Netflix’s Culture Led to Extraordinary Parental Leave. That’s Over.

Summary

The Journal: Netflix’s Culture Led to Extraordinary Parental Leave. That’s Over Hosted by The Wall Street Journal & Gimlet

Introduction

In the January 6, 2025 episode of The Journal, hosts Ryan Knutson and Jessica Tunkel delve into the transformative journey of Netflix's corporate culture, particularly focusing on its once-revolutionary parental leave policy. This episode explores how Netflix's unique approach to employee benefits and company culture contributed to its early success and attractiveness as an employer, and how recent economic challenges have led to significant shifts in these practices.

Netflix's Original Culture: Freedom and Responsibility

From its inception in the late 1990s, Netflix aimed to establish a distinctive work environment, described by Ryan Knutson as a "corporate anti-bureaucracy utopia" with a high degree of transparency (00:12). The company empowered employees with substantial autonomy, allowing them to access strategic plans and contribute to decision-making processes. This culture was encapsulated in a memo that emphasized "freedom and responsibility," where policies encouraged employees to act in the company's best interest without the constraints of red tape (04:04, 04:34).

A key aspect of this culture was the generous benefits package, which included significant vacation time and, notably, a groundbreaking parental leave policy. In 2015, Netflix introduced a year-long paid parental leave, surpassing the typical 18 weeks offered by industry leaders like Google. This policy aimed to attract and retain top talent globally, particularly women ascending to senior roles within the company (00:49, 01:03, 02:40).

The Year-Long Parental Leave Policy: A Game Changer

When Netflix announced its year-long paid parental leave policy in 2015, it garnered substantial attention and acclaim. Ryan Knutson notes that within 24 hours of the announcement, numerous employees requested the extended leave, an outcome the company had not anticipated (08:11). The policy was celebrated as a bold move that reinforced Netflix's commitment to employee well-being and work-life balance, placing it prominently on "best places to work" lists and enhancing its reputation as a forward-thinking employer (02:40, 08:03).

Economic Downturn and Cultural Shifts

Despite its initial success, Netflix faced significant challenges in the early 2020s. In the first half of 2022, the company experienced its first subscriber decline in a decade, coupled with a sharp 50% drop in its stock price. These financial pressures necessitated a shift towards greater cost consciousness, prompting Netflix to implement measures it had previously eschewed, such as reducing generous employee benefits (05:31, 05:03).

Implementing Cost-Cutting Measures

In response to declining revenues, Netflix introduced several cost-cutting strategies both externally and internally. Externally, the company cracked down on password sharing and launched a lower-cost, ad-supported subscription tier. Internally, Netflix began tightening its previously lax expense policies. Managers were instructed to regulate expenses more strictly, moving away from the earlier "act in Netflix's best interest" mentality (06:10, 06:35).

Significantly, Netflix shifted its compensation strategy by introducing pay tiers. Whereas the company had previously encouraged managers to offer top-dollar salaries to attract talent, it began enforcing salary ranges aligned with industry standards. This change marked a departure from Netflix’s open salary transparency and flexible compensation approach (06:35, 07:19).

Revising the Parental Leave Policy

The most contentious change emerged in Netflix's parental leave policy. Initially, the unlimited year-long leave was provided under the premise of empowering employees to decide what was best for them and their families. However, the unexpected high uptake of the full leave period led Netflix to reconsider its approach (08:37).

By 2018, Netflix began subtly revising the policy, encouraging managers and employees to have conversations about appropriate leave durations rather than adhering strictly to a year-long tenure. Despite these changes, the company maintained that there was no official set limit, fostering ambiguity that clashed with its previously transparent culture (09:44, 10:05, 10:32, 10:49).

Employee Reactions and Controversies

Employees quickly noticed the shift in policy, feeling that Netflix was moving away from its foundational values of transparency and freedom. Some reported mixed messages from management regarding the actual limits of parental leave, with instances where employees were led to believe the policy effectively limited them to six months (10:05, 10:32, 11:00).

