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Netflix CEO Embraces 'No Rules,' But Work Is Anything But Chill

Unlimited vacation. No dress code (just don't show up naked). No approval needed for expenses. And if you criticize the company, you might get rewarded with a promotion.

"It's risky trusting employees as much as we do. Giving them as much freedom as we do," Netflix CEO and co-founder Reed Hastings said in an interview with NPR. "But it's essential in creative companies where you have much greater risk from lack of innovation."

More than smart strategy, or good timing or simply luck, Hastings credits the company's unorthodox workplace culture for its meteoric rise.

/ Penguin Random House
Penguin Random House

Netflix's fortunes have continued to soar during the pandemic with millions of people stuck at home. Already the world's largest subscription video-streaming service, Netflix has added 26 million new users so far this year, pushing its subscriber base near 200 million worldwide.

"Our IPO was at $1 about 20 years ago. Now we're about $500," he said. "We do attribute a lot of that to the culture."

In his new book, No Rules Rules, Hastings discusses one of the guiding principles of his anything-goes, radically transparent management style: The Keeper Test.

The idea is to ask your boss: "If I wanted to leave, how hard would you fight to keep me?"

If the answer is "not very hard," maybe it's time for you to go.

"Our culture memo says things like adequate performance gets a generous severance package," he said.

That culture has some employees constantly looking over their shoulder, worried about being perceived as anything less than a star worker.

In a 2018 Wall Street Journal investigation in which the newspaper spoke to 70 current and former Netflix employees, the culture at the company was described at times as ruthless and transparent "to the point of dysfunction."

Some employees said people of color did not feel as empowered as white colleagues to offer frank feedback. Some felt so much pressure, they quit before they could get canned.

Hastings counters that people of all backgrounds have ways to rise in the company. He notes that of Netflix's top 20 leaders, half are women and a quarter are people of color, even as he concedes that the Netflix way is not for everyone.

"Those who feel fear tend to check out because it's an unpleasant feeling. And really it's best-suited for people who can acknowledge intellectually the risks, but in fact they are so joyful about playing with great teammates," Hastings said. "People who get promoted and rewarded are iconoclastic and are curious but often disagree with things."

That climate can certainly be abused, said Jonathan Knee, a Columbia Business School professor and former investment banker.

"There are certainly versions of this that would clearly be completely destructive," Knee said.

Yet he gives Hastings credit for trying something different and says he's set a better environment than in many U.S. workplaces where people tiptoe around difficult topics rather than address them directly.

"People are not rewarded for giving feedback. There's gonna be emotions. There's human beings. Somebody is gonna cry. You just don't wanna. It's like, 'You know what? Let's just wait,'" Knee said.

"Corporate America sees feedback as scary. That's bad for the organization and bad for the development of the people," he said.

There are parallels between how Netflix treats its employees and the many shows it produces. More than three dozen shows have been canceled or not renewed in the past two years, including ones that received critical acclaim such as Ozark, Dear White People and One Day at a Time.

Yet Netflix's big push in original programming, with award-winning movies and buzzy shows like Tiger King, have made Netflix's profits speed past traditional Hollywood studios.

Hastings says if Netflix had a staid corporate culture, this may not have been the case.

"Netflix culture, on the other hand, is famous — or infamous, depending on your point of view — for telling it like it is," writes No Rules Rules co-author Erin Meyer.

A leader "unencumbered by emotion"

In his interview with NPR, Hastings admitted that the culture can be tough, even on him.

Hastings' leadership style was once described as being "unencumbered by emotion," an observation some of his colleagues have told him point-blank.
A Netflix vice president once told him that he is not a good listener and tends to be unempathetic.

"Which, I have to say, even at my level of success, it hurts," Hastings said. "I thought I had done better in that dimension. But I remember that feedback is like exercise and it's those last few crunches, those last few pushups that hurt that make you stronger."

Another thing that hurts? Finding out that Netflix reimbursed an employee in Taiwan $100,000 for personal travel, an incident Hastings describes in the book.

The employee was fired. But since there are no approvals for work expenses, it went unnoticed at Netflix for three years.

"The challenge of freedom is that it can be abused," Hastings said. "There are very few people who do abuse it, but it's a pity when it happens."

Copyright 2021 NPR. To see more, visit https://www.npr.org.

Bobby Allyn is a business reporter at NPR based in San Francisco. He covers technology and how Silicon Valley's largest companies are transforming how we live and reshaping society.