In his book ‘Principles’, Ray Dalio talks about the concept of ‘Radical transparency’ as the cornerstone of his firm Bridgewater Associates’ culture. Another firm which has adopted the principle is the iconoclastic founder and CEO Reed Hastings’ Netflix, rather controversially at that (see here to know about Netflix’s popular ‘Culture deck’). In a book released this week “That Will Never Work: the Birth of Netflix and the Amazing Life of an Idea”, Netflix’s co-founder and first CEO Marc Rudolph talks about an extreme example of such rather ‘blunt’ principle at work which resulted in him getting fired as the CEO by Hastings. Rather than cribbing about it, Rudolph extols the virtue of such a principle which eventually helps take decisions which is right for the business.
“Employees at Netflix in its early days had no set hours and no vacation allotments. The same is true today. There was also a corporate culture of “radical honesty” that also perseveres. Employees evaluate one another and are encouraged to weigh in on strategic decisions. Salary information is transparent.
Mr. Randolph describes an evening in 1998 when he got a big dose of Netflix’s radical honesty. It happened after a botched investor pitch and a promotion deal with Sony that went horribly wrong. Mr. Hastings asked to see Mr. Randolph alone and subjected him to a PowerPoint presentation detailing the reasons he was no longer fit to remain chief executive.
Mr. Hastings closed his Dell laptop. By the end of the talk, Mr. Randolph was bumped down to president, and Mr. Hastings was the new chief executive. As part of the demotion, Mr. Hastings persuaded Mr. Randolph to give up some 650,000 stock shares, which reduced his Netflix stake to 15 percent.
“Doing it with a PowerPoint slide show perhaps wasn’t the most empathetic gesture,” Mr. Randolph said with a laugh. “But he was right.”
The episode, as described in the book, helps form a portrait of Mr. Hastings as someone whose bluntness results more from a sure sense of what a business needs than from an inner ruthlessness.
“What I really want from the book is to paint Reed as a real person,” Mr. Randolph said. “I hope it comes through that I have this tremendous respect and affection for him, as opposed to bitterness. Most people wouldn’t have had the strength to say that. But he recognized it was the right thing for the company.”
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