There are important lessons we can learn from studying the culture at Netflix. Image Credit: https://goo.gl/ULQ88u

The Future of Work: 5 Lessons from the HR leader who helped shape the culture at Netflix.

“The future of work is not compatible with the world we live in today.”

So says Patty McCord, the former Chief Talent Officer for Netflix. She’s the person credited with authoring the company’s original “Culture Deck” that’s been viewed over 15 million times and prompted Facebook COO Sheryl Sandberg to remark, “[it] may well be the most important document ever to come out of the Valley.” (Interestingly, Netflix publicly released an updated version of the deck today, as I was halfway through writing this article. The first slide of the original presentation now informs readers that, “this is an archive of prior version”, and provides a URL for the updated text.)

I had the pleasure of seeing Patty give her presentation on The Future of Work last week at the GREAT CEO Speaker Series, an event run by the CEO Global Network. (Unfortunately for my bank account, I’m not a CEO, but was humbled that gracious Group Leader Ron Baugh decided to invite me anyway.)

Patty was insightful, funny, and knew how to hold a room’s attention; it was clearly not her first time on stage. Her talk was filled with engaging stories about her time at Netflix. How she joined the company after founder Reed Hastings challenged her to create the company they always wanted to work at together. How she once found herself on a stage with hockey legend Scotty Bowman, and realized then just how much high-performing corporate cultures have in common with winning teams. How she encouraged a top engineering leader at Netflix to leave the company for a role at Facebook after helping him realize his passion lay in social, something that was not aligned with what Netflix needed to pursue at the time.

I won’t try to re-tell the stories Patty shared, because I know I can’t do them justice. (Fortunately, she’s publishing a book later this year called “Powerful! Teams, Leaders and the Culture of Freedom and Responsibility”, and I’m willing to bet it will not only include many of these tales, but also be a must-read for senior leaders and human resource professionals everywhere.)

What I will do is convey what I felt were the five most critical points of her presentation, in the hopes this article will be widely shared, and companies everywhere will benefit from a new way of thinking about both employees and the nature of work.

1. “Hire fully-formed, trustworthy adults.”

At the core of Netflix’s people philosophy is to hire, “fully-formed, trustworthy adults” and then trust they will do the right thing in the absence of formal rules and policies. Patty’s quote in a 2014 Harvard Business Review article summarizes the reasoning well: “Over the years we learned that if we asked people to rely on logic and common sense instead of on formal policies, most of the time we would get better results, and at lower cost. If you’re careful to hire people who will put the company’s interests first, who understand and support the desire for a high-performance workplace, 97% of your employees will do the right thing. Most companies spend endless time and money writing and enforcing HR policies to deal with problems the other 3% might cause. Instead, we tried really hard to not hire those people, and we let them go if it turned out we’d made a hiring mistake.”

Think about your own organization for a moment.

  • Does your company have a dress code policy? You probably do… and it was probably created after one person wore something to work that another person felt was “inappropriate” and complained to HR. (But who’s the arbiter of “appropriate”? I have a friend and former colleague who was once reprimanded by HR because her shirt revealed too much arm. Yes, you read that correctly.) But the very best companies don’t waste time with dress codes; instead, they ensure their employees are comfortable and can produce their best work. (When a new hire once asked former Google CEO Eric Schmidt if the company had a dress code policy, he replied, “Yes. You have to wear something”.)
  • Does your company have a vacation policy? The answer is probably yes. But does it also track when employees work evening and weekends during the “busy season” or when a fast-approaching deadline requires some extra effort? Sadly, it probably doesn’t. If you hire good people and trust that they’ll get the work done, do you really need a formal policy governing how often they can take a break to recharge?
  • Does your company have an expense policy? It almost certainly does. And it’s probably multiple pages long, outlining exactly what you can and can’t spend in various circumstances. But if you hire responsible people, do you really need to outline every allowable expense under every possible circumstance, then hire an army of people to track and audit that spending? Or can you instead follow Netflix’s lead, who trusts employees to understand and adhere to a five-word policy that simply reads, “Act in Netflix’s Best Interests”?

The policy list can go on and on… Travel. Flex time. Remote Working. But ask yourself this: which of your company’s policies do you think could be completely eliminated if you committed to hiring great people and then trusted them to act in the company’s best interests? And if your answer isn’t, “most of them”, you’re probably not hiring well enough or trusting hard enough.

2. “We are a team, we are not a family.”

