Former Netflix Chief Talent Officer Patty McCord sitting at a table
How McCord redefined the rules of human resources

Think:Act Magazine "Breaking the rules"
How McCord redefined the rules of human resources

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Think:Act Magazine
Central Europe
March 26, 2019

Patty McCord’s approach to human resources remains legendary long after her departure from Netflix

Article

by Bennett Voyles

Read more about the topic "Breaking the rules"

Her unorthodox approach to human resources once helped power up Netflix. Now Patty McCord is broadcasting her message beyond Silicon Valley: To make an impact and be proud of what we do, we have to be radically honest, never stop learning and trust the people around us.

Netflix is such a big part of the entertainment landscape now that it's hard to remember that only 20 years ago the media leviathan was just one more Silicon Valley startup. But what Netflix had was good timing, a smart strategy – and Patty McCord. While Silicon Valley has always had a reputation for being culturally freewheeling, many of the differences were superficial: using first names, no ties, more dogs. As chief talent officer of Netflix, McCord pushed for substantive changes aimed at fundamentally remaking the relation of the employee to the company. Out: performance reviews, personal expense reports and fixed weeks of paid vacation. In: paying top dollar for top performers, giving honest, immediate feedback – and a pink slip for anyone who is no longer necessary.

"HR should be able to weigh in on a business decision with an equal weight."
Portrait of Patty McCord
Former chief talent officer
Netflix

In her new book "Powerful: Building a Culture of Freedom and Responsibility", McCord recounts her role in developing the hard-driving culture that helped the San José company grow from a handful of employees and a dream into a global giant. Looking back now, she insists that it was more or less an accidental revolution. "I never invented anything. My underlying philosophy was not so much about breaking the rules; it's about questioning why we are doing something," she explains. One of the key moments came early, when she realized that focusing on long-term retention no longer made sense in today's fast-moving business world. "I realized that rather than try to retain people, I wanted to create a company that would be a great place to be from," McCord recalls. "That was really freeing. It's hard if you've spent 50 years working on retention alongside 500 other companies that have spent 50 years working on retention. And all of them now have huge groups of employees that have gotten very good at being loyal but don't really belong there anymore. And everybody knows it, but we can't break the false promise that we made to each other without drastic action."

This insight made hiring a lot easier. "When I'm interviewing, I'm looking at where they worked, what they did, who they worked with. 'Wow, you're an Apple man? That's pretty cool. What were you working on there? And then you went to Facebook?' I'm reading their resume to see where they're from, what problems they solved. Not to see if I want to have a beer with them." Instead the Netflix hiring policy was about "maintaining our talent density," as McCord puts it in "Powerful".

Patty McCord

After 14 years as chief talent officer at Netflix during which she wrote the company's famous "freedom and responsibility deck", McCord now works as an independent speaker and writer spreading her philosophy of honesty in the workplace.

Other insights followed that were equally freeing. McCord abolished formal expense and travel policies – employees were just told to try not to waste company money. Formal vacation time also went out of the window: just take the time off you feel is appropriate. The results of her experiments were all positive, she says: less overhead for HR to manage, fewer details for employees to worry about – and more time to focus on growing the company. But not everything McCord did was a matter of subtraction. She and CEO Reed Hastings wrote a 124-slide PowerPoint deck that summarized Netflix's talent management ideas, which has since gone on to be downloaded over 13 million times. Facebook COO Sheryl Sandberg has called it "the most important document ever to come out of Silicon Valley."

For McCord, the culture she helped build may have had an ironic personal consequence: In 2012, Hastings, the CEO, let her go. As a Fast Company profile put it, "She had played a good game, but the team no longer needed her as a player." She says walking away from Netflix after 14 years was painful, but the company has turned out to be a good place to be away from too: She's since moved on to a career as an independent consultant for startups and other companies that want to learn the Netflix way.

Netflix's take on culture
No big happy family

"We've got to dispel this myth that companies are families because we're setting people up to be disappointed." It's better to come clean: "When HR people start to realize that their job is to help match people with the right company at the right part of the journey through their probably six-year career path at the company, things work better for everybody," she says.

No underpayment

For key talent, Netflix always paid the top market rate. "In my experience, if you focus intently on hiring the best people you can find and pay top dollar, you will almost always find that they make up much more in business growth than the difference in compensation."

No bonuses

Netflix did not have a bonus system. "If your employees are adults who put the company first, a bonus won't make them work harder or smarter," McCord writes in "Powerful".

No vesting period

Unlike most startups, which used equity options that vested over time as a way to retain people, Netflix options vested immediately – and they were optional. Employees could choose how much of their compensation they wanted in equity versus cash.

No expense accounts

McCord abolished formal expense and travel policies. The new policy: act in the company's best interests. Result: People didn't abuse the system. "We saw that we could treat people like adults and they loved it," McCord writes.

No set vacation time

Instead of scheduled leave, employees were told to "take the time off they thought was appropriate, just discussing what they needed with their managers." The result: "People took a week or two in the summer and time for the holidays and some days here and there ... just as before," McCord writes.

No annual review

"Why do you do the annual performance review? If it really is about giving feedback, it's too infrequent, right? You need to give people feedback the moment they're screwing up, not eight months later in writing."

One of her prime goals is to encourage people to embrace her doctrine of radical honesty by avoiding such practices as anonymous surveys in favor of group meetings. "One of the reasons I hate anonymous surveys is that they teach people you can only give honest feedback anonymously," she explains. Such group meetings also offer a great opportunity to clarify your cultural priorities, she adds. "You can say, 'No, actually, we're not going to be bringing back the kiwi-flavored water. We all know you were upset about that, but we're not. Any other questions?'"

Beyond the culture of radical simplicity that she continues to evangelize, McCord also suggests that human resource managers need to change their approach. In the past, HR has often been a function that is a little out of step with the rest of the business. "What I find when I talk to executives about their HR people, they have a lot of preconceived notions: A) They are not very smart. B) They're not good business people. C) They are people-people and sensitive," she says. "I say to them, 'Okay if you really think that the person who's running HR isn't very smart, doesn't understand your business and isn't able to hold their own with the rest of your executives, then get a new one. But before you do that, start by just demanding more.'" HR should be seen as more than just a support function. It "should be able to weigh in on a business decision with an equal weight. Because every business decision is going to involve an employee, somehow, someway," McCord maintains.

A good first step for the HR person to earn that place at the table, she says, is to learn more about the business itself. "HR people need to learn the language of the business. Everyone needs to be able to read a profit and loss statement. They need to understand who their competition is. They need to understand the marketing cost of acquisition per customer. They need to have a more than rudimentary understanding of the technology that underpins their business," she says. The effort will pay off not just for the HR executive, McCord insists, but the company. "Aligning HR's goals with the goals of the company, the way we did at Netflix, can help employees stop focusing on things that don't matter," she noted.

Although McCord may have been among the earliest adopters of this new doctrine of radical simplicity in HR, she doesn't think she is alone. "I think there's a fundamental reexamination going on right now of who it is that we work for. Are we representatives for the employees or are we representatives for management? Are we gatekeepers? Are we rule-makers? Are we protectors of the employees? Or do we protect the company from bad employees?" All of that self-questioning can be put into a big basket and just tossed out the window. The real answer is simple: We work for our customers – not just HR; everybody – that's why companies exist.

Further reading
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Think:Act magazine "Breaking the rules"
Think:Act Magazine

Breaking the rules

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Is breaking the rules a crucial skill? We examine how the people who have made their own rules also significantly shaped the world of business.

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