1) Netflix (NFLX) CEO Reed Hastings and business school professor Erin Meyer released their new book yesterday, No Rules Rules: Netflix and the Culture of Reinvention. I’m really enjoying listening to it on Audible and I’m almost finished (it’s nine hours and 43 minutes, but at my usual 2.75x speed it’s only three and a half hours!).
I’ve had the pleasure of meeting Hastings a few times. He’s on the national board of KIPP charter schools and I’m on the New York board. He’s a stellar human being – like my parents, a former Peace Corps volunteer – and an extraordinary business leader.
Concurrent with the book’s release, Hastings is doing many interviews about it. My favorite is this in-depth one with New York Times Pulitzer Prize-winning columnist Maureen Dowd: Reed Hastings Had Us All Staying Home Before We Had To.
This part of the interviewer conversation, about winning championships by having only stars on your team, really resonated with me:
The book was born from the Netflix Culture Deck, a famous – and infamous – show of 127 slides that Mr. Hastings put online in 2009. It was hailed, in a 2013 GQ article, as possibly “the most important document ever to come out of Silicon Valley” by Ms. Sandberg. (Mr. Hastings was on the board of Facebook at the time.)
Even Ms. Meyer, a business professor, loathed some of the tenets at first and compared the company culture to the Hunger Games. But Mr. Hastings believes it was essential to his revolution.
Netflix pays top dollar and wants what it calls High Talent Density, which means only stars, no average people. Some of the rules of the Freedom and Responsibility workplace sound rigid.
“Adequate performance gets a generous severance,” one rule says.
Managers use The Keeper Test to figure out which employees are merely average and to weed out complainers and pessimists. How hard would you fight to keep someone? If the answer is “not that hard,” that employee should go. As one former executive frets in the book, they are more like penguins, who abandon those in the group that are weak or struggling, than elephants, who nurture the weak back to life.
Employees are also encouraged to use The Keeper Test Prompt, to ask bosses if they would fight hard to keep them.
Maxing Up Candor, getting rid of the “normal polite human protocols,” is a part of daily life at Netflix with a daily Circle of Feedback and annual written and live 360 Assessments, in which you meet with the team to get ripped apart.
Mr. Hastings, who grew up in a house where emotions were never discussed, said he got the idea for more transparency after going to marriage counseling.
By making things less hierarchical, Mr. Hastings believes the company can be more nimble.
Employees are encouraged to critique those above and below them at any time. (This does not seem to apply to top talent, like Shonda Rhimes or Ryan Murphy.) Staff members must Farm for Dissent and Socialize new ideas. Failures should be Sunshined, talked about openly and frequently.
Mr. Hastings does not think of his employees as family, but as a sports team – and one that has to win trophies.
“For people who value job security over winning championships, Netflix is not the right choice, and we try to be clear and non-judgmental about that,” he writes.
Mr. Hastings writes of his managers: “To feel good about cutting someone they like and respect requires them to desire to help the organization and to recognize that everyone at Netflix is happier and more successful when there is a star in every position.”
Holy Ayn Rand!
Mr. Hastings even demoted Mr. Randolph, who described his own reaction to his co-founder’s radical candor: “There is no way I’m sitting here while you pitch me on why I suck.”
And Mr. Hastings canned one of his best friends and original employees, Patty McCord, who helped create the Culture Deck and who drove to work with him, from her H.R. job.
“It’s not easy, just like you said,” he acknowledged. “There’s a conflict between the head and the heart.” He added that sometimes you just have to tell someone “you’re not as engaged, or we needed someone who’s got these additional skill sets as we grow and face new challenges.” He said it’s “very much a joint conversation” and “it’s not like The Apprentice or something.”
He writes in the book: “We all stay friends and there is no shame.”
One fired Netflix executive told me, “When Reed views somebody’s contribution as less than the problems they’re causing or potential risk, he gets rid of them. He’s an extraordinary guy, but he’s coldly rational and calculating. But the trade-off is, you get to go on this amazing fun ride, make a lot of dough, and when your number’s up, your number’s up.”
