At a Netflix Inc. corporate retreat in July, Chief Executive Reed Hastings teared up as he addressed some 500 executives.
Mr. Hastings had recently fired his chief communications officer for saying the “N-word” in full form. The executive, who is white, was attempting to make an emphatic point during a meeting about offensive words in comedy programming and said the slur wasn’t directed at anyone.
The incident touched a nerve inside the streaming-video giant. The company’s handling of the ensuing backlash put on stark display the “Netflix way”—a culture where radical candor and transparency are among the highest virtues, and where openly discussing whether people should be fired, and explaining why they were, are common rituals.
The executive in question, Jonathan Friedland, “sunshined” his misdeed—Netflix lingo for an apology or act of transparency in front of colleagues—in the hopes it would blow over. It didn’t. After anger bubbled up in the ranks, Mr. Hastings fired Mr. Friedland in June, and sent a companywide email saying he had come to grips with his own “privilege.”
At the retreat, held at an oceanfront resort outside Los Angeles, Mr. Hastings’ voice broke as he addressed the matter yet again, apologizing that it had taken him several months to act. Suggesting it could be a learning experience for the company, he pulled out a lemon and a knife, cut the lemon and squeezed it into a cup, according to people who attended.
“When life gives you lemons,” he said, taking a swig on stage, “you make lemonade.”
Netflix takes its culture seriously, believing it a crucial ingredient in the success the company has enjoyed en route to becoming a behemoth with 137 million global subscribers. To many Netflixers, the culture, at its worst, can also be ruthless, demoralizing and transparent to the point of dysfunctional. The Wall Street Journal talked to more than 70 current and former employees for this article.
The Netflix way emphasizes “freedom and responsibility,” trusting employees to use discretion—whether it is about taking vacation, flying business class or expensing an Uber ride home. Virtually every employee can access sensitive information, from how many subscribers sign up in each country to viewership of shows to contractual terms for Netflix’s production deals. Executives at the director level and above—some 500 people—can see the salaries of every employee.
Employees are encouraged to give one another blunt feedback. Managers are all told to apply a “keeper test” to their staff—asking themselves whether they would fight to keep a given employee—a mantra for firing people who don’t fit the culture and ensuring only the strongest survive.
Staying true to Mr. Hastings’ vision, always difficult, is getting harder thanks to the breakneck pace of growth and change at the company. In little over a decade, Netflix has gone from a DVD-by-mail outfit to a globe-spanning Hollywood powerhouse with more than 6,000 full- and part-time employees, including nearly 2,000 added just this year so far.
“As you scale a company to become bigger and bigger how do you scale that kind of culture?” said Colin Estep, a former senior engineer who left voluntarily in 2016. “I don’t know that we ever had a good answer.”
Many employees say they see the keeper test as a guise for ordinary workplace politics while some managers say they feel pressure to fire people or risk looking soft. Postmortem emails and meetings explaining why people got fired are viewed by some employees as awkward and theatrical when the audiences can be dozens or even hundreds of people.
Richard Siklos, a Netflix spokesman, said the company only fires employees for performance reasons, not because managers don’t like them, and said managers aren’t judged by how many people they fire. “Far more” of the company’s staffing announcements “are about hiring and promotions than about people leaving,” he said.
“Being part of Netflix is like being part of an Olympic team,” the company said in a written statement. “Getting cut, when it happens, is very disappointing but there is no shame at all. Our former employees get a generous severance and they generally get snapped up by another company.”
Netflix’s culture shares traits with other workplaces that encourage openness, such as hedge fund Bridgewater Associates. Many current and former employees credit it with keeping the company stocked with high performers capable of fast decision-making. This, they say, allows for a nimbleness that has helped it disrupt the global TV and movie industries.
“It’s not that there haven’t been hiccups, but that culture of openness and freedom seems to be doing quite well,” said Skip Battle, a longtime Netflix board member who is retiring at the end of the year.
Employees whom Netflix put forward to speak to The Wall Street Journal on condition of anonymity said they embrace the culture and compare it favorably to other companies where they say there is more concern about corporate process and chain-of-command than there is about doing what is best.
Netflix also posted a YouTube video recently to address the company’s culture. “I think we’re transparent to a fault in our culture and that can come across as cutthroat,” said Walta Nemariam, an employee in talent acquisition at Netflix, in the video.
She said when she came to join Netflix, someone advised her to make sure she has a good savings plan in place, suggesting she could be fired. “I was like, ‘wow,’ ” she said. She said in the video Netflix has been a good place for her and employees are “respectful” even while being candid.
People who speak highly of Netflix’s culture say the company’s critics include former employees who were fired for performance reasons and are disgruntled about their personal experiences.
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SOURCE: Wall Street Journal, Shalini Ramachandran and Joe Flint