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The Emperor’s New Rules

There’s nothing novel about Netflix’s competitive culture of fear Netflix CEO Reed Hastings. | Mondileinchen

No Rules Rules: Netflix and the Culture of Reinvention?by Reed Hastings and Erin Meyer. Penguin Press, 320 pages.

My first job in New York was cooking in the kitchen of an upscale grocery store. It was 2013, and I had arrived in the city with $500 and nowhere to live. This job, for which I had invented a resume, paid $11 an hour. When the kitchen manager, who was a complete asshole, didn’t show up for work for five days straight, I did something I now find unthinkable. I marched into the general manager’s office and spoke words only a special cocktail of desperation and naivety can produce: I asked her to make me the manager. For whatever reason, she agreed. For this I would be paid $15 an hour.

I wasn’t a good manager and was in way over my head. Many of the cooks in the kitchen when I started knew even less about cooking than I did, and I had no time to teach them. This caused a lot of tension. No one made the Curry Chicken Salad the same way, for example, and this, to my boss, was a Big Problem. But it was one I didn’t know how to solve. I ignorantly believed that everything would be better if I just wiped the slate clean, fired everyone, and started over. In time, most of the staff really did leave or get fired for some reason or another, either because I asked for it or because they broke some arbitrary rule. It never really solved any problem, but at-will employment made it a legal and easy way out.

When I finally announced to the general manager that I was quitting, I broke down in tears. I was having dreams about all the people who had lost their jobs because of me, especially a few of the more dramatic cases. I became acutely aware of how difficult management was, but also how clueless most managers were about what they were doing: performing surgery with a fork and butter knife because no one bothered to tell them scalpels and clamps exist, or because they were too arrogant and lazy to realize their own butchery.

All one needed to blast through the rapids of the new economy was a small dinghy packed with perky geniuses who had been plucked from the meritocratic kennels of the world’s most elite institutions.

In the intervening years, I developed an interest in reading about business disasters. At first, I didn’t connect it to my own ill-fated foray into management. But when I read Bethany McLean and Peter Elkind’s 2003 book The Smartest Guys in the Room, an autopsy of the rise of and fall of Enron in the 1990s, one bit of Enron’s toxic culture jolted me: a managerial initiative called the Performance Review Committee (PRC), a process that hinged on the idea that firing people was crucial to business success, which I myself had once believed. The PRC was an annual conference at which all the employees were ranked, and the lowest ranked were fired. The conference, created by Enron ubermensch and McKinsey and Company alum Jeff Skilling, was lauded as a super management technique by breathless commentators who worshiped at the altar of Enron’s “cool” business model—a model, it turned out, that was primarily fraud.

But for all Skilling’s accolades, PRC-style “rank and yank” wasn’t new. It was an infamous tenet of Jack Welch’s transformation of General Electric from a corporation that made appliances into a debt-servicing cesspool that helped crash financial markets in 2008. During his tenure, Welch would fire the bottom 10 percent of workers every year, just for the hell of it. Since the 1980s, work had become increasingly immaterial and contingent, and companies like GE, who slithered headfirst into the drunken orgy of the knowledge economy, found that when your business was primarily worthless credit products or creating vaporware, you really didn’t need many people on staff. Welch also realized that it wasn’t so difficult to heap the work of five people on to one when any worker knew they could be so easily replaced.

Rank and yank also complemented the new idea that firms should be staffed exclusively by all-stars. All one needed to blast through the rapids of the new economy was a small dinghy packed with perky geniuses who had been plucked from the meritocratic kennels of the world’s most elite institutions. Enacted at Enron, this strategy didn’t stop ruthless political infighting or prevent a Denali-sized mountain of criminal off-the-books accounting from bringing the company down. Yet it proved to be a durable and seductive idea nonetheless.

I saw it again in a 2015 New York Timesexpose of Amazon’s corporate office. In the grand tradition of over-capitalized technology firms, the jobs paid extremely high salaries and offered lavish benefits, but no one ever seemed to use them. Instead, this A-Team not only worked around the clock, but backstabbed and proudly harassed each other in meetings in order to unearth golden nuggets of Innovation. And of course, Amazon fired lots of people every year, something one former human resource officer referred to as “purposeful Darwinism”: an exquisite specimen of business-speak mangling an empty metaphor, if there ever was one.