Several former employees have publicly criticized the changes. Vanessa Hughes, a former marketing manager based in Australia, filed a lawsuit alleging that Netflix pushed back against her parental leave requests, ultimately laying her off while she was on leave (11:25, 11:58). Becca Leckie, another former employee, recounted on LinkedIn being laid off just before returning from parental leave, despite joining Netflix for its generous policies (12:05, 12:14, 12:35).

These controversies have raised concerns about whether Netflix is compromising its integrity and employee trust by altering its benefit structures under economic pressure. Employees have expressed frustration over the lack of clear communication and perceived erosion of promised benefits, juxtaposed against the company's claim of maintaining its supportive policies (13:00, 13:24).

The Evolution of Netflix’s Culture Memo

In an attempt to realign its culture with the evolving business landscape, Netflix revisited its famed culture memo. The "freedom and responsibility" section was entirely removed, although CEO Ted Sarandos emphasized that the core values remained intact, albeit with a recalibrated balance between freedom and responsibility (13:24, 14:02, 15:07).

Despite Sarandos’s assurances, employees and external observers question the authenticity and impact of these changes. The removal of the "freedom and responsibility" section signifies a broader transformation within the company's cultural framework, potentially diluting the principles that once set Netflix apart (14:36, 15:03).

Conclusion: Netflix's Cultural Identity in Flux

The episode concludes by pondering the broader implications of Netflix’s cultural shifts. As the company grapples with maintaining its unique identity amid growth and financial pressures, questions arise about the sustainability of its original culture. Ryan Knutson highlights the challenge of preserving a distinct corporate identity while scaling globally, and whether Netflix can continue to attract top talent if its cultural edge diminishes (15:31, 16:56, 17:09).

Netflix's journey underscores the delicate balance between fostering an innovative, employee-centric culture and adapting to market realities. The evolving narrative of Netflix's parental leave policy serves as a microcosm of this tension, illustrating how financial imperatives can drive significant changes in corporate culture.

Notable Quotes

• Ryan Knutsen (00:12): "Think about it as sort of a corporate anti bureaucracy utopia. So there's a lot of transparency."

• Jessica Tunkel (00:49): "Netflix also gave out really generous benefits when it came to things like vacation."

• Ryan Knutsen (01:03): "Let's say people can take up to a year unlimited."

• Jessica Tunkel (10:18): "Employees felt they had been promised a culture full of transparency and freedom, but what they were getting was anything but transparent."

• Ted Sarandos (14:02): "We have to have both. So it's ways of recrafting some of those things."

Final Thoughts

This episode of The Journal provides a comprehensive examination of how Netflix's pioneering corporate culture and employee benefits initially drove its success and appeal. However, as economic challenges arose, the company’s ability to maintain these ideals came under strain, leading to significant policy shifts that have sparked controversy and concern among employees. Netflix's experience serves as a case study on the complexities of sustaining a distinctive corporate culture in the face of growth and financial pressures.

Transcript

[Jessica Tunkel]

Ever since it was founded in the late 1990s, Netflix has tried to build a special work culture.

[Ryan Knudsen]

Think about it as sort of a corporate anti bureaucracy utopia. So there's a lot of transparency.

[Jessica Tunkel]

That's our colleague Jessica Tunkel. She says that Netflix trusted employees with a lot of leeway.

[Ryan Knudsen]

Everyone could access strategy plans and could weigh in on things. You know, the expense policy was like act in Netflix's best interest. So if that meant flying business class, go do it. If it means taking your team to a five star restaurant, go do it like it was. There was no red tape on anything.

[Jessica Tunkel]

Netflix also gave out really generous benefits when it came to things like vacation. And in 2015, the company added a perk that was especially unusual even among tech companies. A whole year of paid parental leave.

