It's pretty obvious that hierarchy performs a necessary function. The focus should be on approximating a hierarchy of merit. Perhaps employees should be hired and tasks assigned by weighted vote, with a handicap for those who've performed well on a company betting market which predicts when x employee will finish a task and the quality of his/her work. The whole process could be made anonymous, provided the market is a play money affair.
Hierarchy introduces a bunch of serious problems, for instance:
1. information is often collected at the leaf nodes, so it must flow up the chain-of-command to be used effectively
2. power creates perverse incentives to distort information as it travels up the hierarchy, even when it doesn't information is distorted as it is compressed for fewer and fewer people (see executive summary)
3. hierarchies have to wait for signals to go up the tree and back down to act (which is why the US military has non-hierarchical decision making in places), this makes "tall" hierarchies slow to react
4. corruption of single node in a hierarchy can disrupt all nodes below or above it in non-obvious ways
5. hierarchies tend to have extremely critical nodes and cascading failure modes
Use of such structures should always be considered within the framework of a trade-off.
In regards to points 4 and 5, 'flat' hierarchies still have nodes that are more connected than others and wield greater influence than others. These have the same failings.
I would argue that well designed organisations or networks should have enough connections to route around/detect minor damage/corruption and quickly isolate the problem. For instance small world networks have this property http://en.wikipedia.org/wiki/Small-world_network .
Not all nodes in flat human networks are likely to be equal in information flow, but a plurality of high degree nodes does somewhat mitigate cascading failure due to disconnection but may increase cascading failure due to interconnection such as viruses.
You obviously know more about this than me. I suppose, I shouldn't have posed such a strong thesis - my English teacher would be very cross if she were to hear about this. As usual, everything is more nuanced and interesting when investigated in some detail.