It’s fairly common for leaders at organizations to proclaim, “We’re a family!” But anyone who’s ever been impacted by a restructuring knows that when times are tough, the business will usually do what’s necessary for the business, not what’s best for their employees. (“Sorry, Dad, but your position has been eliminated and we’re going to have to let you go.”)

Patty spoke about how a better metaphor for a high-performing organization is that of a professional sports team. Great sports teams rally around a common goal and do what it takes to work together effectively in order to achieve it. Players whom management feel can contribute to the team’s objectives are recruited, and players who are no longer required are traded to another team where their talents can be put to better use. It’s not personal, it’s business. And business requires having the right people, in the right place, at the right time.

If your company likes to think of itself as a family, ask yourself what you might change if you were a team instead? Would you keep employees who were well-liked and had been with the company a long time, but no longer effectively contribute to the company’s goals? (Probably not.) Would you take that marketing manager you would otherwise have to eliminate and make them your new compliance officer, just to avoid terminating an employee? (I hope not.)

It’s perfectly okay to make the tough decisions that are in the best interests of the organization, and if you’ve hired fully-formed adults, they’ll probably understand. You just need to ensure you treat people with respect and generosity as they depart.

3. “Create a company where people want to be from.”

One of the biggest laughs of the morning came when Patty loudly remarked, “Retention… rhymes with detention.” Too many companies blindly track retention as if merely maintaining employees is something to be celebrated. Obviously, you want to keep your highest performers for as long as you can put them to good use, but as she bluntly stated, “what’s the point of just keeping someone if they aren’t doing anything?” There are a lot of very good reasons that people leave companies, or that companies ask people to leave, so simply tracking “retention” isn’t particularly useful.

Then she said something remarkable: “What if instead [of worrying about retention], you created a company where people wanted to be from?”

She’s absolutely right. Today’s best knowledge workers look for the very best companies to join, exceed their targets and make a positive impact on the business, then move on to another great organization when the time is right for a new challenge. The best recruiters don’t frown upon “job-hoppers” who’ve held multiple roles throughout their career; they understand that successful stints at top-tier organizations often lead to broader perspectives and better thinking.

Traditionalists who grew up thinking in terms of “jobs for life” might abhor the more recent idea of “tours of duty”, and reject doing anything that might encourage or facilitate an employee’s departure. But smart companies worry less about the people who choose to leave their organizations and more about providing them with reasons to be proud alumni. If you’re a marketing-driven organization, you want to be known as one who can develop great marketing leaders, like Procter & Gamble, Coca-Cola, Starbucks, and Yum! Brands. You want people who leave your company to go on and accomplish outstanding things, knowing the time they spent at your company played a role in preparing them for success. And you want your alumni to feel proud about their tenure with your organization, and remain loyal brand advocates for life. (This can be accomplished even if you were the one to initiate the departure, by the way, as long as you treated them with respect and generosity as they were leaving.)

Think about this: if your best person were to resign tomorrow, what would happen next? Do you have the maturity to handle the employee’s exit gracefully? (This means you don’t get upset or feel betrayed, make desperate counter-offers to prevent employees from doing what’s right for them, or “walk-out” your departing employees unless they really and truly represent a security risk.) Do you have the talent pipeline in-house to easily replace that individual? (If not, think about the investments you might need to make in training and development.) Does your company have the type of employer brand that will attract hundreds of suburb, highly-desireable candidates when the job is posted externally? (No? Then think about what you can do to make your current employees feel valued and appreciated, which will make your company more attractive to potential recruits over time.) And finally, can you create the type of culture that will foster positive relationships with former employees, such that even if they didn’t want to return to your organization one day, they’d be happy to be clients, business partners, or referrals?

4. “If you choose to pay in the 50% percentile, you will not get people who can contribute 150%.”

This was perhaps the most obvious point Patty made during her presentation, but it was notable because of how few companies seem to truly understand it.

At all organizations, employees are expected to be the very best and contribute 110% to the business. Yet at most organizations, employees are paid the minimum amount it takes to retain them, not what the market dictates their talents are worth.

Several times during her talk, Patty mentioned she would often encourage people to interview at other organizations because that’s the only real way for them to understand their true value in the market. Imagine that… an HR senior leader encouraging employees to interview elsewhere! Of course, there’s an entire section of the Netflix Culture Deck that’s titled, “Pay Top of Market”… so it’s fairly low risk to encourage employees to assess their market value if you’re already doing the same thing and proactively adjusting salaries accordingly. (Still, the entire Netflix philosophy on pay is fascinating and well worth a read.)

