No Rules Rules: R Sukumar interviews Netflix CEO Reed Hastings

His approach is not for everybody, Hastings admits. Yet, it is a culture that has been studied intensively – since 2009.

Netflix’s CEO Reed Hastings has written his first book (along with academic Erin Meyer), No Rules Rules: Netflix and the Culture of Reinvention. It’s about what works for Netflix. It’s not for everybody, he says. Yet, it is a culture that has been studied intensively – since 2009, when Hastings shared the Netflix Culture Deck, all 127 slides of it, on the internet. It was controversial because it was peppered with, well, controversial ideas. On Thursday, over Zoom, Hastings spoke to Hindustan Times on the book, which speaks of how to build a “culture of reinvention”. Hastings and Meyer list a three-step process. One: hiring the best; encouraging feedback; and removing policies (such as those on how many days of vacation time someone can take). Two: paying “top of market”; becoming “transparent” at the organisational level; and reducing “decision-making approvals”. And three: implementing the “keeper test” (would managers fight to keep a certain employee back? If not, let them go); creating “circles of feedback”; and using “context not control” to eliminate most rules. Edited excerpts…

Will it work for other companies?

We’ll see. The desire is to stimulate the conversation in creative organisations. The current model is influenced by factories because factories and industrial companies have generated so much wealth over the past 100 years. We tend to think like factories — the boss making the decision; the workers following the rules. In a creative company you want to stimulate and inspire people. In an industrial company you want to control people and supervise them.

There is not enough thought on culture for creative companies. In a creative company, you don’t know if a person is working 8 hours in a day or 10 hours or 12 hours. Yet in a creative company, we still have limited vacation. Really, 46, 48, 50 weeks of work … it’s in the noise. It’s not really very relevant. Yet we’ve inherited this industrial sort of paradigm on how many days of vacation somebody gets. That’s an example of the rethink.

The second is about information. We want our employees to be thinkers, changers, not to seek to please the boss or how to make him happy.

It’s much more powerful if they think how to make the customer happy. We try to change the orientation. At the highest level, it’s about making every employee a creative visionary so that in the mix of things they can make a company evolve. We take advantage of all of their creativity — as against the factory mindset where there is one creative person and everyone else is a soldier.

Some people will adapt to it easily. Others will have a big discussion and they will figure out what parts make sense to them — about the information sharing, the freedom, the context — and what do not. It’s hard to say how many companies will change but I am hopeful.

As a company grows, even if it is in a creative business, the component of routine work, what some call fetch work (as opposed to stretch work) increases. How do you manage that?

In your language we are trying to increase the percentage of work that is stretch work and decrease the percentage of work that is fetch work. And the way we reduce the fetch work is to reduce the processes that control small things — like expenses. What kind of hotel you can stay at — how much you can spend on this or that. We just have a blanket rule — do what’s in Netflix’s best interests. We don’t have whole compliance departments that do a whole lot of fetch work. That does lead to a lot of small abuses. We are not as efficient in the micro sense as we could be. What it does do is make it more fertile and attracts creative people. So, if you think of the big risk, it is not having enough stretch work — because then some other smaller firm will overtake you. Think of it as, we are willing to take on lots of small inefficiencies, we manage on the edge of chaos, but what we get is great commitment to improving the customer proposition — which is how we have grown over the last 20 years.

This can work only in sunrise sectors.

Cost-sensitive businesses — where the emphasis is on reducing costs…this isn’t a great match for them. It’s more for idea generation businesses, like if we are trying to do a 100 new shows. Where innovation is important. Where you want to standardise and take costs out, or safety is critical, like an airline — you wouldn’t want to run an airline with no rules…. Safety is different; industrial is different; shrinking or cost reduction is different; but for the sectors of the economy around innovation — then there are a special set of techniques that we are describing.

