At most companies, the majority of employees—even if they are highly talented—can’t be given significant levels of decision-making freedom, because they don’t know all the company secrets that allow top management to make informed decisions.
Once you have a company full of those rare responsible people who are self-motivated, self-aware, and self-disciplined, you can begin to share with them unprecedented amounts of company information—the type of knowledge most companies keep under lock and key.
This is the subject of chapter 5.
PUMP UP CANDOR . . .
5
OPEN THE BOOKS
In 1989, after the Peace Corps but before Pure Software, I was a twenty-nine-year-old software engineer at a struggling start-up called Coherent Thought. One Friday morning, I arrived at my cubicle and, through the glass wall of the conference room in front of my desk, I saw the senior management standing huddled next to the window with the door closed. What startled me was how still they were. On a recent trip, I had watched a gecko that was about to be devoured by a large white egret. He froze in terror with one leg midair. That was how these managers looked. Their lips were moving frantically but their bodies were completely still. Why didn’t they sit down? That image made me uncomfortable and I started to worry.
The next morning, I arrived at work early and the managers were already back in the conference room. That day they sat in chairs but every time someone opened the door to get coffee, I could hear the fear escaping from the room. Was the company in trouble? What were they talking about?
To this day, I still don’t know. Maybe I would have freaked out if I had been told. But back then, I resented bitterly that they didn’t trust me enough to tell me what was going on, despite the fact that I was working hard and committed to the company’s success. They had some big secret that they were keeping from the entire workforce.
Of course, we all have secrets. Most of us believe inherently that secrets keep us safe. As a young man, my instinct was to keep secret any risky or uncomfortable information. In 1979, at nineteen, I went to Bowdoin College in Maine, a small, comfortable undergraduate school. By pure luck, my freshman roommate was a Californian named Peter. Early in the year, we were in our dorm room folding our laundry and he mentioned casually that he was a virgin. He said it like it was the most normal thing to share, as simple as getting a cup of coffee. And here I was, a virgin too, and totally mortified that someone would learn my truth.
When he told me, I couldn’t tell him my secret back. I was too embarrassed, even in the face of his honesty. My silence, I learned later, made it difficult for Peter to trust me in those early days. How can you trust someone when you feel they are hiding things from you? Peter, on the other hand, would talk frankly about his emotions, fears, and mistakes, and I was blown away by his comfort with bringing everything out in the open. I felt trust for him in a way I had never so quickly experienced. That friendship was transformative for me, because I saw that letting go of secrets and speaking transparently brought incredible advantages.
I’m not suggesting that it’s advisable or even appropriate to talk about your sex life with your colleagues. Peter, of course, was not a work friend. But secret-keeping at work is even more prevalent and more harmful than in a student dormitory.
* * *
• • •
According to a study by Michael Slepian, a professor of management at Columbia Business School, the average person keeps thirteen secrets, five of which he or she has never shared with anyone else. A typical manager, I would suggest, has even more.
According to Slepian, if you are anything like an average person, there’s a 47 percent chance that one of your secrets involves a violation of trust, a 60-plus percent chance that it involves a lie or a financial impropriety, and a roughly 33 percent chance that it involves a theft, some sort of hidden relationship, or unhappiness at work. That’s a lot of confidential content to be keeping in your closet, and it takes a psychological toll: stress, anxiety, depression, loneliness, low self-esteem. Secrets also take up a lot of space in our brains. One study showed people spend twice as much time thinking about their secrets as they do actively concealing them.
On the other hand, when you share a secret, it floods the receiver with feelings of confidence and loyalty. If I tell you some huge mistake I made or share information that could sabotage my success, you think, Well, if she’d tell me that, she’d tell me anything. Your trust in me skyrockets. There is no better way to build trust quickly than to shine a light directly on a would-be secret.
Before continuing this discussion, we need a better term than would-be secret. The problem with the word secret is that once you tell someone, it’s not a secret anymore.
STUFF OF SECRETS = SOS
SOS will be our term (not a Netflix term) for information you might commonly choose to keep quiet because it would be dangerous to divulge. Sharing the information might lead to a negative judgment, risk upsetting people, cause mayhem, or break up a relationship. Otherwise we wouldn’t feel an urge to keep it to ourselves.
SOS information at work might be things like the following:
You are considering a reorganization and people might lose their jobs.
You’ve fired an employee but explaining why would hurt his reputation.
You have “secret sauce”: information you don’t want to leak out to your competitors.
You made a mistake that could hurt your reputation, maybe ruin your career.
Two leaders are in conflict, and if their teams knew, it would lead to unrest.
Employees could go to jail if they share certain financial data with a friend.
