No Rules Rules: Netflix and the Culture of Reinvention

by Reed Hastings

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.

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.

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.

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.

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 information to take ownership of anything.

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?

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.

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.

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.

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.

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.

We “spin” by selectively sharing the facts, overemphasizing the positive, minimizing the negative, all in an attempt to shape the perception of others.

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.

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.

In this case, Jake’s actions happened in the office. When it comes to speaking openly about an employee’s personal struggles, things get even more complicated. And in these cases I recommend a different approach.

When it comes to personal struggles, an individual’s right to privacy trumps an organization’s desire for transparency. Here we didn’t take the most transparent route. But we didn’t spin either. We told everyone that the guy had taken two weeks off for personal reasons. It was up to him to share more details if he chose.

Two fascinating things happened during that meeting. One was that, as expected, I felt immense relief because I had told the truth and come clean about my errors. The other was more interesting: the board seemed to believe in my leadership more after I had opened up and made myself vulnerable to them.

people began telling me about all sorts of mistakes they made, mistakes they’d been previously sweeping under the rug.

quickly came to see the biggest advantage of sunshining a leader’s errors is to encourage everyone to think of making mistakes as normal. This in turn encourages employees to take risks when success is uncertain . . . which leads to greater innovation across the company.

When you succeed, speak about it softly or let others mention it for you. But when you make a mistake say it clearly and loudly, so that everyone can learn and profit from your errors. In other words, “Whisper wins and shout mistakes.”

The pratfall effect is the tendency for someone’s appeal to increase or decrease after making a mistake, depending on his or her perceived ability to perform well in general.

a leader who has demonstrated competence and is liked by her team will build trust and prompt risk-taking when she widely sunshines her own mistakes. Her company benefits. The one exception is for a leader considered unproven or untrusted. In these cases you’ll want to build trust in your competency before shouting your mistakes.

the dangers of the standard decision-making pyramid. I’m the boss and I have strong opinions, which I share freely, but I am not the best person to decide how many movies to order or to make a slew of other critical daily decisions at Netflix.

at most companies, even at those who have leaders who don’t micromanage, employees seek to make the decision the boss is most likely to support. The popular notion is that the boss knows more because she made it to that higher rung in the ladder. If you value your career and don’t want to be accused of insubordination, listen carefully to what she thinks is the best and follow that course of action.

Yet Reed believes so deeply in dispersed decision-making that, by his model, only a CEO who is not busy is really doing his job.

Dispersed decision-making can only work with high talent density and unusual amounts of organizational transparency. Without these elements, the entire premise backfires.

People desire and thrive on jobs that give them control over their own decisions.

The more people are given control over their own projects, the more ownership they feel, and the more motivated they are to do their best work. Telling employees what to do is so old-fashioned, it leads to screams of “micromanager!” “dictator!” and “autocrat!”

Our mantra is that employees don’t need the boss’s approval to move forward (but they should let the boss know what’s going on).

We work all day long in the world of Google, we buy stuff from Amazon, listen to music from Spotify, take Uber rides to Airbnb apartments, and spend our evenings watching Netflix.

Netflix does not operate in a safety-critical market, like medicine or nuclear power. In some industries, preventing error is essential. We are in a creative market. Our big threat in the long run is not making a mistake, it’s lack of innovation. Our risk is failing to come up with creative ideas for how to entertain our customers, and therefore becoming irrelevant.

Jack made it clear that at Netflix you don’t lose your job because you make a bet that doesn’t work out. Instead you lose your job for not using your chips to make big things happen or for showing consistently poor judgment over time.

If you are a Netflix employee with a proposal, you create a shared memo explaining the idea and inviting dozens of your colleagues for input. They will then leave comments electronically in the margin of your document, which everyone can view. Simply glancing through the comments can give you a feeling for a variety of dissenting and supporting viewpoints.

Ted was right. With our dispersed decision-making model, if you pick the very best people and they pick the very best people (and so on down the line) great things will happen. Ted calls this the “hierarchy of picking” and it’s what a workforce built on high talent density is all about.

We wanted employees to feel committed, interconnected, and part of a greater whole. But we didn’t want people to see their jobs as a lifetime arrangement. A job should be something you do for that magical period of time when you are the best person for that job and that job is the best position for you. Once you stop learning or stop excelling, that’s the moment for you to pass that spot onto someone who is better fitted for it and to move on to a better role for you.

The less we talk about people behind their backs, the more we eliminate the gossip that creates inefficiency and bad feelings—and the more we can wash our hands of the unpleasantness generally referred to as “office politics.”

companies usually base performance reviews on annual goals. But employees and their managers don’t set annual goals or KPIs (Key Performance Indicators) at Netflix. Likewise, many companies use performance reviews to determine pay raises, but at Netflix we base salaries on the market, not performance.

We no longer have employees rate each other on a scale of 1 to 5, since we don’t link the process to raises, promotions, or firings. The goal is to help everyone get better, not to categorize them into boxes. The other big improvement is that each person can now give feedback to as many colleagues as they choose at any level in the organization—not

with this much money on the table, the senior guy would get involved and control the negotiations. But that’s not what leadership looks like at Netflix. As Adam explained: “Ted wasn’t about to make that decision for me, but he set broad context to help align my thinking with the company’s strategy. That context he set laid the foundation for my decision.”

You provide all of the information you can so that your team members make great decisions and accomplish their work without oversight or process controlling their actions. The benefit is that the person builds the decision-making muscle to make better independent decisions in the future. Leading with context won’t work unless you have the right conditions in place. And the first prerequisite is high talent density.

the first question you need to answer when choosing whether to lead with context or control is, “What is the level of talent density of my staff?” If your employees are struggling, you’ll need to monitor and check their work to ensure they are making the right decisions. If you’ve got a group of high performers, they’ll most likely crave freedom and thrive if you lead with context.

consider your industry, and what you are trying to achieve.

When considering whether to lead with context or control, the second key question to ask is whether your goal is error prevention or innovation.

But if, like Target, your goal is innovation, making a mistake is not the primary risk. The big risk is becoming irrelevant because your employees aren’t coming up with great ideas to reinvent the business. Although many brick-and-mortar retailers have gone out of business as increasing numbers of people shop online, Target has made a priority of imagining fresh ways to get customers into the stores.

In addition to high talent density (that’s the first condition) and a goal of innovation rather than error prevention (that’s the second), you also need to work (here comes the third) in a system that is “loosely coupled.”

Loose coupling works only if there is a clear, shared context between the boss and the team. That alignment of context drives employees to make decisions that support the mission and strategy of the overall organization.

But at Netflix, as we’ve discussed, the informed captain is the decision maker, not the boss. The boss’s job is to set the context that leads the team to make the best decisions for the organization.

At Netflix, our emphasis had always been on watching the clock. The vast majority of meetings are thirty minutes long and we generally believe that most topics, even important ones, can be settled in a half-hour time frame.

When it comes to delivering criticism, the Netherlands is one of the more direct cultures in the world. Japan is highly indirect. Singapore is one of the most direct of the East Asian countries, but still to the indirect side of a world scale. The US average falls a little left of center.

But if you run more formal events, putting feedback on the agenda, providing preparation instructions, and giving a clear structure to follow, you can get all the useful feedback out there just as effectively.