No Rules Rules

by Reed Hastings

  But I was committed. “If we suddenly begin keeping financial data from employees, what would it symbolize? That our employees were outsiders in their own company!” I responded. “We will not become more secretive as we get bigger. You know what, we’re going to do the opposite. Every year we are going to work to be bolder, and share even more information than before.”

  We are perhaps the only public company that shares financial results internally in the weeks before the quarter is closed. We announce these numbers at a quarterly business review meeting with our top seven hundred or so managers. The financial world sees this as reckless. But the information has never been leaked. When it does one day leak (I imagine it will), we won’t overreact. We’ll just deal with that one case and continue with transparency.

  For our employees, transparency has become the biggest symbol of how much we trust them to act responsibly. The trust we demonstrate in them in turn generates feelings of ownership, commitment, and responsibility.

  Almost daily a new employee expresses to me how astounded he is by the transparency at Netflix. This gives me great joy. For example, vice president of investor relations and corporate development Spencer Wang, who previously worked as an analyst on Wall Street, shared this story about his first week on the job:

  Netflix is, of course, a subscription-based business, so in order to derive our revenue, you multiply the average price of a subscription (which everyone knows) by our number of subscribers. This number is top secret until we report it publicly once a quarter. Any investor who gets it early can illegally use it to trade Netflix stock and make a lot of money. If someone from Netflix leaks it, he or she could go to jail.

  It was 8:00 a.m. on a Monday morning in March. I was brand new and feeling a little skittish, getting a feel for the place. I grabbed a coffee, settled down at my desk, and opened my computer. There, in my mail, was a message titled Daily Membership Update March 19, 2015. It detailed with graphs and data how many new subscribers we’d signed on yesterday by country.

  My heart jumped. Should data this sensitive be going through regular email? I hugged the computer close to my chest and moved against the wall, so no one would sneak a peek over my shoulder.

  Later our CFO—my boss—stopped by my desk. I showed him the email. “This is super useful but dangerous too if it leaks out. How many people receive it?” I asked. I thought he’d say: Reed, me, you. Full stop. But his response was crazy. “Any employee can sign up for it. It’s open to everyone in the company who’s interested.”

  Of course, transparency, like all of our cultural principles at Netflix, does sometimes go wrong. In March 2014, a director of content acquisitions downloaded reams of confidential data and took it with him when he left to work for a competitor. This led to headaches and lawsuits and took a lot of our time. But when one employee abuses your trust, deal with the individual case and double your commitment to continue transparency with the others. Do not punish the majority for the poor behavior of a few.

  QUIZ SCENARIO 2: POSSIBLE ORGANIZATIONAL RESTRUCTURING

  You have been in discussions with your boss at headquarters about a possible organizational restructuring that would lead to several project managers on your team losing their jobs. You are only in discussions at this point and there is a 50 percent chance it won’t happen. Will you tell your project managers now or wait until you are certain?

  Let time take its course. No need to cause stress now. Plus, if you tell your project managers today, they’ll likely start looking for new jobs and you risk losing excellent employees.

  Compromise. You’re worried your employees might be blindsided if you let them go without any warning. Yet you don’t want to freak them out unnecessarily either. You hint that changes are in the air without spelling out what’s actually happening. When you hear about another company hiring project managers you discreetly leave the job announcement on their desks so that they can start considering other options.

  Tell them the truth. You sit them down and explain there is a 50 percent chance that some of their jobs will be eliminated in six months. You stress that you appreciate them a lot and hope they will stay—but you wanted to be transparent, so they had all the information they needed to consider their futures.

  Answer from Reed: upset the apple cart

  My response to Quiz Scenario 2 is (c): tell them the truth.

  No one wants to hear there’s a possibility they’ll lose their job. The idea of change is always unsettling and often distressing, even on a small scale, like being moved to another department or being asked to work out of another office. If you tell people before you’re certain, you’ll incite anxiety, leading to distraction and inefficiency, and maybe stir up employees to look for work elsewhere. Why upset the applecart before you’re sure?

  But if you want to build a culture of transparency and you don’t tell your people about the potential change until it’s finalized, you’ll show your staff you’re a hypocrite who can’t be trusted. You preach transparency and then whisper about their jobs behind their backs. My advice is to lean hard into transparency. Go ahead and shake that applecart. Some apples might get bruised and others might fall off the cart but that’s okay. Once things have settled down, your workforce will trust you all the more.

  Of course, every case is a little different, and at Netflix each employee has a different opinion about such emotionally sensitive situations. Sometimes we share information and employees love it; sometimes they wish we’d kept that information to ourselves. We asked Netflix employees to volunteer their answers to Quiz Scenario 2, and here are two responses.