Organizations are full of SOS. Every day, managers grapple with the questions: “Should I tell my people? And if so, at what risk?” But keeping quiet brings risks too, as Reed’s fear and falling productivity at Coherent Software demonstrated all those years ago.
* * *
• • •
Just about all managers like the idea of transparency. But if you’re serious about creating a high sharing environment, the first thing to do is to look at the symbols around your office that may accidentally be suggesting to everyone that secrets are being kept. I once went to visit a fellow CEO at another Silicon Valley company. This guy talks a lot about the importance of organizational transparency, and there have been articles in the news about the bold steps he’s taking to increase openness in the workplace.
When I arrived, I took the elevator to the top floor of the corporate headquarters. The receptionist led me down a long quiet corridor. The CEO’s office was in the corner. His door was open (as he talks about having an “open door policy”), but sitting outside was a secretary, who looked like she was guarding him. I’m sure this guy had a good reason for having a quiet corner office with a door that he locks at night and a guard who makes sure no one slips in unnoticed. But that office screams: “We are keeping secrets in here!”
That’s why I don’t have my own office or even a cubicle with drawers that close. During the day, I might grab a conference room for some discussions, but my assistant knows to book most of my meetings in other people’s work spaces. I always try to go to the work spot of the person I’m seeing, instead of making them come to me. One of my preferences is to hold walking meetings, where I often come across other employees meeting out in the open.
It’s not just about offices. Any locked area is symbolic of hidden things, and signifies we don’t trust one another. On an early trip to our Singapore offices, I saw that our employees had been given lockers in which they could lock their things when they left every evening. I insisted we get rid of the locks.
But these kinds of signals are not enough on their own. It’s up to the leader to live the message of transparency by sharing as much as possible with everybody. Big things, small things, whether good or bad
—if your first instinct is to put most information out there, others will do the same. At Netflix, we call this “sunshining,” and we make an effort to do a lot of it.
* * *
• • •
The first time I met with Reed to begin interviews for this book, I assumed we’d be in a conference room with a door or in a quiet corner where he’d be able to answer sensitive questions. Instead he led me to an open balcony area where we sat at a table within earshot of everyone. Reed told animated stories about one of his first jobs selling vacuum cleaners door-to-door, getting into fistfights in junior high, a serious car accident when he and an old girlfriend were hitchhiking across Africa, and early challenges in his marriage. Others walked past the table frequently. His voice never dropped a decibel.
A few months later, I sent the first draft of the first chapter of this book to Reed for his feedback. The next week, I was interviewing a manager in the Netflix Amsterdam office when the interviewee referenced a specific passage from the draft I’d sent Reed. My face must have revealed my confusion because he explained, “Reed sent that chapter out to everyone.”
“All Netflix employees?” I asked.
“Well not everyone, just the top seven hundred managers. He was showing us what the two of you are up to.”
As soon as the interview was over, I reached for the phone. The conversation I would have with Reed played in my head: “What are you thinking? You can’t send out unfinished chapters to hundreds of people! I haven’t fact-checked it.” But as I dialed his number, I imagined Reed’s response. “You don’t want me to send out unfinished chapters? Why not?” To which, I realized, I had no convincing response.
KNOWING WHEN TO SHARE
Transparency sounds great. You never hear leaders saying they promote organizational secrecy. But transparency isn’t without its risks. With his instinct to share, Reed sent an unfinished chapter out to seven hundred people. Dozens of those seven hundred managers could have come complaining to me about the inaccuracy of what I’d written. That didn’t happen, but it might have.
There are reasons for keeping secrets, and often it is not at all obvious when to be transparent and when to keep quiet. To try and figure out how Reed made his judgment calls, I gave him a test, which I’ll now share with you.
I described four scenarios that might call for keeping a secret and asked Reed to choose between alternative responses, give his reasoning, and present similar real-life dilemmas from Netflix.
You can take the quiz too. Before you read Reed’s response, ask yourself what you would do and why. Then see if you agree with him.
A QUIZ FOR REED (AND YOU)
QUIZ SCENARIO 1: INFORMATION THAT WOULD BE ILLEGAL TO LEAK
You are the founder of a start-up with one hundred employees. You’ve always believed in organizational transparency, teaching your staff to understand the P&L statements and making all financial and strategic information available to them. But next week your company is going public and things will change. After that, if you share the quarterly numbers with your workforce before you announce them to Wall Street and one employee tells a friend, the company stock could crash, and the leaker could go to prison for insider trading. What will you do?
Continue to share all the numbers quarterly, but only AFTER you’ve shared them with Wall Street.
Continue to keep giving the staff all numbers before anyone else knows but stress that, if they leak this information, they could be sent to jail.
Answer from Reed: remove the umbrella
My response to Quiz Scenario 1 is (b): continue sharing quarterly financial data with employees before announcing it publicly—while also warning them about the dire potential consequences of leaks.
