No More Hustleporn: Reed Hastings on how organizations are not families
We pulled out the highlights from Reed Hastings' recent interview at GSB. Transcription and light editing by Anthropic's Claude, curation by Yiren Lu 😄
Highlights
Katie Harris: Yeah, that makes a lot of sense. And it's clear that it all worked out okay, thankfully, looking at where we are now. Many of us here aspire to lead and build companies like Netflix. One of the most differentiated elements of Netflix is its culture. To your earlier point, very early on, you put together a deck for your entire company called "Freedom and Responsibility," and it caught a lot of attention. How did you come up with this unique culture?
Reed Hastings: I think everyone in this room is pretty dedicated to excellence and to creating an amazing set of teammates to then go build some business. I don't think it was uncommon. It's that we were early in labeling it and saying "team, not family," and saying specifically, "You should organize around this idea that everyone has to fight for their job every year like it is in professional sports."
Reed Hastings: In professional sports, if you're going to win the Stanley Cup, it's because you've assembled the most amazing group of hockey players that have ever been together. We viewed our task in building organizations like a championship team.
Reed Hastings: For 10,000 years, the primary organizational unit of society has been family, all the way through kings and companies and family companies. So many assumptions we have are built around this 10,000 years of human history where organizations and families are the same thing. It's only this patina of corporations, and that's a thin layer over that that's different.
Reed Hastings: We were the first ones to just lay it out there, to say "adequate performance gets a generous severance package." Fifteen years ago, that was a shocking statement to make. And so then, I think the deck really, which is true in professional sports, we were just the first ones to say it up front. I think that made the difference.
Katie Harris: So when you initially said it up front, it sounds like you did get a lot of pushback. What were some of the initial reactions that people had when you first put this out there?
Reed Hastings: I mean, we humans value things in our kids, so, for example, we value loyalty. And you would hate to see your kids be disloyal. It's like a really human value. And so what does it mean if someone's working hard but isn't very effective? What does it mean to push them out? Is that an immoral or a disloyal act? So those were some of the tensions, and we had to get people to see us, not judges, like a family.
In a family, you look after your siblings, your parents, your kids, no matter what, they go to jail, they do whatever. You're with them. And then we have to recognize that's one sphere that's very important to us of relationship. Then there's another sphere, which is the workplace.
Many workplaces are family businesses, and that's fine. Sometimes they're as dysfunctional as Ozark. But again, there's nothing wrong with it. We just want to be a different kind of organization, one whose primary value was excellence. And we wanted to be honest and fair and inclusive and thoughtful about how that got applied. But it was really around performance. And again, I think a lot of firms were already doing this. We were just direct in stating it.
Reed Hastings: So that, at least in my theory, what we're trying to do is get away from, "You suck". And, like, you're a great person in this particular situation, I'm being honest as opposed to being hurtful. So one of the hardest things is to get managers to do the job, which is why we ended up doing big severance packages. The severance package is a bribe to the manager to get the job done, because managers, almost by definition, like people. They're good people people. So they really don't like firing people. But if there's a generous severance package, then it's not so bad. And certainly that helps, too, on the person being let go. But again, the subtle part is it's tricky in your firm to get managers to apply the keeper test.
Reed Hastings: Our primary responsibility is to our customers, to entertain them. Life for you guys is great. But as you well know, most people work because they need the money and they get done with work, and they kind of just want to unwind and relax. Our job is to provide the whole world entertainment. And we take that responsibility very seriously. That's the biggest North Star we have.
About four years ago, we had a big controversy with Dave Chappelle, and some of his humor feels very threatening to trans people. From their point of view, he's an evil force to oversimplify. And from his point of view, he's a truth teller, poking fun at things, which is what comedians do. That was very splitting in the company, because we had not yet really clarified our priorities.
But through that exercise of the various protests, we solidified that we need to build employees who are proud that we entertain very effectively and not to make them think that every show was a reflection of our values. So, for example, in a show, there might be a lot of gunplay or a lot of n-word or a lot of other things. That doesn't mean that those things, because they're on the show, are okay in the office. Shows and films are often explorations of fantasies, both positive and negative, in all kinds of ways. And people are able to separate them.
I remember when my kids were growing up and they were playing the first person shooter video games, and I thought, "Oh, my God, this is like 9th grade. They're going to turn into killers." And they're not. It's kind of amazing how we humans are able to separate that intense fiction or fantasy from reality.
Full Transcript
Katie Harris: Reed, welcome back to Stanford. We are so excited to have you here at the GSV. Actually, I heard a rumor that when you were here pursuing your master's in computer science, you also tried to enroll at the GSB.
Reed Hastings: What lowly engineer you know? Yeah, I got a degree in computer science and I was fascinated by what you guys have here. And at the time, you had an ability to cross list occasionally, but I did not make the cut.
Reed Hastings: And so I've always had this aspirational relationship where I want to come back, and now I kind of belong halfway.
Katie Harris: Well, Reed, it turns out the joke's on us because people at the GSB really just want to be in a Netflix show.
Reed Hastings: Ah, that's true. No one could tell them that I was going to be a media executive. That was easy to see.
Katie Harris: Exactly. Yeah, but I mean it. I mean, so much so. We actually put together our very own version of one of Netflix's biggest hits. Can we show you the preview?
