No Rules Rules: Netflix and the Culture of Reinvention

by Reed Hastings

culture, which focused on achieving top performance with talent density and leading employees with context not control, has allowed us to continually grow and change as the world, and our members’ needs, have likewise morphed around us. Netflix is different. We have a culture where No Rules Rules.

build an organization made up of high performers, you can eliminate most controls. The denser the talent, the greater the freedom you can offer.

“Lead with context, not control,” and coaching your employees using such guidelines as, “Don’t seek to please your boss.”

a company with really dense talent is a company everyone wants to work for. High performers especially thrive in environments where the overall talent density is high.

If you have a team of five stunning employees and two adequate ones, the adequate ones will sap managers’ energy, so they have less time for the top performers, reduce the quality of group discussions, lowering the team’s overall IQ, force others to develop ways to work around them, reducing efficiency, drive staff who seek excellence to quit, and

For top performers, a great workplace isn’t about a lavish office, a beautiful gym, or a free sushi lunch. It’s about the joy of being surrounded by people who are both talented and collaborative. People who can help you be better. When every member is excellent, performance spirals upward as employees learn from and motivate one another.

Jerks, slackers, sweet people with nonstellar performance, or pessimists left on the team will bring down the performance of everyone.

“Only say about someone what you will say to their face.” I modeled this behavior as best I could, and whenever someone came to me to complain about another employee, I would ask, “What did that person say when you spoke to him about this directly?”

HIGH PERFORMANCE + SELFLESS CANDOR = EXTREMELY HIGH PERFORMANCE

A feedback loop is one of the most effective tools for improving performance. We learn faster and accomplish more when we make giving and receiving feedback a continuous part of how we collaborate. Feedback helps us to avoid misunderstandings, creates a climate of co-accountability, and reduces the need for hierarchy and rules.

Giving Feedback 1. AIM TO ASSIST: Feedback must be given with positive intent. Giving feedback in order to get frustration off your chest, intentionally hurting the other person, or furthering your political agenda is not tolerated. Clearly explain how a specific behavior change will help the individual or the company, not how it will help you.

2. ACTIONABLE: Your feedback must focus on what the recipient can do differently.

Receiving Feedback 3. APPRECIATE: Natural human inclination is to provide a defense or excuse when receiving criticism; we all reflexively seek to protect our egos and reputation. When you receive feedback, you need to fight this natural reaction

4. ACCEPT OR DISCARD: You will receive lots of feedback from lots of people while at Netflix. You are required to listen and consider all feedback provided. You are not required to follow it. Say “thank you” with sincerity. But both you and the provider must understand that the decision to react to the feedback is entirely up to the recipient.

With candor, high performers become outstanding performers. Frequent candid feedback exponentially magnifies the speed and effectiveness of your team or workforce.

Set the stage for candor by building feedback moments into your regular meetings. Coach your employees to give and receive feedback effectively, following the 4A guidelines. As the leader, solicit feedback frequently and respond with belonging cues when you receive it. Get rid of jerks as you instill a culture of candor.

When removing your vacation policy, explain that there is no need to ask for prior approval and that neither the employees themselves nor their managers are expected to keep track of their days away from the office.

The practices modeled by the boss will be critical to guide employees as to the appropriate behavior. An office with no vacation policy but a boss who

never vacations will result in an office that never vacations.

When you find people abusing the system, fire them and speak about the abuse openly—even when they are star performers in other ways. This is necessary so that others understand the ramifications of behaving irresponsibly.

With expense freedom, employees will be able to make quick decisions to spend money in ways that help the business.

Many employees will respond to their new freedom by spending less than they would in a system with rules. When you tell people you trust them, they will show you how trustworthy they are.

Fortify talent density … 4 Pay Top of Personal Market Pump up candor … 5 Open the Books Now remove more controls … 6 No Decision-making Approvals Needed

for all creative roles hire one exceptional employee instead of ten or more average ones. Hire this amazing person at the top of whatever range they are worth on the market. Adjust their salary at least annually in order to continue to offer them more than competitors would. If you can’t afford to pay your best employees top of market, then let go of some of the less fabulous people in order to do so. That way, the talent will become even denser.

Divide your workforce into creative and operational employees. Pay the creative workers top of market. This may mean hiring one exceptional individual instead of ten or more adequate people. Don’t pay performance-based bonuses. Put these resources into salary instead.

Open up the books to your employees. Teach them how to read the P& L. Share sensitive financial and strategic information with everyone in the company.

When making decisions that will impact your employees’ well-being, like reorganizations or layoffs, open up to the workforce early, before things are solidified. This will cause some anxiety and distraction, but the trust you build will outweigh the disadvantages.

When transparency is in tension with an individual’s privacy, follow this guideline: If the information is about something that happened at work, choose transparency and speak candidly about the incident. If the information is about an employee’s personal life, tell people it’s not your p...

DON’T SEEK TO PLEASE YOUR BOSS. SEEK TO DO WHAT IS BEST FOR THE COMPANY.

company, ownership of critical, big-ticket decisions should be dispersed across the workforce at

principle, “Don’t seek to please your boss.”

A worker’s performance will be judged on the collective outcome of his bets, not on the results from one single instance.

to farm for dissent, socialize the idea, and for big bets, test it out.

when a bet fails, they should sunshi...

the Keeper Test: “Which of my people, if they told me they were leaving for a similar job at another company, would I fight hard to keep?”

Avoid stack-ranking systems, as they create internal competition and discourage collaboration.

a professional sports team is a better metapho...

instead of putting him on some type of PIP, which is humiliating and organizationally costly, take all that money and give it to the employee in the form of a generous severance payment.

When an employee is let go, speak openly about what happened with your staff and answer their questions candidly.

Performance reviews are not the best mechanism for a candid work environment,

A 360 written report is a good mechanism for annual feedback. But avoid anonymity and numeric ratings, don’t link results to raises or promotions, and open up comments to anyone

instead of telling people what to do, get in lockstep alignment by providing and debating all the context

When one of your people does something dumb, don’t blame that person. Instead, ask yourself what context you failed to set.

we don’t have at Netflix. These include: Vacation Policies Decision-Making Approvals Expense Policies Performance Improvement Plans Approval Processes Raise Pools Key Performance Indicators Management by Objective Travel Policies Decision Making by Committee Contract Sign-Offs Salary Bands Pay Grades Pay-Per-Performance Bonuses

In less direct countries, implement more formal feedback mechanisms and put feedback on the agenda more frequently,

With more direct cultures, talk about the cultural differences openly

ADAPTABILITY the fifth A of your candor model. Discuss openly what candor means in dif...