I first learned about open-book management in 1998. Netflix was one year old, and I attended a leadership development course at Aspen Institute. There were executives from many companies and we discussed several provocative readings. One of them was a case study about a manager called Jack Stack.
Jack, a manager in Springfield, Missouri, successfully revives a remanufacturing plant once owned by International Harvester. The plant is about to be closed but he raises money and stages a leveraged buyout. Then, in an effort to motivate his workforce, he sets himself two goals:
Create a work culture of financial transparency, making every aspect of the business visible to every employee.
Invest a substantial amount of time and effort training every staff member how to read and understand, in detail, the weekly operating and financial reports.
Jack teaches his workforce, from the top engineer to the lowest worker on the shop floor, to read the company’s financial reports. He instructs these people without a high school education on the ins and outs of reading a profit and loss statement—something a lot of highly educated vice presidents can’t do well at many companies. Then he provides weekly operating and financial data to every worker in the company, so they can see how the organization is progressing and how their work contributes to the success. This ignites feelings of passion, responsibility, and ownership in the workforce beyond what he could have hoped for. That company has done incredibly well over the past forty years.
When we discussed that case at Aspen, one of the other leaders didn’t agree with Jack’s approach: “I see my job as holding an umbrella over my workers to protect them from getting distracted by stuff that doesn’t have anything to do with their work. I hire them each to do something they excel at and love doing. I don’t want them to have to waste hours hearing about business details that they don’t care about, and that isn’t their strength.”
I disagreed: “This guy Jack managed to instigate feelings of ownership by guiding people to understand the reasons behind the work they are doing. I don’t want my employees to feel like they’re working for Netflix; I want them to feel like they are part of Netflix.” That’s when I decided, if you’re going to work at Netflix, no one is going to hold an umbrella over your head. You’re going to get wet.
Back at work we started holding “all-hands” meetings every Friday. Patty McCord would stand on a chair like a town crier to get everyone’s attention and we would head out into the parking lot, which was the only place we had enough space for everyone in the company. I would pass out copies of the P&L and we would go through the weekly metrics. How many shipments had we done? What was the average revenue? How well were we able to fill client requests for their first and second choice of movies? We also created a strategy document that was filled with information we wouldn’t want our competitors to know, and posted it on the bulletin board next to the coffee machine.
We opened this information up to build feelings of trust and ownership in our employees, in the hope of getting the same reaction from the workforce as Jack Stack did. And it worked. I closed that umbrella, and no one complained. Since then all financial results, as well as just about any information that Netflix competitors would love to get their hands on, has been available to all of our employees. Most notable is the four-page “Strategy Bets” document on the home page of the company’s intranet.
My goal was to make employees feel like owners and, in turn, to increase the amount of responsibility they took for the company’s success. However, opening company secrets to employees had another outcome: it made our workforce smarter. When you give low-level employees access to information that is generally reserved for high-level executives, they get more done on their own. They work faster without stopping to ask for information and approval. They make better decisions without needing input from the top.
In most businesses, without even realizing it, senior managers stunt the abilities and intelligence of their own workforce by keeping financial and strategic information hidden. Although just about all companies talk about empowering staff, in the vast majority of organizations, real empowerment is a pipe dream because employees aren’t given enough informatio
n to take ownership of anything. Jack Stack explained this well:
The most crippling problem in business is sheer ignorance about how business works. What we see is a whole mess of people going to a baseball game and nobody telling them what the rules are. That game is business. People try to steal from first base to second base, but they don’t even know how that fits into the big picture.
If a manager doesn’t know how many customers the company has signed on in the past weeks and months, and what strategy discussions are in the works, how does he know how many people he can afford to hire? He has to ask his boss. If his boss doesn’t know the details of the company’s growth, she can’t make a good decision either, so she has to go to her own boss. The more employees at all levels understand the strategy, financial situation, and the day-to-day context of what’s going on, the better they become at making educated decisions without involving those above them in the hierarchy.
Jack Stack, of course, is not the only leader of a private company who shares all financial data with the workforce. It’s when a company goes public that top managers start to say, “Now we have to grow up and be more careful with information. Now we have to avoid risk and ensure no secrets get into the wrong hands.”
This brings us back to Quiz Scenario 1, where my advice is don’t open the umbrella just because you go public. After the Netflix IPO in 2002, I faced the same dilemma as the fictional manager in Erin’s quiz. One Friday, I picked Patty up for our drive to work and she wailed, “At EVERY other public company only a few top-level insiders see the quarterly financials until it’s released to Wall Street. If that information leaks, the employee goes to JAIL! What are we going to do?”
No Rules Rules Page 12