Reed Hastings: Let's hear it. Let's hear it. There's a pitch.
Speaker C: At a school where the only achievement greater than becoming a founder is joining a vc that funds founders. A secret society of free market fanatics. A green triangle has devised the ultimate competition that will push them to their limits.
Speaker D: Get downstairs.
Speaker C: Eight mbas are chosen to face off against each other in a series of challenges.
Katie Harris: Oh, my gosh. Well, Reed, thank you for indulging us. That was a lot of fun to watch. And to watch you watch. But in all seriousness, Reed, it has been so incredibly inspiring to see what you've built with Netflix. And I know that's only part of your story, so let's start a little bit earlier. When did you know you wanted to be an entrepreneur?
Reed Hastings: Probably junior high school. Selling cinnamon sticks would take toothpicks and soak them in cinnamon oil and sell them for a nickel a piece. So it was those kinds of experiences that made me want to create things.
Reed Hastings: And only later did I realize you have to sell them. But that was early on.
Katie Harris: Okay. Was that a unique experience, or did that kind of happen throughout your early life?
Reed Hastings: No, I would say I was always doing little projects, most of which ended up being non-commercial. But as an example, when I was here at Stanford in the mid-eighties, back then you had a keyboard, a computer, and a mouse, and you'd have to take your hand off this to use the terminal, and it slowed you down a lot doing this. I realized there was a big market for a foot mouse that you could control while typing.
Reed Hastings: I almost dropped out of school to pursue the foot mouse, and I got a mechanical engineering student here to help design it and everything. I was totally committed and thought this thing was going to be a monster. But it turns out that your leg cramps, and it's a very dirty environment. After like two days, it's gross as heck. It was a terrible idea. But I was equally committed to that terrible idea as I was to Netflix. So, always ahead, but discerning, not so much.
Katie Harris: Okay, that sounds painful, but ultimately fruitful in other ways. So before we get to Netflix, you started your first company, Pure Software. What were some of the early lessons you learned from that experience that helped prepare you to start Netflix?
Reed Hastings: Pure Software was a technical company. We did C and C++ programming tools. I only had one gear, which was working hard, so I had no sophistication. Anytime things got hard, I would just try to work harder. I was programming all night, trying to be CEO during the day. I looked and smelled like shit, but I didn't know any way other than that to cope with the stress.
Reed Hastings: The products were excellent, and the sales doubled every year. But we replaced the head of sales every year for five years in a row. For an enterprise software company, it was like a disaster. We could have been so much more, but I honestly just didn't know anything about business or organizations, so I would concentrate on product. Ultimately, we bought a bunch of companies and Morgan Stanley took us public in 1995. It was a big success, but it could have been so much more.
Reed Hastings: I learned a ton of lessons from doing things wrong. Fortunately, we had amazing enough products that the company continued to grow despite the internal chaos. But the lessons I learned are why we spent so much time on culture at Netflix, wanting to be different than the first company.
Katie Harris: We will get to culture, don't you worry about that. But let's transition to how Netflix came to be. Not necessarily the full story, but some of the things that happened early on. Netflix starts in 1997, and from the beginning, you were hyper-focused on the customer. How did you know or figure out what your customer actually wanted, especially as their needs evolved?
Reed Hastings: Well, in 1997, Amazon was off and running, and it was clear that they were likely to dominate buying and selling of things. But rental was a two-way logistics because you had to return the VHS cassette in those days. I was looking at this because Pure Software had been acquired, so I had some money and time, looking for ideas.
Reed Hastings: Then a friend told me about DVD, which was very small, and you could mail it for one stamp. That turned into our digital distribution network because it's 5GB of data and you could mail it overnight. It was really built around the idea of streaming eventually. We knew the Internet was getting faster and faster, but it was going to take some time. DVD was a temporary device, which is why we named the company Netflix Internet Movies, rather than DVDbyMail.com, which was the thing of that day. We were always thinking about eventually getting to streaming.
Katie Harris: Sure. And there was a unique moment where you had some challenges in 2011 when you thought about the decision point between DVDs and streaming. For those who don't know, you made the decision to separate DVD and streaming services, and there was some pushback. At the time, your stock dropped pretty significantly and customers canceled their subscriptions because prices doubled. What did you learn from that decision?
Reed Hastings: To set some context, we were a DVD-by-mail business in 2002. We went public, Blockbuster attacked us, as they should. They were a little bit late, but we were really executing well. They eventually declared bankruptcy, first Chapter 9 and then, wonderfully, Chapter 7. That was in 2009.
Reed Hastings: We were full of steam and energy. We were getting into streaming, opening up new countries, and running ahead. We realized this DVD thing was going to hold us back. We had been thinking about streaming for 15 years, since starting in 1997. This was our moment, and we were going to be the one.
Reed Hastings: If you think of all management teams, how many are too cautious at preserving the current business and how many are too aggressive at pushing into the new business? Obviously, everyone's too conservative. We realized we had to be so aggressive that it should make the hair on the back of our neck stand up, because human nature is conservative, and most very good management teams were too conservative.
Reed Hastings: The most radical thing we could think of was to dump the DVD business. It was 80% of our consumption because the Internet was so slow back then, and we didn't have streaming to the television. There were a number of limiters. But we came up with this idea and we knew it was going to be difficult because we cared about the customers. We could see that, but we thought it was still the right thing to do.