When I read a Wall Street Journalprofile about Netflix’s management culture in 2018, it felt like more of the same. The article claims that Netflix is “ruthless, demoralizing, and transparent to the point of dysfunctional.” One former employee remembers crying as they packed up their desk, and that no one had wanted to console them for fear of looking weak. Netflix is proudly stocked with an industrial dumpster load of superstars; a group the company vomit-inducingly refers to as “stunning colleagues.” Less stunning is their notoriously confrontational workplace: employees are encouraged to give each other blunt feedback anytime, anywhere, and managers are told to immediately fire underperforming workers. As Netflix decrees, “Adequate performance gets a generous severance package.” Much like General Electric, Enron, and Amazon, Netflix has a charismatic leader (a man “unencumbered by emotion,” the WSJfinds a source saying), a private lexicon of catch phrases, high salaries, and no guarantee of stable employment.

When I emailed a few friends about this absurdity, one got back to me to say that he liked the organization of Netflix, that it was different from Amazon because it was a much less cut-throat and “exploitative” corporate workplace. Employees there are treated like professional athletes, he said, and when they are hired, they are aware that they may be fired at any time. Being able to slice off the dead weight increases their—and here he quoted the website—“talent density.” On the one hand, I thought, does it matter what goes on at Netflix? Who cares about a private empire of highly paid workers? On the other hand, it was clear that Netflix was the symbol of a terrible trend, the latest manifestation of a decadent meritocracy cult that preaches, with little evidence, that the only way to crack low-growth capitalism is with overworked talent, ruthless conformity, contingent policies, rule by fear, and money as the solution to all problems. The only thing that could make their influence more pernicious would be if the founder were to write a how-to book about this whole mess.

Today, that how-to book—No Rules Rules: Netflix and the Culture of Reinvention by Reed Hastings and Erin Meyer—is here. Toward the beginning, Hastings, current CEO and co-founder of Netflix, tells a story that is foundational to the company’s culture. Netflix started in 1997, having innovated its way into the movie rental industry by mailing DVDs to people’s homes and forgoing late fees. But in 2001, after the dot-com bubble burst, the company was forced to lay off forty people. Hastings thought this would be a burden, but he was wrong: everyone loved it! Or, at least, the remaining people worked harder, and nothing bad happened. While the layoffs are couched as an unfortunate event, the book quickly swivels to affirm their real lesson: it’s good to get rid of people who don’t conform to the workplace standards that Netflix demands. As Hastings writes, “we would coach our managers to have the courage and discipline to get rid of any employees who were displaying undesirable behaviors or weren’t performing at exemplary levels.” It’s never clear what performance “at exemplary levels,” means exactly, a bit of corporate vagary that will only later reveal its true purpose.

Hastings’s co-author Meyer, a professor at INSEAD and “influential business thinker,” interjects at the end of this anecdote about the layoffs to confirm his observation with a little bit of science. She mentions an Australian study in which groups of people were asked to complete a “management task.” Four groups contained an undercover actor. In one group, he was the “Slacker” who would “disengage, put his feet up on the table, and send text messages”; in another, he was the “Jerk” who “would speak sarcastically and say things like ‘Are you kidding me?’ and ‘Clearly you’ve never taken a business class before’”; in the last, he was the “Depressive Pessimist” who “would look like his cat had just died,” complain, express doubt, and “sometimes put his head on the desk.” When it came to executing the assigned task, the teams with a plant were found to do a “whopping” 30 to 40 percent worse. The logic is summed up in one of the bullet points that ends each chapter: “jerks, slackers, sweet people with non-stellar performance, or pessimists on the team will bring down the performance of everyone.” It isn’t explained how exactly science finds sweet people to destroy the wheels of innovation, but there it is. Slackers, jerks, and sweet and depressed losers can take a fucking hike.

So, what was Netflix left with after their layoffs? Allegedly the “highest-performing, most collaborative employees on the market.” Collaboration, like many concepts in the book, appears almost out of nowhere as an intrinsic good. What could be wrong with a little old-fashioned, high-performing collaboration? But the collaborative spirit Hastings invokes has a highly specific meaning that no one outside of Netflix would be able to guess. It refers to the system of feedback that Netflix employees are told to use, in which they must express their unvarnished opinions to colleagues, bosses, and subordinates any time, anywhere. Or, as the chapter title puts it, “Say What You Really Think (With Positive Intent).” If this sounds like a recipe for bullying and libertarian chaos, don’t worry, the whole process rests on the directive’s parenthetical, which opens up into a proliferating list of both explicit and implicit rules meant to contain these interactions.

