Patty McCord joined Netflix in 1998, back when the tech giant was a mail-order DVD rental business. As the company’s Chief Talent Officer, she helped build a corporate culture with no limits on vacation, a five-word expense policy and a belief that employees should be treated as adults. This approach to running a company was enshrined in the “Netflix culture deck,” a document that’s been viewed 16-million times on Slideshare (Facebook’s Sheryl Sandberg described it as “possibly one of the most important documents to come out of the valley.” Central to the Netflix approach to business was the statement: “We’re like a pro sports team, not a kids’ recreation team.” In short, there’s no hardest work award; the company expected people to get results. “Adequate performance gets a generous severance package,” notes the culture deck. Since leaving the company in 2012, McCord has advised promising start-ups like Harry’s Grooming and Warby Parker. She’ll be speaking at CEO Global Network’s Great CEOs Speakers Series on June 15 in Toronto.
You worked for a number of tech companies, including Sun Microsystems, before joining Netflix in 1998. It’s been frequently reported the company’s first big layoff—after the dot com bubble burst in 2001—was what changed your approach to managing people. Is that accurate? Or was it a more gradual evolution over time?
There are two parts to it. The first part is I spent my early career working in recruiting. Which is a part of HR that is often pooh-poohed by other HR professionals because it’s seen as workmanlike. But recruiting is quantifiable, it’s business-focused and you have to understand the jobs that people do. And when you work in recruiting, you feel like your mission is to retain employees. You actually like it when they go because it creates a new position that you can recruit for. So you learn very quickly that there is no such thing as a person you can’t live without. People move on in their careers and you can live without them.
What else influenced your thinking?
The other part is, after the Netflix layoffs, working at that company actually became more fun. That’s when I had my epiphany. We were working twice as hard with a third as many people and it was more fun. We were moving faster and people were taking on responsibilities that weren’t given to them because the work needed to be done. When the right team is in place and your mission is really clear, then things kind of run themselves. I felt that energy and thought “what if we could keep it?”
Central to your new approach was the idea that if somebody isn’t meeting expectations, than they should be moved out of the company, regardless of how hard they work. But most company benefit plans are designed to keep people for the long haul. I’m thinking of things like stock options and how pensions are designed. So do companies need to change how they build their benefits packages?
Completely. If you look back at when those policies were borne, it was when men were coming back from World War II. There were more jobs than there were people to do them. So companies needed to distinguish themselves with healthy benefit packages in order to attract the best people. And if you look at the best American companies at the time—IBM or General Mills—they wanted to keep people for a long time and promote them through their careers. The idea was that you gained knowledge with time, right?
So that led to the assumption that a person with lots tenure was better informed, had more experience and more loyal to the company. But I think we now need to frame things differently. If you look at the company and say “I want us to be a great place to be,” than you need to eliminate the slackers, the laggards and the people who are just putting in his or her time. If somebody comes to work unhappy every day, than they shouldn’t do that, they should go somewhere where they are more happy.
Do you also have to think about why those people aren’t happy?
When I look back over my 30 years of experience, people don’t work out for a couple of different reasons. One of them is you just made a bad hire. You hired somebody who couldn’t do it or doesn’t love the product, the team or the company. More frequently what happens is the business changes. And that’s something we don’t say often enough. Sometime you hire somebody to do a job and then they do it and then it’s done. And then you scramble around looking for another job for them to do. And for many companies that’s possible. But for some companies it’s not.
Can you give me an example?
If I look at my Netflix experience, once the DVD by mail business was efficient and effective, we didn’t need the people who built that business to maintain it. In fact, we needed very different kinds of people. The people that start from scratch and build something new are very different people than the people who makes sure that an operation runs effectively and efficiently.
Netflix’s unlimited vacation policy gets plenty of attention, but it had plenty of other innovative policies. For example, the company’s expense policy is just five words long: “Act in Netflix’s best interests.” I guess your thinking was, if a person is going to abuse their expense account, then they should just be moved on. So you just trust everybody else to be an adult.
You got it.
How does that change the company?
You begin by thinking about the people in the finance department who have the job of approving expenses. If my job is to approve any expenditure over $5,000, then I’m not adding a lot of value knowing that $5,050 is more than $5,000, right? But those individuals can become responsible for trend analysis and reporting back. They become people who say: “I’ve noticed an interesting trend. Your spending is running around $10,000 but you are budgeted at $5,000. What’s up?”
Do you get people who hear your advice and say ‘None of this advice will never work at my company? We’re just too big to change our practices?’
Those people need to realize they’ve made a choice. It’s perfectly reasonable to say ‘This will never work at my company.’ But recognize there is a tax. You move slow. And that’s why start-ups can disrupt really large organizations. Because they solve problems faster. If you have to wait for five levels of approval, then you cannot get things done quickly. You can’t experiment, you can’t innovate. Innovation is about experimentation.
So do you have practical advice to start the process of change?
Pick one unit of your company and let them experiment. You know, isn’t there a part of the company that nobody is paying attention to who could opt out of the annual performance review, just for a year? Have them try something different.
Patty McCord is speaking on The Future of Work on June 15, 2017 in Mississauga, Ont. as part of the 2017 GREAT CEOs Speaker Series.
- This could be a make-or-break year for music streaming apps
- YouTube’s secret weapon in the digital video wars
- How the digital age turns competitors into collaborators
- How marketers are responding to the rise of ad-blocking
- Print books are successfully fighting off digital competitors
- The art and science of how Netflix greenlights its original series