I woke up at 3am the other night, brain fully on, zero chance of falling back asleep. So I grabbed my Kindle and picked up No Rules Rules where I had left off. That is when co-author Erin Meyer did something unusual. She gave Reed Hastings a quiz – four hypothetical scenarios, each designed to test the boundary where transparency might do more harm than good. Reed’s answers reveal how Netflix actually makes decisions when the stakes are real and the right choice isn’t obvious.

I took the quiz before reading Reed’s answers. I got three of four wrong. Here is what I learned.

Netflix headquarters in Los Gatos, California. Photo: Wikimedia Commons. CC BY 2.0.

Scenario 1: The Insider Trading Risk

You run a startup with one hundred employees. You have always shared all financial and strategic information openly. But next week your company is going public. If you share quarterly numbers with employees before Wall Street and someone leaks, the stock could crash. The leaker could go to prison.

Do you (a) share numbers only after Wall Street, or (b) keep sharing with employees first, while warning them about the consequences?

My instinct was (a). Play it safe.

Reed chose (b) — keep sharing.

He explained that he learned about open-book management in 1998 at an Aspen Institute leadership course. A case study about Jack Stack — a manager in Springfield, Missouri — showed how sharing every financial detail with every employee, from top engineer to shop floor worker, created unprecedented feelings of ownership and responsibility.

When Netflix went public in 2002, Patty McCord panicked. She picked Reed up for their drive to work and was wailing: “At EVERY other public company only a few top-level insiders see the quarterly financials until it’s released to Wall Street! If that information leaks, the employee goes to JAIL! What are we going to do?”

Reed’s response: “We will not become more secretive as we get bigger. We’re going to do the opposite. Every year we are going to be bolder, and share even more information than before.”

Netflix now shares financials at QBRs with 700+ managers before the quarter closes. Spencer Wang, VP of investor relations who came from Wall Street, described his first morning:

“I grabbed a coffee, settled down at my desk, and opened my computer. There, in my mail, was a message titled Daily Membership Update March 19, 2015. It detailed with graphs and data how many new subscribers we’d signed on yesterday by country. My heart jumped. Should data this sensitive be going through regular email? I hugged the computer close to my chest and moved against the wall, so no one would sneak a peek over my shoulder.” — Spencer Wang, No Rules Rules

When Spencer showed his CFO the email and asked how many people received it, the answer was: “Any employee in the company who’s interested. It’s open to everyone.”

Scenario 2: The Dream House

You are discussing a possible organizational restructuring with headquarters. Several project managers on your team might lose their jobs. The discussions are early — there is a 50% chance it won’t happen. Do you tell them now or wait until you are certain?

I chose (a) — wait. Why cause stress for something that might not happen?

Reed chose (c) — tell them now. Tell the truth, even with 50% uncertainty.

Reed Hastings speaking at an event. Photo: Wikimedia Commons. CC BY 2.0.

The human cost of this choice became real through Isabella, a project manager of original content at Netflix. Her boss Aaron pulled up a chair in the “Out of Africa” conference room — all yellow walls, yellow rug, yellow chairs — and told her there was a 50/50 chance her role would be eliminated.

Isabella’s reaction was devastating:

“My head started to spin. The yellow rug turned into the yellow ceiling and I had difficulty focusing on his face. After that I lapsed into a crisis. We let the house go to another buyer. How could I buy a house when I might lose my job?… The stupid thing was that my job DIDN’T go away. I’d given up the house and had all those months of stress for absolutely nothing.” — Isabella, No Rules Rules

Isabella voted for option (a) — don’t share until certain. But Reed disagreed. His reasoning: if Aaron had waited and Isabella had bought the house, then lost her job, she would have been far angrier that management had known and said nothing. Transparency creates short-term pain but builds long-term trust.

Scenario 3: The Fired Employee

You fire a senior marketing team member named Kurt. He is hardworking, kind, and effective — but verbally clumsy, putting his foot in his mouth at critical moments. Kurt asks you to tell everyone he left on his own. Do you (a) tell the whole truth, (b) say you can’t discuss details, or (c) honor his request?

I chose (c). Give the guy a break.

Reed chose (a) — tell the whole truth. Because:

“Manipulating your message to make the organization, yourself, or another employee appear better than reality is so common across the business world that many leaders don’t even realize they’re doing it. We ‘spin’ by selectively sharing the facts, overemphasizing the positive, minimizing the negative. Your people are not stupid. When you try to spin them, they see it, and it makes you look like a fraud.” — Reed Hastings, No Rules Rules

The exception: personal struggles. When a Netflix leader fell off the wagon with alcohol addiction in 2017, Netflix told the team he had “taken two weeks off for personal reasons.” Personal privacy trumps organizational transparency.

Scenario 4: When YOU Screw Up

You are a founder. You have hired and fired five sales directors in five years. Do you admit this incompetence to your staff?

Reed chose (b) — yes, shout it. At Pure Software, he went to his board, confessed his inadequacies, and offered his resignation. The board didn’t accept it. But something remarkable happened:

“Not only did I feel more relief and build trust with my staff, but also people began telling me about all sorts of mistakes they’d been previously sweeping under the rug. That offered them relief, improved our relationships, and gave me more information so I could do a better job managing the business.” — Reed Hastings, No Rules Rules

Years later, on Microsoft’s board, Reed watched Steve Ballmer talk openly about his own mistakes: “Look here, see how I really screwed this thing up.” Reed realized: “It’s just normal human behavior to feel more trusting of someone who is open about mistakes.”

This is the pratfall effect — a concept from psychologist Elliot Aronson’s 1966 study. Smart people who spill coffee on themselves become more likable, not less. But mediocre people who spill coffee become less likable. The lesson: vulnerability only works if you have already established competence. A new, unproven leader who leads with their mistakes will lose the room. A proven leader who does it builds trust.

The Pattern Behind the Quiz

All four answers share the same DNA: default to transparency, absorb the short-term cost, and trust that long-term trust is worth more than short-term comfort.

Share financials even when leaks could mean jail. Tell employees about possible layoffs even when it ruins their housing plans. Explain why you fired someone even when it feels unkind. Admit your own failures even when it feels weak.

Most companies treat these as edge cases where common sense overrides principle. Netflix treats them as the exact moments when principle matters most — because everyone is watching how you handle the hard cases, and the hard cases define the culture.

For anyone building a team: take the quiz yourself before reading Reed’s answers. Notice where your instinct diverges from his. That gap is the distance between the culture you say you want and the culture you actually have.

Sources

  • Reed Hastings and Erin Meyer, No Rules Rules: Netflix and the Culture of Reinvention, Penguin Press, 2020 (Chapter 5: Open the Books to Employees)