  The first, from VP of digital products Rob Caruso, was similar to my reaction, largely because he’d felt the ramifications of being at a company that didn’t share sensitive information openly:

  Before Netflix I worked at HBO as the VP of digital products. At HBO, no matter what level you get to, you feel like there are five more closed doors that you’re never going to crack. All strategic discussions are shared only on a need-to-know basis. And in the vast majority of situations, top management believes you don’t need to know. I’m not picking on HBO—I think this is a pretty standard corporate approach.

  One day in December we had a big deadline and I arrived at work so early the place was dead quiet. I remember the weather was bad, and I’d worn an old pair of sneakers instead of my normal dress shoes because of the slush in the streets. When I entered the office there was a note on my desk asking me to stop by the president of the division’s office when I came in. That made me nervous because he’d never asked for an impromptu meeting before. I thought immediately that I shouldn’t have worn those old sneakers.

  The president was sitting in his office with another really friendly looking guy who he introduced as my new boss. I felt this pain of fear when he said it—what did this mean for me and the team? After ten minutes I saw this was all great news. No one had been fired. The new boss was terrific. The company message was: “We are going to invest in your department and we’ve hired a new leader who can really elevate your initiatives.”

  But leaving that office, instead of feeling elated as I should have, I felt a bitter sense of mistrust. I hadn’t even known this was in discussions. How many people knew this job search had gone on without telling me? This was just one more top management secret that made me feel like a stranger in my own company.

  Secretiveness was so omnipresent that when I left HBO to join Netflix I had a big shock.

  I’ll never forget our first Netflix Quarterly Business Review meeting (QBR). I’d only been at the company a week or so. I walked into the auditorium alone. I barely knew anybody yet and I was expecting the same type of dog-and-pony sales job we had at leadership meetings at past employers. There were four hundred managers in this big auditorium and after Reed gave a short hello they turned the lights off onstage and put up a white slide that read in
black block letters:

  YOU GO TO JAIL IF YOU TRADE ON THIS . . . OR IF YOUR FRIEND DOES.

  CONFIDENTIAL. DO NOT SHARE.

  Finance VP Mark Yurechko hopped up onstage with a big grin. He talked us through the quarter’s finances, stock price trends, and how he expected today’s numbers would impact the stock price. In my decades of working for other companies, never had I seen anything close to this. A few of the very top executive team were privy to this information, no one else.

  Over the next twenty-four hours, the ins and outs of current strategic dilemmas—including reorgs and other big changes that Reed and his top team were grappling with—were put on the table, and we debated them in small groups. I was like, “Oh my goodness, this is so open!”

  Netflix treats employees like adults who can handle difficult information and I love that. This creates enormous feelings of commitment and buy-in from employees. For the Quiz Scenario 2, I choose response (c): share. Just tell those employees the truth. They might freak out, but at least they know you’re honest with them. And that counts for a lot.

  Rob’s thinking is in line with mine and I beamed with pride when I heard it. But the second response, from project manager of original content Isabella, is actually more interesting, because it illustrates that transparency decisions are usually difficult and no answer is perfect. Here’s what she said:

  I had almost exactly the same situation as described in Quiz Scenario 2. What I learned is that although transparency sounds great in reality, often it’s so much better not to know.

  To set the scene, my husband and I had been looking for a new house near the Netflix office in L.A. for fourteen months to reduce my daily commute. Finally, after visits to about a hundred houses that weren’t right, I’d found my dream home—the kind with an open floor plan, where you can talk to someone in the upstairs bedroom right from the downstairs kitchen with no walls blocking your communication. Here I could sing to my daughter while clearing the table and she was in bed.

  I loved my job and I was good at it. I was working on the Chelsea Handler talk show. Usually we post an entire season of a Netflix show at once. But Chelsea ran three times a week and we had twenty-four hours after each filming to get it translated in a bunch of languages and have it posted online. My job was to manage all of that. Then one day, my boss Aaron put a meeting on my calendar, which he titled, “The Future.”

  We were sitting in the Out of Africa conference room. That room is all yellow—yellow walls, rug, carpet, and chairs. Aaron pulled up a chair right in front of me and said: “Nothing’s been decided. But it’s fifty-fifty the program management role you play will be eliminated. We are discussing a reorg and your job might go away, but I won’t know for six to twelve months.” My head started to spin. The yellow rug turned into the yellow ceiling and I had difficulty focusing on his face.

  After that I lapsed into a crisis. We let the house go to another buyer. How could I buy a house when I might lose my job? Then I got angry. Why did Aaron have to cause me stress for something totally unknown? I would watch TV in the evenings with my two boys. When that Netflix logo popped up, instead of feeling pride as I had previously, I was flooded with anxiety and resentment. The stupid thing was that my job DIDN’T go away. It sort of morphed into another job. I’d given up the house and had all those months of stress for absolutely nothing at all.