Reed Hastings: Now there's a good test case where a management team was too aggressive about leaning into the future, and that was us. We leaned in, and you're right that most customers did not care about streaming, did not have streaming, couldn't watch it on the television. It was just too early.
Reed Hastings: Ultimately, the idea basically worked, which is Netflix became streaming and DVD shrunk year by year. But we overcorrected, and we were overconfident. We had had all these battles and naysayers, and when you've been proven right, the next round of naysaying comes in and you're like, "Ah, whatever. We've seen this before." This time it was too much, and it was traumatic.
Reed Hastings: It felt roughly like you're driving and you get distracted reading a text, and you crash, and your kid in the backseat's in the hospital. The kid being the company, it wasn't dead, but it was severely wounded. Our stock was down 75%. We had our first big layoffs. It was everything that was horrible. Guilt that should be of trying to learn the lessons that most management teams are too conservative. We knew we had to push it to the edge.
Katie Harris: So it sounds like something you might have done differently is really understanding the balance of when to be a little bit more conservative versus not.
Reed Hastings: You'd love to say you could do everything right, but I would say the same aggressiveness that made us take on Blockbuster, figure out these things, got us in streaming, got us in original content. Part and parcel of that aggressiveness was that you're going to go too hard some of the time. You just want to make sure you have a balance sheet and a board of directors that can handle that.
Reed Hastings: I don't think it's fair to say I wish we could have not made that mistake. Think of it like, then we would have won the Olympics and stuck the landing, and we didn't stick the landing. But we got through it and we won.
Reed Hastings: One of the big things we had to do was not overcorrect. The company, employees, and shareholders were traumatized. We did have to go a little bit more cautious in the short term. But pretty quickly, we got back to this being our play to run, and we've got to run it. I think that was the right strategy, even though it means that occasionally you're going to make an egregious mistake because you're moving so fast.
Katie Harris: Yeah, that makes a lot of sense. And it's clear that it all worked out okay, thankfully, looking at where we are now. Many of us here aspire to lead and build companies like Netflix. One of the most differentiated elements of Netflix is its culture. To your earlier point, very early on, you put together a deck for your entire company called "Freedom and Responsibility," and it caught a lot of attention. How did you come up with this unique culture?
Reed Hastings: I think everyone in this room is pretty dedicated to excellence and to creating an amazing set of teammates to then go build some business. I don't think it was uncommon. It's that we were early in labeling it and saying "team, not family," and saying specifically, "You should organize around this idea that everyone has to fight for their job every year like it is in professional sports."
Reed Hastings: In professional sports, if you're going to win the Stanley Cup, it's because you've assembled the most amazing group of hockey players that have ever been together. We viewed our task in building organizations like a championship team.
Reed Hastings: For 10,000 years, the primary organizational unit of society has been family, all the way through kings and companies and family companies. So many assumptions we have are built around this 10,000 years of human history where organizations and families are the same thing. It's only this patina of corporations, and that's a thin layer over that that's different.
Reed Hastings: We were the first ones to just lay it out there, to say "adequate performance gets a generous severance package." Fifteen years ago, that was a shocking statement to make. And so then, I think the deck really, which is true in professional sports, we were just the first ones to say it up front. I think that made the difference.
Katie Harris: So when you initially said it up front, it sounds like you did get a lot of pushback. What were some of the initial reactions that people had when you first put this out there?
Reed Hastings: I mean, we humans value things in our kids, so, for example, we value loyalty. And you would hate to see your kids be disloyal. It's like a really human value. And so what does it mean if someone's working hard but isn't very effective? What does it mean to push them out? Is that an immoral or a disloyal act? So those were some of the tensions, and we had to get people to see us, not judges, like a family.
In a family, you look after your siblings, your parents, your kids, no matter what, they go to jail, they do whatever. You're with them. And then we have to recognize that's one sphere that's very important to us of relationship. Then there's another sphere, which is the workplace.
Many workplaces are family businesses, and that's fine. Sometimes they're as dysfunctional as Ozark. But again, there's nothing wrong with it. We just want to be a different kind of organization, one whose primary value was excellence. And we wanted to be honest and fair and inclusive and thoughtful about how that got applied. But it was really around performance. And again, I think a lot of firms were already doing this. We were just direct in stating it.
Katie Harris: Yes. And one of the examples of this direct culture is the keeper test. So you have this keeper test that managers use. Why don't you tell us a little bit about it?
Reed Hastings: It's pretty straightforward, which is we had managers think through, would they fight to keep someone if that employee of theirs was thinking of leaving? And if they didn't pass this keeper test, we suggested giving them a severance package now and trying to draw a new card of someone that you really would fight to keep. So ultimately, it's the manager's judgment. We didn't have them score people or rank people. It's a manager's judgment on, would they fight to keep this person because of what they added to the company?
Katie Harris: Okay, so I understand that there's this keeper test and that adequate performance gets a great severance package, but firing someone in a respectful way can be really hard. So I would love to just kind of workshop this with you quickly, if we can. If I were the person you needed to let go, can you demonstrate for the audience how you'd fire me?
Reed Hastings: Can I hire you instead? Let's think. Okay. What job do you have?
Katie Harris: Oh, I am the vice president of content strategy.
