Why Keeping Financials Transparent Can 10x Employee Loyalty and Trust: Netflix Case Study

October 2, 2021

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How do you improve your employee loyalty, trust, and transparency? This is probably one of the most frequently asked questions that all leaders of growing companies have. In the world where talent competition is at its highest and demand for talent outperforms the available supply, the most remarkable talent has almost no limitations on how they want to move around between jobs.

So how do you increase employee retention, keep your best talent pool motivated and make sure they stay loyal to you? Well, if you want to reach all of these levers, monetary incentives can't be your only driver of motivation, as this will run out sooner rather than later.

In this post, we look at a case study from Netflix, based on Chapter 5 of Reed Hastings No Rules Rules book. The chapter is called "Open the Books".

We start with a high-level summary of the key points from chapter 5 of the book

  1. To instigate a culture of transparency, consider what symbolic messages you send. Get rid of closed offices, assistants who act as guards, and locked spaces.
  2. Open up the books to your employees. Teach them how to read the P&L. Share sensitive financial and strategic information with everyone in the company.
  3. When making decisions that will impact your employees' well-being, like re-organizations or layoffs, open up to the workforce early, before things are solidified. This will cause some anxiety and distraction, but the trust you build will outweigh the disadvantages.
  4. When transparency is in tension with an individual's privacy, follow this guideline: If the information is about something that happened at work, choose transparency and speak candidly about the incident. If the information is about an employee's personal life, tell people it's not your place to share, and they can ask the person concerned directly if they choose.
  5. As long as you've already shown yourself to be competent talking openly and extensively about your own mistakes - and encouraging all your leaders to do the same - will increase trust, goodwill, and innovation throughout the organization.

For this post, we will focus on point No. 2: Share key financial information with all employees and teach them how to read the P&L.

So why open the books? Isn't this type of financial information too sensitive to share? Well, for Netflix, as a public company, employees can go to jail if they share or trade based on the information they receive before it hits Wall Street.

For Netflix, the benefits still outweigh the risks, hence they keep doing it. So why should you think about doing the same? Here are just some of the benefits of opening up the books to your team:

Your employees will take more ownership of all their work

If your workforce has all the contextual information about the company's overall health, people are more likely to act as owners because they understand the bigger picture.

Here's a concrete example: Let's consider a situation. A Senior Brand Designer (let's call him Jack) wants to invest in software that gives all employees easier access to all internal brand materials. The software costs $30,000/year, but the Brand Designer insists that this is worth it.

How does the situation play out if the brand designer does not know the whole financial situation? As Jack only sees the scope of the case without any relative comparison to what's being spent on other software solutions, or where the overall budget for his department is, he only acts based on the little amount of information he has, and hence it ends up in an argument with his manager because Jack's manager is not allowed to share the overall department budget.

How does it play out if Jack knows all key financials? If Jack sees the big picture, he can instantly understand that even though this would be a great software to get, it just doesn't make sense relative to the overall department budget, and hence he decides to find another cheaper solution that works just as well. The problem is solved immediately and without any additional arguments.

Employees will feel loyal, trust you and the company more

According to human psychology, if we share our most intimidating and close secrets with other people, they are more likely to feel emotionally connected to us, trust us, and remain loyal to us. This can also be referenced from the book The 5 Dysfunctions of A Team written by Patrik Lencioni, where Patrick across several chapters mentions that leaders must show their own weaknesses and admit mistakes to get the team to trust them and get buy-in.

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Team Building!

We can apply the same mental framework for sharing your company’s financials and P&L with the rest of your team. By sharing the overall health of the company, and being fully honest and transparent about where the company is doing, the company (and you as a leader) shows vulnerability to the team, which reinforces and increases their buy-in in everything that gets done, because they feel like you are open and honest with them.

Employees will improve themselves intellectually, feel smarter, and as a result, perform better

If you invest the time to teach your employees, everyone from customer support to product managers to sys-admins to fully read and understand the P&L, your employees will feel empowered to make smarter decisions and as a result, stay more loyal to you.

Helping them understand complex information increases their overall intelligence, and they will thank you later for assisting them to understand this, especially if they one day go out to build their own company.

Approval processes become faster

Your internal budget approval processes will become significantly more efficient, as everyone will have the full context of how much budget is allocated.

Let's take a situation as an example: Jessica, a Marketing Manager, wants to run an Out of Home Marketing campaign because she has seen a unique opportunity in the middle of the year.

Without having access to the financials:

Jessica would need to go to her manager, Brian, the Head of Marketing, to ask for the budget approval. As Brian doesn't have the full overview, he goes to his boss, John, the VP of Marketing, to ask for the budget. John doesn't have the full overview either, so he goes to his boss, the Global CMO, Erin. Now, Erin doesn't have the full picture either, so she goes to her boss, the CEO, to get an answer. This process involved five approval chains, and can easily take 4-8+ weeks because of corporate communication processes being slow. This is of course an exaggeration, but you get the point.

With having access to the overall budget and financial information:

If Jessica has direct access to the overall Marketing department budget, she can take a look at the overall picture in a snap, understand the whole context of the situation, and from there make an informed decision about whether this campaign makes sense right now, in relation to the overall company priorities.

Result: Decision making in less than a week, everyone on the same page, no frustration because of slow processes and much better decision making.

The list of additional benefits can be continued, but there's clearly an interesting angle to take for companies to change this as a cultural behaviour.

Conclusion

  • Think about sharing your key financials to your whole team
  • Help them to understand and read a P&L, such that they understand every number they read
  • Continuously show the P&L at all-hands meetings and talk about the overall health of the company
  • Give read-only access for employees to go in and check a real-time P&L of the company at any point in time, so they always have the full context.

Giving access to a real-time P&L to your whole company can be tough, so that's why we have built LiveFlow. LiveFlow pulls all of your company's financials together into one place and lets you create a real-time overview of your P&L, Cash Flow, Revenue, and much more to serve you as the only source of truth. You can invite your whole team to view your dashboards while keeping access-control centrally.

Learn more about how it works here or sign up for a personal demo.

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