{"id":58292,"date":"2022-01-17T13:29:11","date_gmt":"2022-01-17T17:29:11","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=58292"},"modified":"2022-02-02T11:51:30","modified_gmt":"2022-02-02T15:51:30","slug":"organizational-transparency","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/organizational-transparency\/","title":{"rendered":"Netflix’s Approach to Organizational Transparency"},"content":{"rendered":"\n

Is it a good idea for company executives to share sensitive information with all employees, including finances and employee profiles? What practices does Netflix use to ensure organizational transparency<\/a>?<\/p>\n\n\n\n

According to Reed Hastings, the CEO of Netflix, there are many benefits of transparency<\/a> in the workplace. That’s why at Netflix, they are transparent about financial data, job security<\/a>, mistakes, and even firings. <\/p>\n\n\n\n

Let\u2019s look at four specific ways that Netflix practices organizational transparency and the positive outcomes that come from this practice.<\/p>\n\n\n\n\n\n\n\n

Netflix and Organizational Transparency<\/strong><\/h2>\n\n\n\n

Once Hastings had created a culture of candor<\/a> at Netflix, he built on that transparency by making sensitive data\u2014including profit and loss statements (P&Ls) and other financial documents\u2014available to all employees. While direct feedback raised individual performance and increased accountability, Hastings instituted organizational transparency to build employees\u2019 trust in the company and its leaders, <\/strong>which would boost the staff\u2019s sense of ownership<\/a> and responsibility for contributing to the company\u2019s success. Additionally, he found that one of the major benefits of transparency is that employees are empowered to make the best decisions.<\/p>\n\n\n\n

(Shortform note: Bridgewater has a similar principle of extreme transparency,<\/a> which Ray Dalio<\/a> describes in Principles<\/em><\/a>: The firm records all meetings and interviews and makes these recordings available to the entire team. Additionally, each employee has a personality profile, which allows co-workers to see everyone\u2019s strengths and weaknesses at a glance. Furthermore, Bridgewater uses an in-house app that allows team members to rate each other in real-time. Such levels of transparency can be uncomfortable<\/a>, but Dalio emphasizes the importance of putting the team\u2019s best interest before your pride.)<\/p>\n\n\n\n

When an executive shares information that\u2019s typically confidential with an entire company of employees, they gain confidence in their standing in the company, loyalty to the company and its leadership, and tremendous trust in the leaders to be transparent. Hastings also takes other measures to create an atmosphere of trust and openness: He doesn\u2019t have an enclosed office, he conducts most of his meetings out in the open, and he even had the locks removed from employee lockers at Netflix\u2019s Singapore office. <\/p>\n\n\n\n

(Shortform note: Even though Netflix champions transparency in arguably extreme ways, some argue that more privacy is ideal in a creative environment<\/a>: One communications agency found that bringing in clients early in the creative process<\/a> for the sake of transparency can put more pressure on employees and disrupt idea generation. Additionally, too much transparency in any workplace may lead to information overload<\/a> and, consequently, analysis paralysis, which impedes decision-making<\/a>.) <\/p>\n\n\n\n

By contrast, at most companies, only executives and high-level managers are privy to sensitive information, such as financial data or possible company reorganizations that could lead to job losses. This is because executives don\u2019t think that the information is relevant to lower-level employees or don\u2019t want to upset employees or cause panic.<\/p>\n\n\n\n

(Shortform note: Despite Bridegwater\u2019s principle of extreme transparency, Ray Dalio writes that the firm has a few exceptions to the rule<\/a>. Some information that should remain confidential includes employees\u2019 personal issues that don\u2019t affect the community, sensitive information that can put the long-term interests of Bridgewater or its clients at risk, and information that may be distracting to employees. Such exceptions have led some to opine that Bridgewater only champions transparency when it\u2019s in their own best interest<\/a>.)<\/p>\n\n\n\n

