The "flattened" organizational structure – which involves reducing middle management levels to allow more employees to report directly to the top tier – has become a sort of "Holy Grail" in the American business world. From Amazon to Meta to Citibank, many companies have reduced management levels in recent years to simplify reporting structures, speed up decision-making, and in some cases, free up funds to support the AI trend.

Few companies exemplify a flat organizational structure better than NVIDIA. This chip giant, which employs over 30,000 people, has its founder, CEO Jensen Huang, who now holds a non-executive role, openly expressing his disdain for bureaucracy for a long time. It is reported that he has around 36 direct subordinates and avoids one-on-one meetings. The company encourages employees, regardless of their seniority or position, to submit suggestions directly to management. This flat structure has made Jensen Huang—a person who founded NVIDIA in 1993 and helped to build and drive the AI craze—central to the company and seemingly indispensable.

And this may also have contributed to the crisis NVIDIA is facing today. Jensen Huang resigned on Thursday, after admitting to having an extramarital affair with a former Megaspeed executive who is suspected of being a Chinese spy, Alice Huang. There are also reports that he had a second extramarital affair with a NVIDIA employee. Now 63 years old, Jensen Huang left his position after serving as CEO for nearly 34 years, but there is no clear "number two" figure within the company.

NVIDIA stated on Thursday that finance director Colette Kress will serve as the interim CEO, while the board of directors has begun to search for a permanent successor. The lack of a seamless transition has undoubtedly raised concerns among investors (in the meantime, the market is also paying attention to the prospects of the broader AI trend). Within hours of Jensen Huang's resignation, investors wiped as much as 10% off NVIDIA's stock price.

Supporters of a flatter corporate structure argue that less bureaucracy leads to greater agility and a higher sense of responsibility among employees. Some also suggest that in the era of AI, agents may already be capable of undertaking tasks that were previously the responsibility of middle managers. Flatter organizational arrangements are particularly popular in the tech industry and are more common in companies where the founder also serves as the CEO. However, what is known as "extreme flattening" is occurring across various industries. A study released by Gallup this year found that by 2025, each manager in the United States will on average manage 12.1 direct subordinates, which is nearly 50% more than in 2013.

However, the gains in speed and flexibility that flat organizations achieve may come at the cost of weakening their reserve capacity of CEO candidates – this issue will become apparent once the current CEO is forced to leave suddenly. While the company reduces the number of managers, it may also weaken the pathways for training the next generation of leaders.

ProjectNext Leadership, who provides consulting for CEO, in conjunction with CEO and co-founder Molly Rosen, stated that a flatter structure often leads to the concentration of power in the hands of CEO. Moreover, when one boss accumulates excessive authority, it becomes more difficult for the board of directors to exercise checks and balances. This can result in the board failing in one of its key responsibilities: "Succession planning is the responsibility of the board of directors."

Rosen says that for founders like Jensen Huang CEO, this issue is even more tricky.

"The founders are closely tied to the company and often have more power than the average CEO, so in reality, the board of directors is not very willing to challenge them," said Rosen.

In flatter organizations, managers have more direct subordinates, which also makes it more difficult to cultivate future leaders. Taking Jensen Huang as an example, because he avoids one-on-one meetings, he may miss opportunities to identify and guide high-potential subordinates, and it also deprives the growing talents of the chance to seek feedback and learn from their work. Rosen indicates that one-on-one meetings "are precisely where talent development takes place."

In addition, fewer managers also means that fewer people have the opportunity for "stretch tasks" – for example, having financial staff learn about marketing or human resources, thereby growing into well-rounded executives suitable for top management positions.

A professor at the Business School of Boston University, Siobhan O, wrote in a recent report: “This may have a negative impact on succession planning, as fewer people will gain the experience needed to prepare for more senior positions.”

A flat structure may weaken the backup team, but this cannot be a reason for the board of directors not to establish such a team.