Top organizations like Netflix strive to hire the very best talent; as per that Harvard Business Review article, Netflix believes, “the best thing you can do for employees — a perk better than foosball or free sushi — is hire only “A” players to work alongside them. Excellent colleagues trump everything else.” (Those of us who have had the pleasure of working in such an environment might find it difficult to disagree.) And when those top organizations find those “A” players, they pay them appropriately. Of course, there’s no such thing as a free lunch, and expectations of those individuals are understandably high. (Or as Reed Hastings bluntly states in that same article, “Adequate performance gets a generous severance package.”) But it’s important to understand the old adage about quality products often applies to quality talent as well: “You get what you pay for.”

On a related note, an employee’s compensation at Netflix isn’t dependent on the success of the company. As stated in the Culture Deck, “whether Netflix is prospering or floundering, we pay at the top of the market. Sports teams with losing records still pay talent the market rate, to get back to winning.” Of course, when the company does well, employees who choose to hold shares in the company do very well for themselves. But in terms of salary, compensation isn’t tied to the performance of the overall business, and while that might seem counter-intuitive to some, that’s actually a very good thing.

Ask yourself this: if your employees were to hear Patty’s message and begin assessing their market worth by interviewing with other top firms, would you be worried? And if the answer is, “YES!”, then what do you plan to do about that today? (Remember, once they’ve decided to leave, counter-offers usually won’t help.)

5. “Everyone on your team should be in customer service.”

Patty remarked, “everyone on your team should be in customer service, and everybody’s goal should be to delight the customer so that they can go and sell your product for free.” As a marketer, I couldn’t possibly agree more.

Netflix is actually a terrific example of a company I often go out and sell for free. I’ve been a Netflix subscriber for as long as it’s been available in Canada. I’ve posted for years on my social networks about how much I loved the service, and the company, and the brand. I would aggressively defend the value of the service whenever my friends would complain, “they only have old movies”. (“Yes, but they’re getting better content all the time! And the total cost for a month is less than the price of ONE film at the theaters! And you can’t even watch all of the content you have available because there’s so much of it!”) I’ve publicly said Netflix is the only company I can think of who can double their prices tomorrow and still keep me as a customer. (And I put my money where my mouth is: I happily pay $11.99 for their premium subscription that gives me access to high-definition content on four devices at once.) You probably get the idea.

I’ve loved movies since I was a kid, so the fact I’m a fan of the service itself won’t be a surprise to anyone who knows me. But what has Netflix done to delight me, as a customer? Easy. They offer truly fantastic content, and these days, much of it is original. (So the folks responsible for content acquisition and creation are delighting me.) They offer a reliable, beautiful, easy-to-use interface that works on any of my devices, and more often than not, I really enjoy the content the recommendation engine suggests I might like. (So the engineers are doing their part too!) And those working in the finance department? Well, in all the years I’ve been a subscriber, I’ve never once been accidentally over-charged for my subscription or had any sort of billing issues. (In fact, I think the only people at Netflix who haven’t yet delighted me are the nice people in the talent acquisition department, who have yet to reach out and ask me for my resume. Hint, hint.)

Every employee and every customer interaction is a reflection of your company’s brand, but too many organizations forget that simple fact. Companies need to foster cultures of collaboration and ensure all employees are working towards a shared vision. And they need to give all employees the skills they need to understand how they contribute to the business; Patty told the crowd the best thing they could do for their employees was to teach them all to read a profit-and-loss statement, because that would help them understand exactly how their role contributes to the overall business.

Take a look around at your own organization and ask yourself, honestly, “Is everyone here working towards delighting our customers?” And if the answer is no, what do you need to do to change that?

There was one final moment that really captured my attention that day.

But it happened after Patty’s presentation was over. I saw her speaking with a group of attendees in a corner and decided to approach so I could introduce myself and thank her for speaking at the day’s event. After chatting for awhile, another attendee did the same thing I had just done and approached the circle of people who were surrounding Patty.

That woman said, “Patty, thank you so much for your presentation. I loved it! It’s clear you’re not a typical HR person. And I’m not a typical HR person either!”

To which Patty replied, “Can we promise to stop saying that? Instead of you saying, ‘I’m not a typical HR person’, I’d like you to say, ‘I’m the HR Person of the future, and what your company needs.’ Can we do that?”

For all of our sakes, I hope HR people everywhere can.

David Pullara is a Chief Marketing Officer, writer, speaker, consultant, and course facilitator for the Schulich Executive Education Center. His career has included roles at Starbucks, Yum! Brands (Pizza Hut), Coca-Cola, and Google. You can read his thoughts on Medium, LinkedIn, and Twitter.