[Ryan Knudsen]

So the idea behind this was, look, we're looking at tech companies all the time. We're trying to recruit from them. Google was one that they talk about a lot. Google's policy at the time, I believe was 18 weeks paid leave, which is pretty significant. And they said, let's do better than that. Let's say people can take up to a year unlimited. And. And so they did.

[Jessica Tunkel]

But as the company has grown, it turns out that what you put on paper isn't always what happens in practice. And Netflix has been pulling back on some of its generous benefits. Welcome to the Journal, our show about money, business and power. I'm Ryan knudsen. It's Monday, January 6th. Coming up on the show the cultural Reckoning at Netflix.

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[Jessica Tunkel]

When Netflix came out with its year long paid parental leave policy in 2015, it got a lot of attention.

[Ryan Knudsen]

It definitely made a splash. I mean, every publication, including the Wall Street Journal, wrote about it because it was so unheard of. And they, you know, they got on and continue to get on all these like best places to work lists. And a lot of these publications mentioned their very generous parental leave policy.

[Jessica Tunkel]

Did they think that people would actually come to the company because of this policy?

[Ryan Knudsen]

Yeah, I mean, I think the Thinking behind it, and I think this did work, was that Netflix also was having more women and particularly entering the senior ranks of the company, and they wanted to, to be able to recruit and retain women. So, yeah, I 100% think that it worked from that perspective. Also, at the time when they came out with this policy, Netflix was becoming a global company. And people in other countries look at the parental leave policies in the US and think that we're crazy that how short it is. So the idea was, we want to make this great for employees and we want to help recruit and retain the best talent all over the world.

[Jessica Tunkel]

A year of paid parental leave was surprising to many people in America. But at Netflix, the company already had a culture of trusting employees to set their own boundaries. An idea that was enshrined in a memo that outlined the company's culture.

[Ryan Knudsen]

So the section that I talk about a lot is the freedom and responsibility section, because the freedom and responsibility was really probably the most unique thing in the memoir. That was this idea of, you know, expensive policies being act in Netflix's best interest. You know, their vacation policy was take vacation. Like, it was this idea of like, we will give you all the freedom and you should have the responsibility to act accordingly.

[Jessica Tunkel]

Over the years, executives at Netflix credited this culture of freedom and responsibility for being able to recruit the best talent. And as the company grew from hundreds of employees to thousands, it set them apart.

[Ryan Knudsen]

I mean, tech companies tend to be more secretive in their culture. It's very unheard of that you would see a tech company like a Google or Apple share strategic ideas with all of their employees. That would never happen. Right. They were much more like, keep things to themselves, do your work.

[Jessica Tunkel]

Netflix wasn't like that. Employees could access strategic plans, and some could even see each other's salaries.

[Ryan Knudsen]

They very much encourage candid feedback. So if you don't think someone's doing a good job, you are expected to tell them that when people were fired, they would send emails out explaining why that person was let go and what they did wrong. Yes.

[Jessica Tunkel]

But a few years ago, business problems started cropping up. Netflix saw its first decline in subscribers in a decade. In the first half of 2022, Netflix lost more than a million subscribers, and its stock dropped more than 50% that year. So with its subscriber growth and stock price tanking, the company had to do something it had never done before. It had to become cost conscious. First, the company made some external changes, like cracking down on password sharing and launching a lower cost version of Netflix that has ads and it also started changing how things work inside the company for its employ.

[Ryan Knudsen]

Prior to this, you know, I would talk to people who were going on off sites to Iceland, like they just would spend the max on things. And no one, it didn't seem like anyone was like, keeping track of how much was being spent on some of these things. But I think that they've reigned it in. You know, I've spoken to sources who say that managers are keeping a tighter lid on expenses.

[Jessica Tunkel]

The company's also been pulling back on salaries.