One of the things you speak of in the book is extreme candour. Of how anyone in Netflix can give anyone else honest feedback – as long as it given the right way. How does that work? Our initial reaction to feedback is always defensive.

I got some feedback last week from one VP (vice president), three levels down, who said I was unempathetic and that I didn’t draw people out and that I wasn’t interested.

I was feeling mad. Feeling insecure.

But I remember that when I am exercising, I am doing crunches or push ups and it hurts. I want to stop but I know that when it hurts, that’s when I am getting stronger. So I try to map that on to feedback — how much pain can I take. Because the more pain I can take, the stronger I will get. So, I say, give me more, tell me what I am not doing right. If you can develop the orientation, that the pain from feedback — it’s like exercise pain that’s good for you — you can respond in a healthier way.

There are things that we do and things that we don’t. As individuals, companies, managers. You are trying to change most of them. Being counterintuitive — such as encouraging people to talk to headhunters or go for interviews to assess their worth.

The industrial paradigm and the paradigm of lifetime employment — job as a property right; work is like a family. Those are strongly entrenched. Then there is other side, like professional sport, where you play every year for your role. It’s all about performance. And every year professional athletes get competitive bids for their contracts — across teams — and it’s expected that you will often switch teams in your professional career. What we are saying is that the team metaphor is much more productive for creative work, than the family metaphor. Partially because in creative work, the best people are 10 times better than the typical people. In industrial work, everybody is pretty close to the same skill. In innovation work, there’s a premium on getting the best people.

Everything you have said seems to suggest that there are certain kinds of people who are a good cultural fit in your organisation, which probably places a lot of emphasis on hiring — it isn’t as simple as finding the best person.

One of the reasons we published the original culture deck and we did the book is to help prospective employees decide are we a good fit for them. We are a good fit if you thrive on challenge, and have the most amazing colleagues to work with , and learning and growth — and you can tolerate job insecurity. If your primary motivation is job security, then we are not a good match.

Think of us like trying to be a World Cup team and we want to win the championship . We want to have the best player in every position. The rules have to be about the quality of play — the passing, the teamwork — that’s the magic to it. That’s very intense and it’s not for everybody, but the people who are here, we love it.

Do you value loyalty?

Loyalty is as good as inertia. If you have had months, we don’t instantly replace you — you have a lot of credibility. How long will you work with someone who is not working out? Loyalty is a stabiliser. In pro sport it’s the same thing. It’s the expectation of future performance that keeps you on the team.

How does this culture take to WFH?

Hard to tell. We think of mandatory WFH (work from home) as very temporary. It’s not as good as being together and talking about things. But it looks like people are coping. It’s much harder if you live alone or live with small children. But we expect the pandemic to be over next year, and not come back. We are not optimising the culture for the pandemic.

Suppose the pandemic recurs, or doesn’t go away? How easy is it to build such a culture? To maintain it?

I think we are all coasting on relationships that we built before Covid. And think it’s very challenging to develop new employees now who never get to know us.

Thomas (Cherian; Netflix’s communications chief in India) and I, we have worked together for years. So, for a year, it’s ok, but we are not investing further in the relationship. Again, it’s drawing down the bank account.

Is there something that happens when you put a bunch of people in a physical workplace that doesn’t happen online?

My experience is that this is true . That the physical workplace is superior — I am confident that it is true for me. The question is maybe for 20-year-olds who grew up on Tinder — maybe they have a different relationship with online. In 25 years… maybe; video conferencing barely works; in 5-10 years will be better — so I am not saying never, but today I like to be in Mumbai, Tokyo, Sao Paulo to understand what’s happening from our employees.

There’s so much emphasis on performance, feedback, and no policies to tell you what you can do. Doesn’t that result in an environment that is a little edgy, a little stressful?

Yes. It’s high stress, high achievement, high learning. It’s good for people who enjoy the high achievement and the high learning and can tolerate the stress.

I am not sure it will work for everyone, but it’s clearly worked for you.