Pros
Valve is a hugely profitable company filled with brilliant developers. They try hard to understand what their customers want, and their steady revenue stream (from Steam and other sources) gives them the luxury of taking their time and doing the right thing. The lack of management can be liberating. As long as you don't make stupid choices you get huge flexibility in deciding what you want to work on. You can change projects and, within reason, decide what to work on within a project. The resources needed to do your job are generally always available, as they trust you to make responsible decisions with the company’s money.
Cons
The idealistic paradise is ultimately undone by a flawed review system. The lack of managers means that a peer review system is necessary, and Valve is very proud of theirs. But their review model is best described as a “popularity contest masquerading as data”. You never know who will (or who has) reviewed you so you have no opportunity to remind them what you have done, or why your work was valuable. Employees react to this review system with strategies such as choosing more visible (even if less valuable) work, announcing accomplishments to the whole company in hopes of being heard by their reviewers, or just hoping that reviewers will remember the work they did nine months earlier. None of these are ideal. Valve strives for a hands-off objective review, but in reality the system is manipulated by those who run it. All employees’ opinions are equal, but some employees’ opinions are more equal than others, and those employees who run the review system have significant impact on how others are evaluated and compensated. You also receive no feedback from your review. You get a bonus, and perhaps a raise, and (rarely) some stock options, but other than those numbers in an e-mail you get no information. There is no indication as to whether you are getting better, or worse, or how you could improve. There is no information about how your performance or compensation look compared to your peers. Many employees don’t even realize when many of their coworkers are getting stock options, and the owners rely on this opacity. Those who get stock options do extremely well, and the others do not. It’s an unacknowledged two-class system. The rational response to this uncertainty is to find a patron – somebody who can guarantee you a good review if you do their bidding. These patrons (the knights) guarantee themselves good reviews by doing the bidding of a higher-level patron (a baron), and the barons pledge fealty to the board members. This unofficial structure necessarily evolved and you opt out of it at your peril. The irony of a hierarchical structure spontaneously forming in Gabe Newell’s company after he has spoken so strongly about the problems of “command-and-control type hierarchical systems” is delicious. As was noted in “The Tyranny of Structurelessness”, “structurelessness becomes a way of masking power”, and this masked power is more insidious than formal power. So, I quit in order to get better compensation, an acknowledged hierarchy, and appreciation for my work.