[Ryan Knudsen]

And so all of a sudden, you started seeing pay tiers. They introduced pay tiers. They used to tell managers, you know, just pay top dollar, pay whatever you need to get the people you want. The idea was, if you were an employee and you went to your manager and could show them how much more peers at other companies were making, you should be able to get a raise. Like, that shouldn't even be an issue. And so that has started to shift. We were the first to report that they've like now told people to keep salaries within a certain range. That's more along with industry peers.

[Jessica Tunkel]

But the most controversial change that employees have noticed at Netflix is what's happening to the company's unusual parental leave policy. That's next.

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[Jessica Tunkel]

A whole year of paid parental leave was basically unheard of in the US Before Netflix, and it was popular among employees from the get go.

[Ryan Knudsen]

So in the beginning, literally within 24 hours of the policy being announced, a number of people asked for a year off for parental leave. And HR and managers were really surprised because they were not anticipating that. And then people also asked to go back on leave. People who had taken a few months off and it returned were like, oh, well, if it's up to a year now, can I go back on leave?

[Jessica Tunkel]

I mean, I have to, like, pause for a moment with this whole concept of, like, unlimited parental leave. Why would any company not expect its employees to take as much as they're allotted, take more?

[Ryan Knudsen]

I mean, Ryan, this is a really good question. And, you know, I think what they would say is, and what they did say when this came up was we never meant for a year to be the starting point. We meant it to be a conversation between managers and employees about what the right amount of Time would be. And the head of HR at the time did tell people, I don't think people are going to actually take a year parental leave. Because Netflix is the kind of place where people throw themselves into the work and are so type A and high achievers that they thought no one would actually take a full year off.

[Jessica Tunkel]

It turned out that so many people were taking the full parental leave that company leaders started to reassess it.

[Ryan Knudsen]

And so by 2018, they sent a memo out first just to executives, managers, saying, hey, we're looking at clarifying this policy, you know, not saying that it's unlimited for the first year, but saying, you know, talk to your managers and figure out what's best.

[Jessica Tunkel]

Netflix did not come out and officially say it was making a change to its policy, but it has revised its guidance on parental leave several times. Jessica says employees started to notice the difference.

[Ryan Knudsen]

I've reviewed all these employee communications about it and, you know, one manager said, it feels like we're taking a benefit away without saying that's what we're doing. That doesn't feel. That feels incongruous with what our culture of transparency is.

[Jessica Tunkel]

Right? Like, why not just say, like, the policy is six months or whatever?

[Ryan Knudsen]

Exactly. And they were and still are adamant that the policy is not six months, that there is no set time limit. You just need to talk to your manager.

[Jessica Tunkel]

Employees Jessica spoke to felt they had been promised a culture full of transparency and freedom, but what they were getting was anything but transparent. But that's not what the company says.

[Ryan Knudsen]

They say that they have not walked back their parental leave policy, and the parental leave policies still do its best. And they also. The other thing that they deny is that there is any set limit. But I have spoken to people who talk to HR or their manager, and I have a recording of HR telling one employee that the policy is actually six months.

[Jessica Tunkel]

A Netflix spokesman said the leave policy, quote, has always been to take care of your child and yourself, and that the average parental leave that a Netflix employee takes is less than a full year. In recent years, Netflix has also had to lay off thousands of employees as part of its cost cutting measures. And Jessica found that some of those employees were people who'd taken a long parental leave. Some former employees have spoken up about this. One of them is a former marketing manager based in Australia named Vanessa Hughes. She's suing Netflix.

[Ryan Knudsen]

In the court documents, she alleges that she was, you know, trying to put in for parental leave and they kept pushing back.

[Jessica Tunkel]

Hughes took the year long parental leave anyway and was ultimately laid off while on leave. Another former employee who's spoken up is Becca Leckie.

[Ryan Knudsen]

Becca Leckie was an employee and she had written on LinkedIn. The post has since been taken down, but she describes in her LinkedIn post how, you know, one of the reasons she joined Netflix was for these generous parental leave policy. And she, you know, moved from New York to LA to work for Netflix and loved it.