Here’s an outline of Netflix’s transparency practices:<\/p>\n\n\n\n

1) Share Financial Data With Staff <\/strong><\/h3>\n\n\n\n

For a publicly held company, financial data has an impact on the organization\u2019s stock prices, so sharing this information with staff can be risky. If one of your employees shares your quarterly numbers with anyone outside the company before they\u2019ve been released publicly, that employee could go to jail. <\/p>\n\n\n\n

However, Hastings continued to share financial information with his staff even after Netflix went public while also warning them about the serious consequences of leaking it. He even began holding weekly all-staff meetings in which he gave everyone a copy of the P&L and discussed the weekly metrics. <\/p>\n\n\n\n

When an employee violated that trust and leaked confidential data to a competitor, Hastings still didn\u2019t back down from his commitment to transparency. He insists that it\u2019s ultimately beneficial to the company\u2014with a deeper understanding<\/a> of how the company\u2019s doing, employees have a greater sense of ownership as well as the proper context to make decisions<\/strong> without needing information or approval from managers. <\/p>\n\n\n\n

(Shortform note: Sharing your financials for context is useless if your employees can\u2019t make sense of raw data. Not everyone who sees the information is an accountant, so make the numbers more easily digestible<\/a> through simple summaries, graphs, and charts.)<\/p>\n\n\n\n

The Risks of Sharing Financials<\/strong>

As Netflix\u2019s experience has shown, sharing financial data (what some companies call \u201copen-book management\u201d) can lead to leaks, whether it\u2019s done deliberately or inadvertently. If you choose to implement this practice, watch out for these other risks<\/a> that can be just as damaging as leaks:

Panic during tough times<\/strong>\u2014when employees see that the company isn\u2019t doing well, they\u2019ll naturally think about the implications for them. Be sure to let them know what you\u2019re doing to get the company back on track, and encourage them to focus on what they can contribute so that they feel like they\u2019re part of the solution.

Misalignment<\/strong>\u2014opening books to get everyone aligned can have the opposite effect of creating confusion, particularly in organizations that prioritize other core values<\/a> over profit. In this case, explain how profit gives the organization the means to fulfill its central purpose.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

2) Tell Employees if Their Jobs Could Be Cut<\/strong><\/h3>\n\n\n\n

Even if your company hasn\u2019t come to a decision, Hastings recommends being open with employees about the possibility<\/em> that their jobs could be eliminated, while emphasizing that you appreciate them and their work and that you want them to stay, if possible. Hastings feels that keeping this secret could make employees feel like strangers in their own companies\u2014and many employees appreciate knowing all the information available to make informed decisions<\/strong>, rather than being kept in the dark and potentially blindsided later. <\/p>\n\n\n\n

(Shortform note: Many companies treat possible layoffs as confidential information, so you may not be in a position to alert your staff as Hastings suggests. If an employee asks directly<\/a> if their job is in danger, experts say that you should reassure them that management is carefully considering all options and that you\u2019ll share more substantive information as soon as possible. If you\u2019ve revealed sensitive information in the past, you\u2019ll be in a tight spot\u2014people will expect you to do it again. Make it a personal policy not to share anything with a select few that you can\u2019t share with the whole team.) <\/p>\n\n\n\n

However, this route comes with two risks: <\/p>\n\n\n\n

1) The employees could become anxious and distracted, <\/strong>which could interfere with their efficiency at work<\/a>. (Shortform note: During uncertain times, it\u2019s necessary to show compassion for your employees<\/a>, but make sure you don\u2019t sacrifice effectiveness. While you should show concern, you shouldn\u2019t tiptoe around giving negative feedback<\/a> or making decisions that may disappoint employees.)<\/p>\n\n\n\n

2) The employees could start looking for new jobs, <\/strong>which means that you risk losing them even if the reorganization doesn\u2019t go through. (Shortform note: If a star employee ends up leaving, stay in touch and consider rehiring them<\/a> when the time is right.)  <\/p>\n\n\n\n

Despite these risks, Hastings believes that transparency is the best option because employees will suffer far more stress if they do<\/em> lose their jobs without notice than they would by simply knowing that it\u2019s a possibility.<\/em> <\/p>\n\n\n\n