It isn’t explained how exactly science finds sweet people to destroy the wheels of innovation, but there it is.

In order for bosses to actively solicit feedback from subordinates, they must use “belonging cues,” defined as “using an appreciative tone of voice, moving physically closer to the speaker or looking positively into that person’s eyes”—all of which sounds a lot like dating advice for incels. Once “belonging” has been established, there is also rigorous training as to how to give the actual feedback. Netflix managers, Hastings and Meyer write, “have documents explaining what effective feedback looks like.” So while the company claims to offer their employees “Freedom and Responsibility” (or F&R, to the initiated), they ultimately act like any other workplace hoping to contain undesirable behavior. The “No Rules Rules” sounds a lot like good old-fashioned rules-y type rules. Indeed, an anecdote about a former employee named Paula reveals the flimsiness of “Say What You Really Think”: a super-efficient worker (“she used every moment to get things done”), she nonetheless took the slogan too much to heart. “Paula did not feel she was being a jerk,” Hastings and Meyer write, “just that she was living the Netflix culture with her honest feedback. Yet because of her difficult behavior, Paula no longer works at Netflix.”

Feedback at Netflix is also regulated by a creepy, covert, and moralizing force: claims of loyalty. As Hastings writes, “it is tantamount to being disloyal to the company if you fail to speak up.” Loyalty is mentioned frequently throughout the book, e.g., “Rochelle took seriously the Netflix principle that to say nothing in circumstances like this would be tantamount to disloyalty,” or “We’d felt he’d been disloyal interviewing for another job behind our backs.” Being an unfailingly honest star employee isn’t enough: workers at Netflix must also swear fealty.

Theoretically, this could be mitigated by another key aspect of Netflix’s oft-praised F&R: their no vacation policy and no expense policy policies. Like everything else in the book, both sound simple at first. In terms of vacations, employees can take as much time off as they want, as long as they get their work done. Unless you work in accounting, that is. “January was off limits for all accountants,” Hastings and Reed write. Also, your manager might need to set some parameters, like “only one team member can be out at a time,” or “make sure you’re not causing the rest of the group undue grief before booking your vacation.” In fact, it’s not really up to you. Check in with your boss. And if you don’t? You guessed it. You’re fired.

The no expense policy is similar. There are no explicit rules about what you can expense to the company, except the simple axiom: “Act in Netflix’s Best Interest.” However, as a new Netflix employee (at “New Employee College”), before you charge a single dime, Hastings writes that you should “imagine that you will be asked to stand up in front of me and your own boss and explain why you chose to purchase that specific flight, hotel, or telephone.” Once you get done imagining the Expense Tribunal, you are free to proceed! Well, just a couple more things. Don’t fly business class if you are flying during the day. Don’t spend too much on client dinners either; as one executive notes, “without a rule you never know when your judgement will come into question. I feel safest sticking to the . . . practice of careful ordering . . . . No lobster and no expensive wine.” And why might this executive feel “safe” sticking to tight-fisted ordering? Because if he doesn’t, he’ll be fired. “If your people choose to abuse the freedom you give them,” says Hastings, “you need to fire them and fire them loudly, so others understand the ramifications. Without this, freedom doesn’t work.” It’s an understanding of freedom that explains why some freedom-loving Americans love guns so much: the fear of violence, like the fear of firing, is a rule system unto itself.

In fact, the solution to almost every major business problem at Netflix is firing people. Short on payroll? Fire a couple people. Someone makes an offensive comment? Fire them. Want to hire an expensive employee? Fire, or fail to hire, “a dozen” other people. And how does the company avoid civil rights claims and other bothersome lawsuits that might come from capricious terminations? Well, that’s what the four-months’ salary “generous severance” is for. “We ask exiting employees,” Hastings writes, “in order to receive the generous severance . . . to sign an agreement that they won’t sue us.” It’s labor law obviated by money.

The implication of the 2018 Wall Street Journalarticle was that the specter of termination had created a workplace of fear at Netflix. Hastings and Meyer tackle this claim head on. The book, unbelievably, includes this anecdote from an employee:

My first months on the job . . . Every morning, I would get into the elevator at eight a.m., and as I hit the elevator button, it was like a trigger. The air would catch in my chest. I was sure that when the doors slid open my boss would be standing on the other side waiting to fire me.

