Imagine working for a company with no bosses. On your first day, you are given a handbook for new employees. This will be “the greatest professional experience of your life”, you read. “We don’t have any management, and nobody reports to anybody else.” You can decide which projects you work on. If you hate who you’re sitting next to you can simply move – there are wheels on the bottom of your desk to help. The company has some exciting quirks like a massage room, an in-house radical economist, and trips where everyone in the whole company goes on holiday together.

The industries with the least in the way of formal rules and regulations are often rife with sexual harassment

This is no fantasy. It’s a computer game development company called Valve. Based in a suburb of Seattle, Valve has produced well-known games such as Half-Life, and a hugely successful digital distribution platform called Steam. It has recently started developing hardware for games developers.

In 2012 Valve’s new employee handbook was leaked. Fawning articles about this unique and amazing company appear everywhere from the BBC to Harvard Business Review. Valve’s economist in residence – Yanis Varoufakis, the former Greek finance minister – appeared on a podcast describing the company’s unique system of rewarding employees.

Since then, the glittering aura of Valve’s “no boss” culture has started to fade. In 2013, an ex-employee described how the company had “a pseudo-flat structure”. “There is actually a hidden layer of powerful management structure in the company,” she said, which made it feel “a lot like high school”.

Now, five years later, another ex-employee has taken to Twitter to share his thoughts about a nameless company that closely resembles Valve. Rich Geldreich described how the firm would hire employees, make them grand promises, then fire them once they were no longer useful. He described the firm as being run by “barons” – and advises new employees to cosy up to a baron in order to “rapidly up your purge immunity level before the next firing cycle”.

Geldreich’s description squares with some reviews of Valve on Glassdoor, a site where staff leave anonymous verdicts on their employers (although it has to be said that many employees like Valve’s culture). One describes the no-boss culture as “only a facade”: “To succeed at Valve you need to belong to the group that has more decisional power and, even when you succeed temporarily, be certain that you have an expiration date. No matter how hard you work, no matter how original and productive you are, if your bosses and the people who count don’t like you, you will be fired soon or you will be managed out.”

Geldreich describes a neo-feudal workplace culture of powerful barons who ruthlessly exercise their whims over temporary favourites, then turn on them during the next “head count reduction” exercise.

Such endemic uncertainty is not unique to the computer games industry. Jeffrey Pfeffer, of Stanford University, points out that many young employees in the tech industry think there is no hierarchy, their boss is their buddy, and work is fun. This is fantasy, Pfeffer says. The lack of formal rules and hierarchy masks a vicious informal power structure. But unlike good old-fashioned hierarchies, there are few checks and balances in place in flat firms. Powerful “barons” can pursue their caprices with few limitations.

The industries with the least in the way of formal rules and regulations are often rife with sexual harassment. In a forthcoming book, Peter Fleming, a business school professor, points out that the wave of scandals triggered by revelations about Harvey Weinstein’s alleged predation is in no small part connected to the highly flexible organisational structures that Hollywood runs on.

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Like firms, the famously bureaucratic public sector has also fallen for flatness. In place of rules, regulation and evidence, many public agencies have started to look for “passion”, “enthusiasm” and “flexibility”. It might sound great, but the academic and author Paul du Gay warns that it can lead to dangerous and even disastrous results. For instance, the military misadventures of the early 21st century were often due to the passion and enthusiasm of elected officials trumping the formal rules and expertise offered by civil servants and military personnel.

Getting rid of formal hierarchies has also proved dangerous in social movements. After spending years in the women’s liberation movement of the 1960s, the American political scientist Jo Freeman warned of the “tyranny of structurelessness”. Although egalitarian and democratic structures have many benefits, she pointed out, structurelessness easily “becomes a smokescreen for the strong or the lucky to establish unquestioned hegemony over others”. By putting rules and structures in place, you make it clear and transparent how the group or organisation works. The lesson Freeman learned in the early 1970s has been forgotten over and over again.

Fantasies of no rules, no bosses and no hierarchies are seductive. Hierarchies can be repressive, rules can be absurd, and bosses can be toxic. But not having these things can be worse.

• André Spicer, a professor at the Cass Business School in London, is the author of Business Bullshit