Reed Hastings: Okay. I'll do a little bit shorter version for time, but Katie, I can see that you're really working hard and trying to make a big difference here. If I'm really honest with you, if you quit to go somewhere else, I wouldn't try to change your mind. And the reason that that is, is because of this type of thing. The people that you've been hiring, it give you maybe a minute of detail so enough that you can feel like there's something there, but not like beating it up. I'll call that a minute.
And I say, you know, this is really hard for you, Katie. I understand that. But my commitment to the company is that if I wouldn't go to change your mind, then I have to give you a severance package. And the severance package is this. It's relatively generous. Typically, like, nine months of compensation these days. So it's a lot.
Katie Harris: Wow.
Reed Hastings: And if you think about person X or Y that are no longer at Netflix, we all have great relationships with them. And it's kind of like a professional sports team where it really sucks to get cut from the team, but it's not an ethical judgment or a moral judgment or a judgment of you as a person.
Katie Harris: Okay, well, thank you.
Reed Hastings: So that, at least in my theory, what we're trying to do is get away from you suck. And, like, you're a great person in this particular situation, I'm being honest as opposed to being hurtful. So one of the hardest things is to get managers to do the job, which is why we ended up doing big severance packages. The severance package is a bribe to the manager to get the job done, because managers, almost by definition, like people. They're good people people. So they really don't like firing people. But if there's a generous severance package, then it's not so bad. And certainly that helps, too, on the person being let go. But again, the subtle part is it's tricky in your firm to get managers to apply the keeper test.
Katie Harris: Yeah, it felt very empathetic, but also direct. And I could imagine how the severance package really helps with that. Do you have a perspective on how long these conversations should typically last in general, or if there are other things you may avoid in conversations like these?
Reed Hastings: It depends on how much of a surprise it is, and almost always, it is a surprise because the person will have some protective layer where the manager thinks they've given lots of hints, but the person is still surprised. And then it takes probably five or ten minutes, and then it's time to let them absorb for a little while. They'll come back the next day with questions about contracts or other details, trying to understand it more. But I would say for the initial communication, pretty short is good.
Katie Harris: Okay, very helpful. Well, thank you so much for that demonstration, Reed. I think just even looking at today's climate, layoffs in tech are on the rise. And so it's really important for us as future leaders to know both how to hire well and also how to fire well. So really appreciate that demonstration. Let's give a round of applause.
Reed Hastings: It's also great to tell stories of people who were let go and then changed the industry. Mike Bloomberg is probably one of the best known of that, who got pushed out of Solomon brothers and then formed Bloomberg in the same industry. So, the more it's socialized with all of you as if it was in sports, where it's not as much of a life kind of thing, it's a performance kind of thing at that situation, the better.
Katie Harris: Okay, very helpful. And you actually have released your book on culture, "No Rules Rules: Netflix and the Culture of Reinvention." Now that you've had a look back at what this culture has been, and you've continued to have it happen in Netflix, you've talked a lot about what's worked. Is there anything that didn't?
Reed Hastings: I don't think we talked enough about love. I think that great teams, the players love each other and are warm and embracing. And so it came across as very narrow and judgmental, as opposed to kind of very loving and caring.
If I were to find a shorthand that I think would work even better, it would be "big hearted champions who pick up the trash." The "big hearted" is because we want to be around people who are generous of spirit and have a big heart, and they do all kinds of things for people all the time. A "champion" is someone who's going to do the discipline to become great at their field and demands excellence. Someone who doesn't just want to pass through life, but wants to achieve something.
And then "who picks up the trash" is the whole thing about responsibility. In your house, you pick up the trash; in a public restroom in a city, you don't. And where do you want to define the workplace? We want to be in a workplace where you feel a strong sense of responsibility. Of course, narrowly, you pick up a piece of trash, but more broadly, you do the right thing even when no one's looking, that you're the kind of person who does that, and that shifts the expectations.
So, again, if I were starting from scratch, it would be "big hearted champions who pick up the trash." And I think if you can get people who aspire to that, you'll be able to build a very strong and resilient organization.
Katie Harris: It sounds like there's just so much power in working with people who have those same values and who are willing to do what others won't, essentially.
Reed Hastings: That's right.
Katie Harris: Yeah. Well, Reed, I know we only scratched the surface on culture. There is so much more we could have gotten to. But I do want to talk a little bit about the future. So, as a global company, the stories that Netflix chooses to share will have an impact everywhere. How do you think about that responsibility when deciding which stories to tell?
Reed Hastings: Our primary responsibility is to our customers, to entertain them. Life for you guys is great. But as you well know, most people work because they need the money and they get done with work, and they kind of just want to unwind and relax. Our job is to provide the whole world entertainment. And we take that responsibility very seriously. That's the biggest North Star we have.
About four years ago, we had a big controversy with Dave Chappelle, and some of his humor feels very threatening to trans people. From their point of view, he's an evil force to oversimplify. And from his point of view, he's a truth teller, poking fun at things, which is what comedians do. That was very splitting in the company, because we had not yet really clarified our priorities.
But through that exercise of the various protests, we solidified that we need to build employees who are proud that we entertain very effectively and not to make them think that every show was a reflection of our values. So, for example, in a show, there might be a lot of gunplay or a lot of n-word or a lot of other things. That doesn't mean that those things, because they're on the show, are okay in the office. Shows and films are often explorations of fantasies, both positive and negative, in all kinds of ways. And people are able to separate them.
