieh) issuing an ultimatum to them ‘to either adopt Holacracy or leave’. Zappos shifted from a traditional management structure to a less-hierarchical system known as holacracy (Refer Exhibit I for more details) in 2013 to bring in autonomy, clarity, and agility within the company.

Hsieh, who had been experimenting with holacracy for over a period of two years, felt that the company had not made enough progress toward becoming a fully self-managed organization. He decided to take a “rip the band-aid” approach to accelerate the process in order to reach the desired state. In April 2015, in a company-wide memo, Hsieh wrote “We’ve been operating partially under Holacracy and partially under the legacy management hierarchy in parallel for over a year now. Having one foot in one world while having the other foot in the other world has slowed down our transformation towards self-management and self-organization.” Through the memo, Hsieh sent out a message that employees who were not committed enough to the new structure could quit the company with a buyout offer . Days after the severance package was announced, nearly 14 percent of Zappos employees accepted the offer to quit. By January 2016, 450 more employees took the offer....

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