Managers own the job of creating great teams

This means your partners. Don’t let them pass with the complaint that the associates or non-equity partners they have aren’t great. Nonsense. It’s up to them to change those people. Former Secretary of Defense Donald Rumsfeld famously remarked that you go to war with the army you have, not the army you wish to have—but he could as well have added that you can shape it into the army you wish to have with foresight and discipline.

In other words, the army (the team) you have is a given: It advances nothing to complain about it. Your job as a manager/partner is to fix it. And yes, this includes having frank conversations with people who are mismatched where they are.

This also has enormous implications for compensation: At Netflix, there’s no such thing as a performance bonus. Radical? (By now, you should be getting the feeling that a lot of what they’re doing is radical in terms of how rank-and-file HR views the world.)

But they eliminated bonuses because they believed in paying market-based pay and didn’t think that the “fully formed adults” they hired would be motivated to work harder or smarter by an annual bonus. Now, if you’re in a world where firm-by-firm, blow-by-blow annual associate bonuses are fodder for untold barrels of online ink, this might strike you as suicidal—and many of you are in that world. But the philosophy remains refreshing, and true, you have to admit.

Another unconventional idea: Rather than discourage people from taking recruiters’ calls, they told employees it was smart to interview with competitors in order to get a sense of the market for their talent. Just promise to send the compensation numbers under discussion back to your own firm’s people, as valuable market intelligence.

Make sure people understand what metrics drive your business

At Netflix, the issue was software engineers who didn’t understand finance; with you, it’s lawyers (all the way up and down the food chaing) who don’t understand finance. For example, how many of your lawyers know that not all revenue is good revenue? Here’s Netflix story:

I recently visited a Texas start-up whose employees were mostly engineers in their twenties. “I bet half the people in this room have never read a P&L,” I said to the CFO. He replied, “It’s true—they’re not financially savvy or business savvy, and our biggest challenge is teaching them how the business works.” Even if you’ve hired people who want to perform well, you need to clearly communicate how the company makes money and what behaviors will drive its success. At Netflix, for instance, employees used to focus too heavily on subscriber growth, without much awareness that our expenses often ran ahead of it: We were spending huge amounts buying DVDs, setting up distribution centers, and ordering original programming, all before we’d collected a cent from our new subscribers. Our employees needed to learn that even though revenue was growing, managing expenses really mattered.

Good HR people think like businesspeople first and HR people last

Here’s something I never thought I’d hear an HR person say:

Although I like [other HR people] personally, I often find myself disagreeing with them. Too many devote time to morale improvement initiatives. At some places entire teams focus on getting their firm onto lists of “Best Places to Work” (which, when you dig into the methodologies, are really based just on perks and benefits).

During 30 years in business I’ve never seen an HR initiative that improved morale. HR departments might throw parties and hand out T-shirts, but if the stock price is falling or the company’s products aren’t perceived as successful, the people at those parties will quietly complain—and they’ll use the T-shirts to wash their cars.

Now then, what do we think of all this?

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