I remember when my kids were growing up and they were playing the first person shooter video games, and I thought, "Oh, my God, this is like 9th grade. They're going to turn into killers." And they're not. It's kind of amazing how we humans are able to separate that intense fiction or fantasy from reality.
Katie Harris: So when you all were in this tumultuous place, it sounds like you recognized your values. You recognized you as Netflix, what your stance is. How did you get to that?
Reed Hastings: A lot of long, painful, tearful discussions. We had made a real point of recruiting trans employees and being trans friendly. This is like 2015 to 2019, roughly. We were proud of it, and we had amazing employees. And they felt as a whole that we had promised Shangri-La, and now we were betraying them. So there was an intense sense of betrayal amongst this group of employees and their allies.
The other thing, I think, is that we had really built up allyship, and that's an important aspect of being a good ally. But what it can lead to is not thinking for yourself either. It's a litmus test. You're an ally with today. It would be your Palestinian or Jewish friends. And if you're required to be an ally to one or the other of them, it can force a lot of divisions.
So I think we should have always set it up as people thinking for themselves and being able to tolerate dissent internally. But again, we and the culture were going through a lot at that time. And, you know, again, I think we came out in a good place, which is really focused on the entertainment value.
You asked about the process of it. Each situation is different. And so I think it's a lot of discussion and dialogue, and that was an important tool in it. And really, my successor, I've got two successors, Greg and Ted. But Ted really led in that discussion, and he was really grounded in the artistic values and was so literate in places that artists had been suppressed and later, to everyone's regret.
Katie Harris: So another force that is shaping the stories we tell is AI. AI, you studied it. It's very big now. Maybe always has been. Some would say maybe not. But years ago, when you were asked, who is Netflix's biggest competition? You famously joked that it was sleep. Now, it's been a little bit different, most notably other streaming services. But just last week, OpenAI launched their very first video model, Sora. Is AI generated content an existential threat to your business?
Reed Hastings: Well, AI will help us be more creative. We'll be able to produce more shows using those tools. So again, it's an authoring accelerant essentially. If it means that Disney does a better job than us because they do better at AI than we do, then sure, there would be a shift in competitive strength. So we're super focused in the company about using AI in all these aggressive scenarios, as you would expect, to tell better stories. That's the kind of big evolution of it now.
In the long term, to the degree that AI replaces humanity, and then we're entertaining AIs instead of you, there are some big changes, sure. But they're sort of beyond the scope of our corporate planning. And so we tend to use AI as just like a better Photoshop in trying to create movies, especially prototyping. We haven't used it really in final production at this point, but it's pretty incredible at the prototyping level to be able to imagine the scenes.
Katie Harris: Do you see yourself using it in the final production stage?
Reed Hastings: Yeah, absolutely. And so it will, all the low level tasks will get transformed. And in general, whether this is the legal field or in the legal field, first it's search like LexisNexis, and then it's the paralegals, and then it's the first year attorneys and then the junior partners, and eventually AI is coming for the senior partners.
Reed Hastings: Think of it as moving up the stack as it gets more sophisticated. It's the same thing. We've had a lot of people who draw animation, and that's one of the first areas that gets hit. Then it moves up the stack in more and more creative areas as we and others can use those tools for better entertainment.
Katie Harris: Another trend in media and entertainment right now is gaming. Gaming is a $200 billion industry and is getting more and more of consumers' time. Other production companies have tried to enter the space and have failed. So what bet is Netflix making on gaming? And how do you think you'll win?
Reed Hastings: We started in film, expanded to television. Now we're big in television, big in film, and we've got about three years in on our gaming efforts. We have to be the most creative gaming studio that produces games that everyone is dying to play and interact with. We're getting little pockets of success in that, but not yet something equivalent of a big hit. So we're continuing to work on it.
Gaming, like series and films, you have to put $50 to $500 million in upfront to do an incredible production job. Then you release it to a lot of people, and there's a community around it. It's got very similar attributes to film and television. It'll take us a couple years to build up that DNA of what type of creative choices to make and how to win against pure gaming companies. But in the same way that in the old world there were distinct film studios and television studios, for us it's all creativity. I'm confident we'll be able to do that.
The challenge that we do worry about is user generated content like YouTube and TikTok. To the degree that you all and your kids eventually are all happy with YouTube and TikTok, there's less time to watch Netflix. It's incredibly addictive entertainment. Our storytelling is more measured, built up, and it's a different rhythm. Your taste and the next generation's taste, if they shift towards user generated content, that's a threat. What we have to do is really lead on the professional content and continue to raise the bar on that. So that part of your entertainment every month is Netflix, whether it's film, series or gaming. That's why we're investing so much there.
Katie Harris: Hearing you talk about this, it's just so fascinating seeing how much has changed since you first served as CEO of Netflix. You've served as CEO for over two decades, and toward the end of that journey, Ted Sarandos joined you as your co-CEO. Now it's Ted and Greg Peters in those roles. Fewer than ten companies in the Fortune 500 have a co-CEO model. So how did it work for you, and what should we think about as we build our own models of leadership?
