Brooks has a fine discussion of the topic in The Mythical Man-Month. He makes a good case for having a traditional manager as assistant to the lead developer, with responsibility for budget tending, office politics, gossip, lies, damn lies, and other business activities that no developer wants to indulge in. The assistant's main job is to keep the developer happy.
Update, chromatic++ caught a thinko on Brooks's book title. Fixed.
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