2) Here’s an interview Hastings did with the Wall Street Journal: Netflix’s Reed Hastings Deems Remote Work ‘a Pure Negative’ Excerpt:
WSJ: Have you seen benefits from people working at home?
Mr. Hastings: No. I don’t see any positives. Not being able to get together in person, particularly internationally, is a pure negative. I’ve been super impressed at people’s sacrifices.
WSJ: It’s been anticipated that many companies will shift to a work-from-home approach for many employees even after the Covid-19 crisis. What do you think?
Mr. Hastings: If I had to guess, the five-day workweek will become four days in the office while one day is virtual from home. I’d bet that’s where a lot of companies end up.
WSJ: Do you have a date in mind for when your workforce returns to the office?
Mr. Hastings: Twelve hours after a vaccine is approved.
3) And here’s some interesting commentary by Columbia Business School Professor Jonathan Knee about Netflix, Hastings, and his book: Silicon Valley’s Culture Clash. Excerpt:
Given the current hostility to the technology sector, the rejection of established H.R. wisdom and intensity of the organizational upheaval promoted by No Rules Rules may generate controversy. Mr. Hastings could have remained under the radar during the Silicon Valley’s cultural maelstrom. Instead, he has entered the fray with an important contribution that provides the beginnings of a road map for the sector to regain trust.
Although there is much to legitimately debate in the details, it strikes me that the overarching approach to culture endorsed by Netflix speaks directly to the fundamental failure in technology industry leadership. Both the book and the first page of Netflix’s famous presentation are organized under the same banner: Freedom and Responsibility.
This is the corporate equivalent of the Peter Parker principle, uttered by Uncle Ben to his superhero nephew in the first Spiderman film (unfortunately not currently available on Netflix): “With great power comes great responsibility.” Where Netflix’s tech peers have fallen down is by emphasizing empowerment – their own corporate prerogatives as well as that of their high-performing employees – without establishing a clear context for understanding the corresponding responsibilities, both internally and externally. No Rules Rules demonstrates how hard, but essential, it is to take the responsibility side of the equation seriously. Many may find the “keeper rule” inexcusably brutal, but it is hard to argue with the seriousness with which the company takes its responsibility to develop its people.
4) My friend Doug Kass of Seabreeze Partners has some interesting comments on Tesla (TSLA), whose stock had its worst day ever yesterday – falling 21%. First, this essay:
What Does Etsy Tell You About Tesla?
Etsy (ETSY) has about 1,250 employees and $1 billion in sales.
And this is now an S&P 500 company?
Don’t even get me started on what they actually do as well, suffice to say they broker tchotchkes.
If this is the future of America, whoa boy!
Yet ETSY is in, and Tesla (TSLA) is not?
I am stunned. Not because I am pro TSLA and believe it should be an S&P 500 company. Couldn’t be further from the truth.
Those deciding on S&P 500 inclusions have proven themselves, in my view, to be incompetent.
A TSLA addition would have been right up their alley. Right in line with some of their previous inclusions.
That is why I am stunned TSLA didn’t get in.
The S&P committee deemed ETSY more worthy. If ETSY is more worthy than TSLA… ETSY’s cap is $15 billion, TSLA $390 billion (for the time being). A lot of room between $390 billion and $15 billion.
A lot of people would claim $15 billion is too much market cap for TSLA.
This is all on the heels of TSLA being unable to do a normal secondary offering. This tells you some combination of two things: There was no institutional demand for TSLA at these prices (as evidenced by Baillie Gifford being a seller), and potentially no underwriters were willing to sign their name on an official offering document from TSLA.
- Feckless S&P committee that could care less about anything (price, valuation, fundamentals) not only deemed TSLA unworthy, they deemed TSLA so unworthy that ETSY, a tchotchke broker with 1,250 employees got in ahead of them.
- No institutional demand at these prices and potentially no underwriters willing to put their name on an offering document here.
Second, Kass raised questions on Twitter about whether Tesla engaged in insider trading when it sold $5 billion in stock on Friday when it presumably knew it wasn’t going to be added to the S&P 500 Index (and thus the stock was likely to tank):