Reed Hastings: I would say it's not a general technique that I'm out pitching. If you've got two people that have worked together for 18 years, it's a high performance technique when they work so well together and can leverage each other's strengths. But if I think of the next hundred years of Netflix, there may be only twice when it's a co-CEO model. It's not like we've discovered something magical and this is the way to go. It's optimization for two very unique people who trust each other deeply and have complementary skill sets. It's fantastic for us, but it's like one recipe in the recipe book. It's not the general model.
I will say that it's probably selection bias, but if you look at S&P over the last 50 years, those companies with co-CEOs considerably outperform all other companies. But I think that's because only healthy companies dare do it. It's a selection bias more than it is a driver. There's no way to separate those.
Katie Harris: How do you cultivate that trust relationship? I'd imagine it's something similar with a co-founder relationship. How do you actually build that trust?
Reed Hastings: You have to earn it. You have to set a culture where people are very candid but also caring. You don't want to be candid and cruel because it shuts down human interactions. You want to be candid and caring.
We spend a lot of time going through issues. It may not be quite as intense as what I've been learning about your touchy-feely course and the affairs it generated. It does seem to have some tricky aspects. What we do is maybe similar but damped down a little bit, or maybe we're older compared to when you guys take those things.
You really do want to create a lot of intimacy at work. You want people to really care for each other, in some cases to love each other, but to have that accelerate learning and trust, rather than have it become obsessive where your whole life is there.
Katie Harris: So really valuing that relationship, showing up with intimacy, showing up with care, it sounds like, is one way to build that trust.
Reed Hastings: Yep.
Katie Harris: Something you care a lot about, in addition to cultivating those relationships and culture, is your philanthropic work. One of the areas you've invested a lot in is diversity, equity, and inclusion. Recently, we've seen this big blowback on DEI. Specifically, big tech companies are cutting funding for DEI teams. We've seen less investment in underrepresented founders. It feels like just as underrepresented minorities and women were starting to have headway, we're now facing a blocker. From your perspective, what's going on and what do we do about it?
Reed Hastings: If you look over the last hundred years of civil rights, there were a lot of people saying to black Americans, "Yeah, we agree with your goals, but wait, you're going too fast." It's awfully irritating when you feel the burden of discrimination to be told to wait, that we're moving too fast.
I do think that companies rushed into doing something post-George Floyd because they genuinely cared. And there is some blowback on DEI, for sure. But I think the general idea of inclusion and giving everybody a fair shot has been the aspirational side of America and frankly, of capitalism and of freedom. It gets us all excited to work on achieving that dream, which we know for most groups is not fully there. But there's a lot of commitment to making the meritocracy work, as opposed to abandoning the meritocracy, which would be the hard edge.
I do think that not many Americans really understand anti-blackness, which is separate and distinct and worse than most of the other exclusion classes. You guys are all capitalists, so you would understand that morality often follows profits.
If you think of manifest destiny and this idea that European Americans should take over all of the continental US because it was our destiny, this whole philosophy grew because it empowered people to take over land. What happened is the Portuguese figured out sailing in the 1400s and could get to Africa, the US and Brazil. They discovered a very rich source of profits, which is trading in black bodies, capturing them and selling them.
To do that, you had to brand them, buy them and sell them. This was morally difficult because they were clearly human beings. So they invented this idea that black people were subhuman. Because of that, it was morally acceptable to do slavery. The shorthand is slavery was 400 years the reigning ethos because it was so profitable to do.
Then the Civil War happened, and that's great, but it doesn't unwind the psychology. This idea of black inferiority is, sadly, deeply enmeshed in ways that are hard to tease apart, of course, in white people, but sometimes in black people, too. This taxes everything that we do.
For me, the cure is black excellence and really focusing on amazing achievement and those kinds of programs. Ken Jabaris, a great creator in LA, often says it's all about slavery. I used to get kind of tired of him constantly saying this, and then I realized, oh shit, it's true.
Companies are leaning into this and trying to figure out what they can do to be more inclusive on every dimension, not just black-white. But I do think that as a society, if we can focus more on black excellence, we can rise out of this kind of crippling disease that comes out of basically the for-profit aspect creating a morality.
Katie Harris: So what does it look like for us then, as future leaders, to cultivate that black excellence?
Reed Hastings: You know, there's, people naturally want to be excellent black, white. So I don't think there's that much to do on that front. It's being able to have more honest conversations about, again, race, gender, sexual orientation, all those things, which, again, you guys, compared to when I was around here 25 years ago, it's so much better. Okay, it's not better as much as we want. So it's like we got to continue to lean in to achieve the dream of equal opportunity. But I think in general, things are going well.
Reed Hastings: And in that dimension, I would say it appears that on climate we may have overcorrected. So Al Gore and others were worried about climate, and so they told us the world's going to end, you know, unless we change. And it seems like a lot of people think the world's going to end. And we have many problems in society. There's no question. But of all of them, climate is one of the most amenable with science. Like, we can science our way out of climate where, you know, we've pumped a trillion tons of carbon into the atmosphere. Now we got to go capture it and put it back in. There's a lot of science technique that we're all learning. I mean, there's EV's on one dimension, there's others.