I worked like crazy––deep into the night––and pushed myself harder than I had ever done before. But the fear continued.

And that is the end of that. No follow up. Meyer puts some mock-tough questions to Hastings, who responds that, luckily, there are two things an employee who is “obsessed by their risk of being let go” can do. The first is to ask their boss the “Keeper Test Prompt.” The Keeper Test is a mental heuristic managers are meant to use to assess whether they should fire someone from their team—that is, whether they would fight to keep them. So, the prompt is a way for an employee to ask their boss, “Are you planning to get rid of me?” The second thing Hastings thinks should absolve all fear is that whenever anyone is fired, Netflix “sunshines” their termination by revealing, in gory detail, all the problems the person had, often to the entire company. Feel better now?

The only set of explicit, rigid rules Netflix seems to have tossed out are the ones which came about primarily after World War II to accommodate demands by workers for better working conditions and compensation, including vacation time. The company has turned clear guidelines that might give an employee peace of mind into a swirling, opaque mass of implicit rules that are often wildly contingent, based on the whim of your boss or the most powerful person in the room. The fear this contingency breeds encourages workers to squeeze their expenses, take as little vacation as possible, and generally conform to whatever the consensus of the company is that day. Subjective notions of “high performance” transfer enormous power to managers, highlighting the true nature of meritocratic rule: an autocratic logic that requires, above all else, prima facie homogeneity, fear, and subservience.

But the important question to ask is how much Netflix’s culture, as studied by its own charismatic founder, really contributes to its success at all. Hastings claims that candid feedback “pushed performance in the office to new levels,” but like in most of the book, he can’t provide much evidence for this. In fact, the reader is almost always left to infer that the reason they are even reading this book is that Netflix has “pivoted” three times and become massively overvalued. But prior to 2013, the company more or less treaded water on the stock market, doing just enough to stay alive. In fact, Netflix’s success is attributable not to their small, tight-fisted, brutal workplace, but their pivot to production in 2013, which made investors think that Netflix was poised to monopolize entertainment. They then deluged the company with capital.

The only set of explicit, rigid rules Netflix seems to have tossed out are the ones which came about after World War II to accommodate demands by workers for better working conditions and compensation

John Cassidy came to a similar conclusion in the New Yorkerwhen he profiled the hedge fund mogul Ray Dalio, another man who lords over a paranoid workplace and wrote a long manifesto of his management ideas, many of which are similar to those promoted at Netflix. Cassidy found that for all the stress on Dalio’s “Principles,” the hedge fund had made its money by trading in areas that Dalio himself was an expert in. It was almost as if it were inconsequential whether anyone else worked for Dalio’s firm, which meant Dalio was free to invent whatever managerial philosophy he wanted. Warren Buffett is equally as successful as an investor, and gets by just fine without taping every single conversation made in his office. And as an analogue to Netflix, Apple runs an almost opposite corporate culture, yet has successfully plundered the country and uselessly reinvented itself multiple times.

The feeling of inconsequence is reinforced when Hastings flat-out admits that if you work in a non-creative field, his managerial framework doesn’t apply. “If you’re leading an emergency room,” he writes, “testing airplanes, managing a coal mine, or delivering just-in-time medication to senior citizens, rules with process is the way to go.” That is, if society depends on what you do, treating business like a competitive game played by an elite squadron of breathtaking colleagues won’t cut it. Meritocracy, if it functions at all, seems to work best when nothing is at stake.

The Wall Street Journalarticle on Netflix notes that the company’s managers study the ultimate instantiation of meritocrat-as-authoritarian, the dictator Lee Kuan Yew of Singapore, a man famous for creating an ethnically homogenous military overclass to rule the country. But unlike a political system, which has wide implications for an entire society––and where the distribution of resources requires engaging with slackers, jerks, sweet people, and pessimists––the meritocratic corporation is the fantasy of an elite that wants to feel relevant in an age when all their collective brain power can do is reinvent the bus, create complex tax schemes, and invent fictional new securities to trade on financial markets. The back cover of Hastings and Reed’s book breathlessly claims that “there has never been a company like Netflix.” The history of talent-obsessed, highly punitive, conformist companies attests that the opposite is true. Netflix’s own comparison of itself to a professional sports team provesit isn’t new, because professional sports teams are businesses, too. But as my elitist friend acknowledged at the end of his email, there is at least one big difference between Netflix’s corporate employees and professional athletes: the athletes have unions.