No Rules Rules: Netflix and the Culture of Reinvention is written by Netflix founder Reed Hastings and INSEAD Business School professor, and author of The Culture Map, Erin Meyer. Published in 2020, the book explores the innovative corporate culture of Netflix and how it has driven the company’s success. It’s a good read, jumping back and forth between the two authors sharing their insights. Netflix is in a creative industry and very different to an accounting firm. That said, I reckon there is some really good food for thought for accounting firm leaders.
A culture of freedom and responsibility is at the heart of Netflix’s culture. The idea is that employees should be given a high degree of autonomy (freedom), but with that comes a high degree of accountability (responsibility). This encourages employees to make their own decisions and to own the outcomes, good or bad. It supports doing things faster and innovation. To get there though, you need to get some things in place as outlined following.
- Talent Density (and stellar remuneration)
Netflix believes in hiring and retaining only the best employees, which they call “high performers” or “stunning colleagues”. They pay them ridiculously well and expect a lot of them. Interestingly Reed Hastings is not a fan of bonuses in the creative roles and just pays them a big salary with big expectations. (He takes a different approach with “operational roles”, although doesn’t really expand on that.) High talent density allows the company to operate with fewer rules and more trust. The denser the talent the greater the freedom you can offer. They genuinely believe they can have a business that only employs stars. They also believe (and quote research studies to support it), that having just one or two average performers on a team significantly affects the ability of that team to do its best work. So you can’t tolerate that.
For me this is a really important point because I still regularly see inside accounting firms the acceptance of mediocrity or worse. Reed Hastings says “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.”
He adds, “Jerks, slackers, sweet people with nonstellar performance, or pessimists left on the team will bring down the performance of everyone”. People are regularly let go and given generous severance packages.
- Candor (say what you really think)
Open communication and feedback are an obligation at Netflix. This involves providing frequent, respectful, and direct feedback to one another. You say what you really think, with positive intent. This culture of candor helps in making better decisions and fostering innovation, because seriously talented employees can learn a lot from each other. They take this obligation very seriously. As Erin Meyer notes – “At Netflix it is tantamount to being disloyal to the company if you fail to speak up when you disagree with a colleagues or have feedback that could be helpful.”
The authors make the point that a culture of candor does not mean anything goes and there is an expectation that managers will invest quite a bit of time coaching team members on how to give feedback. This includes making it aiming to assist and being actionable.
In my Manager Development Program we have a module on giving feedback, because I agree that feedback done well is so, so powerful.
- Remove controls
The idea is that having got talent density and a culture of candor, you can start to reduce controls and give more freedom to team members. At Netflix this plays out in what some might say are pretty radical ways.
No vacation (annual leave) policy
Netflix doesn’t have a traditional leave policy. Instead, employees are allowed to take off as much time as they feel they need, as long as their work is getting done. This is a great example of being focused on outputs (results) and not inputs. If you have a person who can achieve all that is expected of them and only work 9 months of the year then under this model that is perfectly OK. Reed Hastings leads by example and expects other senior people to do the same – in other words they take a decent amount of leave each year.
No formal expense policy
Similar to their vacation policy, Netflix doesn’t have a formal expense policy. Employees are trusted to spend the company’s money as if it were their own. Note however that the finance team do audits each year and people doing the wrong thing are weeded out.
Context, Not Control
Netflix’s managers provide their teams with the context of their work, rather than controlling how they do it. By understanding the larger picture, employees are empowered to make decisions.
Although there are not written policies, it is not a free for all. Managers spend time speaking to their team about what behaviours are likely to be appropriate.
- Open the books
Reed Hastings references Jack Stack whose book The Great Game of Business, I recently wrote about. Reed talks about “open book management” to make the workforce smarter. He teaches them to read financial information and shares sensitive financial and strategic information with everyone at Netflix. “When you give low-level employees access to information that is generally reserved for high-level executives they get more done on their own.”
He notes that transparency is a great symbol of high trust and in turn generates feelings of ownership, commitment and responsibility. Particularly when it comes to mistakes, Hastings observes that if you try to put a spin on it your employees see through this. They will be more trusting of a leader who admits mistakes rather than trying to hide them. I wholeheartedly agree with his.
- No decision making approvals needed
Hastings says “Our dispersed decision making model has become a foundation of our culture and one of the main reasons we have grown and innovated so quickly.” But as Erin Meyer says, it “can only work with high talent density and unusual amounts of organizational transparency”. She adds that “people desire and thrive on jobs that give them control over their own decisions. And remember we are talking about high performers here, so I think that is pretty obvious when you think about it.
Hastings suggests that you ask four questions about each team member:
- Are they are stunning employee?
- Do you believe they have good judgment?
- Do you think they have the ability to make a positive impact?
- Are they good enough to be on your team?
A yes to all four means you let them get on with it. A no to any one means they are moved on.
Hastings makes one important observation about this approach and that is that his business is a creative business whereas some others are not and preventing error may be absolutely essential. He cites medicine and nuclear power as examples of this. I sometimes remind my clients that if an accountant makes a mistake no one dies. And mistakes are such a fundamental part of learning that to try to eliminate them completely is to stunt the growth of your people and your business.
I’ll leave you to read the book to get more detail and pick up on a few other interesting points made.
I reckon there is quite a bit that could be applied inside accounting firms and if you are doing some of this already I’d love to hear from you.