Reed Hastings: So I think the chance that climate ends society is extremely small and that there are other threats that are, again, politics, countries going to war, this kind of thing that are not amenable to science solutions. Okay? Whereas getting, again, amazing solar panels, nuclear fusion, whatever you guys invent, there are science approaches to climate which I think will bail us out not easily and not free. But again, science will work, whereas the science on human psychology, like the idea of countries or religions or wars, I don't have the solution for that because we humans are evolving very slowly and we see in the current time a lot of war.
Reed Hastings: So becoming, wrapping it up. I think on climate, people are too negative and it makes them think the world's going to end. So as long as to answer your question of, like, how do we make progress? Hope is the big driver of human behavior. And the fact that we all have hope and have had hope and continue to lean into hope is incredibly important, inspiring and powerful. And so I hope you guys are able to, of course, have hope, not just for your startup, but hope for our society to achieve a lot of its dreams.
Katie Harris: Sure. And it's really inspiring, Reed, to hear you so passionate about this. So thank you so, so much for sharing. I have two more quick questions for you? The first is you are now in this new ish role of chairman as of late last year. What's life like for you now? What are you up to?
Reed Hastings: Well, the good news is that Netflix things are going super well with Greg and Ted. And so as long as the company continues to grow, the role of a board is pretty minimal. And so they're off and running. And I know a lot what's going on, but I give hardly any advice. So you want to be, I think, as a board member, highly informed about the opportunity and the execution, but you're not doing it day to day. And, like, the WWE deal, they did have, like, hardly anything to do with that or nothing to do with it, to be honest. And I didn't even approve it. I just read about it. So it's like, that's the way it should be.
Reed Hastings: So, anyway, that's a small part of the time, mostly philanthropy. You know, I'd love to be baby Bill Gates, by which I mean sort of a technocratic orientation to improving human welfare. And, you know, he's incredible because he knows and has learned so much. I'm more narrow, and so I'm trying to do a lot around african economy and various technological interventions there, mobile, network, solar, these kinds of things. And then in the US, I work a lot on nonprofit public schools, generally called charter schools, to help them grow, because organizationally, when they're successful, they're really excellent and they stay excellent, which is not what we see in the kind of unevenness of school districts. So those are the two big areas.
Katie Harris: Very exciting. I'm excited to see how that goes. It sounds like you're very passionate about all of those, which is really cool.
Reed Hastings: You know, I think we all are passionate about making a difference. You guys have worked super hard to get to where you are here, and you're developing tools and, you know, near term, you're either go into great firms or create great firms, but as you do that, you also want to make a difference in the world. And you're all, you know, I think, going to be very talented at that.
Katie Harris: Thank you, Reed. This has been a fantastic conversation. Before I open it up to the audience for questions, I have one final question for you. Our view from the top theme this year is redefining tomorrow. So, Reed, as chairman of the board at Netflix, if there's one change you could make to redefine tomorrow, what would it be?
Reed Hastings: You know, I think if you guys think about the age of abundance and what's going to be possible with technology, there's sort of, again, if you look over 10,000 years, there's two big drivers of positive change that have happened. One has been technology, and you guys are well aware of, like all the things that are different, whether it's antibiotics, driving a car, et cetera, then 5000 years ago. But the other one is the moral ethical systems, the notion of identity that we need a continued amount of progress on. I call that what's the story that gets us to trust each other? What's the story that makes us who we identify with?
Reed Hastings: And a simple example is the New Testament versus the Old. In the New Testament, it was turn the other cheek, love thy neighbor. These were radically different things than the Old Testament with eye for an eye. Okay, so that's an example of moral progress about identity. Another one is consent to the governed. You know that the original idea was the people don't matter. It's the kings and it's hereditary, and you're close to God. And then over a couple hundred years, we developed this idea underlying democracy, that the consent of the governed was the way to rule. But these kind of big ideas come along infrequently and have tremendous impact in human society.
Reed Hastings: And so again, when you look back over 500 or 5000 years, a bunch of us will work on technology, and that drives a lot of human progress. And the other aspect is we all contribute to the human ideas. And what are the big ideas that connect us, that make us a better society and a better world? And those things can have huge improvement, too. It's just they're multigenerational because our psychology evolves very slowly.
Katie Harris: Thank you so much, Reed. Well, with that, I will now open it up to the audience for Q&A.
Speaker D: Hi, my name is Andrew and I'm a first year MBA student. It was great that Katie touched on culture and responsibility. And my question is about a little bit of how they relate. So specifically honing in on employee giving. So this is a really interesting aspect of Netflix benefits. At a time, you even increased employee giving to two for one. That would seem temporary and maybe it will become permanent in the future. And I'm curious, how do you think about that benefit and how it can help solve some of the issues that business itself cannot purely solve?
Reed Hastings: Obvious answer is, oh, because it gets employees to give and feel good and the company matches and it's a better society. The less obvious answer is, without that, all the employees say the company should donate to Gaza. The company should donate to the flood. The company people love giving away other people's money. So the more that you make it an employee match and focus on that as what the company does, the more it's realistic, because then people give, you know, $300 here, $500 there to important causes. Okay?
Reed Hastings: So you can think of it as when an organization, whether that's a company or a university, has to take positions, it's divisive, because even if 90% of the people agree, 10% don't, and it's partially their money. Okay. And that's certainly true with customers. Right? And some of our customers like this cause versus that cause. So, as a company, we'd like to stay away from that. So by really putting the focus on employee giving, we're like, yes, if you're passionate about this topic, give a lot of your money, and we will match it. And the relative costs in the benefits to us in harmony are very high, because the employee match is a less coercive mechanism than the company deciding what to give to and what not to give.