[Jessica Tunkel]

Lecky was laid off a day before she was set to return from parental leave.

[Ryan Knudsen]

As one employee said to me, if you take more than six months, it feels like all eyes are on you. That was just a quote, but many people said that to me and everyone felt like, you can't really take more than six months and otherwise you're in trouble.

[Jessica Tunkel]

Netflix said employees weren't targeted for layoffs because they were on parental leave. And Jessica reported that in many cases, people who were laid off were paid out their remaining leave plus severance. The company also did an analysis and said that only a very small percentage of those laid off were on parental leave. Jessica says that Netflix's pullback on parental leave is just one example of how the company's culture is changing.

[Ryan Knudsen]

As part of that, it has had to reevaluate its culture memo and specifically around freedom and responsibility. So we were the first to report last spring that Netflix actually took out the freedom and responsibility section out of the memo.

[Jessica Tunkel]

It took it out entirely.

[Ryan Knudsen]

The entire section has been taken out. Now, they would argue that the ideas behind it are still found in pieces of the memo, but that section has been removed.

[Jessica Tunkel]

Last year, Wall Street Journal Editor in Chief Emma Tucker interviewed CEO Ted Sarandos and asked him about the change to the memoir.

[Emma Tucker]

So I want to talk a bit about Netflix culture because obviously, famously, Netflix has got this very distinct culture that's been credited with being able to attract talent and keep create this real kind of sort of environment of excellence now. But this year you've updated your culture memo and I think I'm right in thinking that you've ditched the freedom and responsiveness responsibility section of the memo and talking more now about employing unusually responsible people.

[Ted Sarandos]

I do think it was one of those things where we didn't take lightly the evolution of the document, but it actually reflects much more. Today, our 14,000 employee, you know, business culture and the freedom, responsibility evolution wasn't. We didn't get throw it out. We just, it was probably a little too more emphasis on freedom than responsibility. And we think you have to have both. So it's ways of recrafting some of those things. But the core values in the new document are all in the old document.

[Emma Tucker]

Right. Did you get. Did you get any pushback from. From the update or.

[Ted Sarandos]

Well, what's interesting, because it's such an iconic thing, we got. You get a little bit. And I do think one thing that we have to really help employees understand all the time is that we have. We put no energy in preserving the culture. We are constantly working on improving the culture. And so when anyone says, hey, the culture is changing, yes, of course it needs to. We definitely change the culture. We want it to reflect how we work, not dictate how we work.

[Jessica Tunkel]

Over the years, executives at Netflix credited its, quote, no rules culture for fueling the company's success. And some employees now worry that all these changes mean the entertainment giant is losing its identity. So what does this say about Netflix and its culture right now? And what it's going through is in its evolution as a company?

[Ryan Knudsen]

You know, I think this whole situation kind of raises this question of, can any company really maintain its identity as it grows and becomes a global company? Like, do you have to give up who you are to be successful? And I do think that is what Netflix is going through now because, you know, a lot of people will hear these stories and say, most people make so much money, so it is what it is. But there is a question, like, at some point, Netflix will have another business challenge, right? There will be something else. And will they continue to be able to recruit and retain the best people if their culture is just like everyone else's? I don't know. But Netflix's benefits policy is still more competitive than most companies. Right. Even if, even though they won't say it's six months, but let's just call it six months, that's still very competitive and better than most companies that we know. But the problem is they're not just.

[Jessica Tunkel]

Saying that, which I imagine must carry an additional weight given the fact that Netflix has historically been such a company, focused so much on transparency, to have this ambiguity.

[Ryan Knudsen]

Exactly. I mean, a lot of people that I talked to complained about that. Like, we're supposed to be so transparent, and that's a key value here. But these changes that they're now making, I think are going to have consequences ultimately.

[Jessica Tunkel]

That's all for today. Monday, January 6th. The Journal is a co production of Spotify and the Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.