(Shortform note: If you\u2019ve been sharing the company\u2019s financials, then the possibility of layoffs shouldn\u2019t come as a complete shock to your employees. To manage stress around layoffs, communicate regularly and clearly<\/a> with your employees to let them know about the company\u2019s performance and give them a better idea of where they stand.)<\/p>\n\n\n\n

3) Be Transparent With Staff About Employees Who Are Fired<\/strong><\/h3>\n\n\n\n

When an employee is fired, Hastings advocates for being transparent with the people who benefit from knowing the truth, including the fired employee\u2019s colleagues. When employees know why their coworkers have been fired for work-related actions, they can avoid making the same mistakes. Furthermore, speculation is inevitable anytime someone is fired, so if you get in front of the gossip and share the truth, employees learn that they can trust you to be transparent.<\/strong> Although it\u2019s tempting and common for company leaders to spin or obscure the whole truth, this is a sure way to erode trust among employees.<\/p>\n\n\n\n

(Shortform note: Hastings discusses the value of letting employees know when and why someone is fired, but not everyone views the practice as necessary. Some Netflix employees have even described the \u201cpostmortem\u201d emails and meetings\u2014which may involve hundreds of people\u2014as \u201cawkward and theatrical.\u201d<\/a> However, Netflix stands by its policy of organizational transparency, saying that they announce not just bad news, such as firings, but also good news, such as hirings and promotions. )  <\/p>\n\n\n\n

4) Admit Your Mistakes<\/strong><\/h3>\n\n\n\n

Everyone makes mistakes, and Hastings says that owning up to yours encourages employees to take risks despite the possibility of failure. Hastings notes that leaders often fear that being honest about their shortcomings will cause employees to lose faith in them. The pratfall effect states that the opposite is true as long as you\u2019ve already built trust and proven your competence<\/em>. (Shortform note: The pratfall effect<\/a> is a phenomenon wherein admitting a mistake can make a competent person seem more relatable and likable.) However, if people already see your performance as inadequate, admitting your mistakes will only worsen their view of your abilities. <\/p>\n\n\n\n

(Shortform note: To come across as competent, experts recommend that you learn how to identify and solve problems on your own<\/a>, pay close attention to explanations so that you don\u2019t keep asking the same questions<\/a>, and show confidence in your abilities<\/a>.)<\/p>\n\n\n\n

How to Admit Your Mistakes<\/strong>

Hastings says that admitting your mistakes has a number of benefits, but he isn\u2019t explicit about how to go about it. In Thank You for Arguing<\/em><\/a>, Jay Heinrichs outlines a five-step process for owning up to your mistakes while also improving your reputation:

Determine your goal. <\/strong>Figure out what you want the outcome to be.

Fess up first. <\/strong>Being the first one to talk about your mistake means you can better control the narrative.

Use future tense. <\/strong>Immediately follow up your admission with possible solutions and a plan of action.

Don\u2019t belittle the victim. <\/strong>Treat the mistake with the appropriate amount of gravity to demonstrate that you care about the consequences of your mistake.

Don\u2019t rely on an apology. <\/strong>Apologies reinforce your guilt and may come off as insincere. Instead of saying sorry, acknowledge that you didn\u2019t meet your own high standards.<\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"

Is it a good idea for company executives to share sensitive information with all employees, including finances and employee profiles? What practices does Netflix use to ensure organizational transparency? According to Reed Hastings, the CEO of Netflix, there are many benefits of transparency in the workplace. That’s why at Netflix, they are transparent about financial data, job security, mistakes, and even firings. Let\u2019s look at four specific ways that Netflix practices organizational transparency and the positive outcomes that come from this practice.<\/p>\n","protected":false},"author":8,"featured_media":58352,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,29,34],"tags":[200],"class_list":["post-58292","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-career","category-communication","tag-no-rules-rules","","tg-column-two"],"yoast_head":"\nNetflix's Approach to Organizational Transparency - Shortform Books<\/title>\n<meta name=\"description\" content=\"Is organizational transparency a good thing? Reed Hastings, the CEO of Netflix, says it is. 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