Speaker E: Thank you so much for coming back. I really appreciate your time. I'm Lexi Ling. I'm MBA one at GSB, and I'm doing also the duel degree with education school. And I'm especially interested in the interdisciplinary area between entertainment and education. And given your strong exposure in education, like from Peace Corps math teacher to California State Board of Education, I'm really curious about your view on the educational social impact of entertainment. Also, I'm curious about, do you have any strategies or in house initiatives that Netflix have to ensure its content actually deliver good values, educational influence, and good social impact in the world to all the age groups you cover. Thank you so much.
Reed Hastings: Yeah, it's a fascinating irony that here I do all this work in education, and then in Netflix, we focus on entertainment, and I'm a super big focus guy. You can only do things great if you focus. And so Netflix is very focused on entertaining and giving you those guilty experiences. And it may not make you a better person. You know, it may not teach you how to do this or that. We don't even have cooking videos, so I would say I've always kept those worlds separate.
Reed Hastings: Now, within education, people are figuring out Duolingo is probably the most. Most sophisticated at it. How to use gamification, to have fun at learnings, to give off those psychic rewards as you continue. So all the things that the social networking companies learned are applied in Duolingo. So that's a great example of using essentially human behavioral observations of learning in an education game. But again, that's really different from. From trying to be entertaining. How do we create characters that you care about more than you care about those people at Disney or HBO or others? And so we keep the Netflix one very focused on how much do you connect with those characters and want to see the next episode or the rest of the film.
Katie Harris: Hi, Reed. I'm Anna. I'm an MBA, too. I loved your thoughts on AI and how it will help enhance our creativity. Would you talk a bit about your thoughts and predictions on immersive technologies such as VR and Ar?
Reed Hastings: Entertainment is often pretty connecting that you watch with someone that's important to you, a spouse, a date, a parent, a child. And, you know, the joy of it is somewhat the experience of the moment, and somewhat it's about talking about it, either the people that watched it. And so all of that connection oriented aspect of entertainment means that these isolating devices probably won't play a big role.
Reed Hastings: Now, if these devices actually, because you've got other people in your view that might not be physically in your presence, find ways to connect you, then they'll have broad impact, not just in entertainment, but across many areas, but so far, they've all been relatively isolating once you immerse into them. So people are working on it. But I would say I'm somewhat skeptical in its change of entertainment, because so much of what we do as humans is the reason we're watching the show is because it's with someone else. And so it's a joint experience. So if I had to guess, I would say not a huge impact on storytelling, potentially a pretty big impact in gaming, where, you know, you put on your gear, and then you're immersed in some, you know, interaction work world, as opposed to the storyteller to you.
Speaker D: Hi, I'm Jack Stone. I'm a first year MBA here. I'm interested to hear how you balance things like encouraging people, to your point, take out the trash, you know, when people aren't looking, versus something like a yearly performance review, where you are focused on optics and looking well to your managers and higher ups, and how those two things could come into conflict.
Reed Hastings: You know, the annual performance review is rarely done well. I think we have it in place in most companies because otherwise the person might not get any feedback. So, you know, it might be a necessary device, but it's so much better to help coach people throughout the year around after this meeting, those kinds of things.
Reed Hastings: And so what we try to do is really lift up the gift of feedback and to make feedback so continuous and expected, people walk around Netflix and say, do you have some feedback from me, and they're just all the time asking for feedback. And I think if you can set up a culture where that's expected and valued, that's kind of like brushing and flossing every day. And that's the stuff that really helps on dental or emotional hygiene.
Reed Hastings: And then when you do the once a year to the dentist, you know, there's like, I didn't find anything. Okay. So you might say there's a once a year review, but it's basically all these interactions. So think of it. You want to have feedback. Be like brushing and flossing, so that it's an everyday activity. It's a little more interactive between people.
Reed Hastings: So I suppose that's a little bit of a difference. But think of it as that's the maintenance. And try to get everyone in your organization to always be asking for feedback. And of course, as a leader, then you're constantly talking about the feedback that you've gotten. You find a set of devices to make sure that feedback, either in the moment or like, say, shortly after an interaction, is much more useful and constructive than the annual performance review aspect.
Katie Harris: Wonderful. Okay, Redd, before I let you go, it's view from the top tradition to finish every interview with a series of rapid fire questions. So I'm going to make some statements, and then you'll fill in the blank with the first thing that comes to mind. Sound good? Favorite Netflix series?
Reed Hastings: Beef
Katie Harris: Hardest mountain you've ever skied or snowboarded?
Reed Hastings: Palisades KT 22.
Katie Harris: Okay, biggest lesson from your time in the Peace Corps?
Reed Hastings: It's fun to be independent.
Katie Harris: Favorite way to spend time with your family?
Reed Hastings: Cooking.
Katie Harris: And what are the odds that Stanford game gets added to Netflix's 2024 original series list?
Reed Hastings: I wish I had come in my green squid game. That would have been perfect if I had known. You guys have so much potential. Maybe not so much in acting, but, like, in business, you crush it.
Katie Harris: Thank you so much, Reed. This has been so fun. Reed Hastings.
Reed Hastings: Thank you.