  That’s why I vote for (a)—why ruin your employees’ lives for no reason?

  Isabella’s right that it’s stress-inducing to learn you might lose your job and frustrating to find out later that you had all those sleepless nights for nothing. But despite her vote for answer (a), I believe her story only boosts the argument for answer (c): share.

  Imagine the situation had unfolded differently. Suppose Aaron had decided not to tell her until he was sure, and she’d gone ahead and purchased that house. Then imagine she finished the move and arrived at work one day only to hear Aaron say, “I’m so sorry! Your job has been axed and you’re out of work.” Then she would have been really mad that he’d been in discussions that would impact her life decisions without letting her know.

  It’s not our job at Netflix to get involved in your housing situation or any other major aspect of your life. But it is our job to treat you like an adult and give you all the information we have, so that you can make informed decisions.

  All this said, transparency is our guideline, but we are not purists. I do have a Google Doc that is open only to my six direct reports. Here we can write anything—including stuff like “concerns over Ira’s performance”—and it’s not open to the rest of the company. But these instances are few. In general, whenever in doubt, we try to open up the process as early as possible, to create buy-in, and to help people see that, although things will always be changing, at least they will be kept informed.

  QUIZ SCENARIO 3: POST-FIRING COMMUNICATION

  You have decided to let go a senior member of the marketing team, a man named Kurt. He is hardworking, kind, and generally effective. But at odd moments he becomes verbally clumsy, putting his foot in his mouth and getting the company in trouble both when addressing employees and speaking externally. The liability has become too great.

  When you tell him he’s lost his job, he’s devastated. He tells you how attached he is to the company, his employees, and the department. He asks you to tell everyone that he decided to leave on his own accord. How will you communicate about the firing to your staff?

  Tell the whole truth to those who benefit from knowing it. You send an email to Kurt’s colleagues at Netflix explaining that Kurt, although hardworking, kind, and effective, sometimes becomes verbally clumsy, putting his foot in his mouth and getting the company in trouble. The liability has become so great that you’ve decided to let him go.

  Tell some of the truth. You inform the team Kurt’s left, but you’re not at liberty to discuss details. He’s gone. What do the reasons matter? Give the guy a break and save his reputation.

  Announce that Kurt decided to leave on his own accord because he wanted to spend more time with his family. Kurt worked hard for you. You already fired him. You don’t need to humiliate him to boot.

  Answer from Reed: leave the spin in the gym

  * * *

  • • •

  My response to Quiz Scenario 3 is (a): tell the whole truth.

  Manipulating your message to make the organization, yourself, or another employee appear better than reality is so common across the business world that many leaders don’t even realize they’re doing it. We “spin” by selectively sharing the facts, overemphasizing the positive, minimizing the negative, all in an attempt to shape the perception of others.

  Here are a couple more examples of spin you might recognize:

  “After working as a key player in Ramon’s department, Carol is looking for an opportunity to leverage her administrative talents in another area.”

  Translation: “Ramon doesn’t want Carol on his team any more. Will someone else take her so we don’t have to fire her?”

  “In order to increase synergies across the company, Douglas will transition into a role supporting Kathleen. The gifted teams working for these two individuals will come together as one to tackle the exciting initiative of boosting organizational sales.”

  Translation: “Douglas is being demoted to work for Kathleen. All of Douglas’s direct reports are now being folded into Kathleen’s department.”

  Spinning the truth is one of the most common ways leaders erode trust. I can’t say this clearly enough: don’t do this. Your people are not stupid. When you try to spin them, they see it, and it makes you look like a fraud. Speak plainly, without trying to make bad situations seem good, and your employees will learn you tell the truth.

  I understand that it can be difficult. Any leader who tries to be more transparent quickl
y recognizes that the good of bringing things out in the open sometimes competes with the good of respecting an individual’s right to privacy. Both are important. But when someone is let go, everyone wants to understand why. What happened will eventually come out. But if you explain plainly and honestly why you’ve fired someone, gossip ceases and trust increases.

  Several years ago, we had a messy example when we let go of one of our executives for lacking transparency in his own communication. Jake was being considered for a promotion when a few people on his team came forward to say he had been overly political with the team, and that they didn’t feel he took feedback well. They provided examples of times they gave him frank feedback and he retaliated in backhanded or hurtful ways. One example stood out as particularly inappropriate. When his boss and HR tried to speak with him, he spun his story further, breaking trust with those he worked most closely with.

  When his boss fired Jake, he had a typical moment of doubt. Should he send out an email transparently stating what had happened, or should he let Jake leave quietly, perhaps stating that we had all mutually agreed it was time for a change?

  But transparency is the only answer that matches our principles. So his boss sent out the following email to those who worked with Jake (this is an abridged version).