No rules illusion is the second article on rules in a series of 3. You can find the first article here.
No rules

Too Much Freedom

Most of us intuitively prefer more freedom over less freedom. But could we have too much of it?

Imagine you could turn up to work and leave whenever you wanted. No 9–5, no formal starting or finishing times or flexi-time. Not even a Monday-Friday working week. Just work whenever you want. Imagine there were no expenses policy. You could take a limo to the airport and fly first class if you so wished, or you could hitch-hike and fly low-cost. Imagine not having a set number of vacation days each year. Just take as much time off as you want.

How brilliant would that be?

You’d be free to arrange your dentist or manicurist appointment at any time and pop out, no questions asked. You’d be free to travel in luxury and arrive at your destination totally relaxed. And if you felt a bit overworked, you would be free to just take another day off, or why not, a whole week.

This is not some crazy future utopia. It is exactly the kind of ‘no rules’ work environment that you’d find if you worked at Netflix. Unlimited holidays and an expenses policy that is just five words long: “Act in Netflix’s best interest”.

Now Netflix is a pretty successful company. Its revenues were nearly $9 Billion in 2016, more than twice what they were three years before. Surely this success is at least in part due to its HR policies. And so other organizations, if they want to be equally successful, should replicate these policies, right? How better to identify the very best practices to follow than by the financial performance of a company?

There is definitely a lot of interest in Netflix’s HR approach. Its unique culture deck has been viewed nearly 16 million times. In the Harvard Business Review article referred to above, the company’s former Chief Talent Officer explains how their unusual HR approach relies on a preoccupation with hiring and retaining top talent — what is referred to as ‘adults’. Such individuals don’t need HR policies, but intuitively know how best to apply their own logic and common sense for the greater good of the organization.

Libertarian paradise

It sounds like a libertarian’s paradise: as close to absolute freedom as you can realistically get, with as few restrictions as possible. But is it too good to be true? Can we really just say “behave responsibly and do what is right”, and leave everything else to the judgement of the employee — even if they are‘adults’? How do people really respond to this?

We are not very good at knowing what is ‘right’ and responding to extreme freedom. Pay-what-you-want experiments, in which customers are given the freedom to decide the price they will pay for a meal, for example, have not been an big success. External factors, rather than an innate idea of the correct price, appear to determine the price people pay. They are influenced by price anchoring (a suggested price) and social proof (what they see others pay). Or they simply don’t buy at all — people feel uncomfortable with the freedom itself to set the price, and it acts as a deterrent.

This makes you wonder how employees respond to such extreme freedom in the workplace. The dynamics in an organization without fixed rules would certainly be interesting. New joiners have their previous vacation arrangements as an anchor, but are then subject to conflicting forces. They might be inclined to copy the behaviour of their colleagues, whether it is more or less than their old benchmark. But alongside this they might experience the pressure to signal their loyalty to their employer by taking only little time off. Or maybe the company proclaims the need of its employees to look after their own wellbeing by maintaining a good work-life balance… but how serious are they really when they say this?

Hard work

Dealing with such conflicts in an environment with no rules is hard work for employees. There is the continual uncertainty in the absence of an objective norm: “am I acting ‘responsibly’, and is my judgement the right one?”. There is the fear of doing the wrong thing, and that this will lead to unexpected and unpleasant consequences.

And it is also hard work for the employer. It is crucial that they only recruit people who totally fit the mould, so there is the constant concern that they may have accidentally hired a not-so-adult person. And there is the challenge of giving meaningful feedback to employees, when there are no objective expectations with which their behaviour can be compared.

All hugely tricky — but maybe Netflix somehow manages to populate its organization with ‘adult’ people? Even if that is the case, that doesn’t mean it be can easily scaled and replicated in very different companies.

But there are signs that not everything is rosy at Netflix itself either. Glassdoor, a website on which employees and former employees can review their (ex-)employer anonymously contains some less than flattering judgements. In the comments you find things like “incredibly high” staff turnover, intense company politics (precisely due to the lack of rules), and insecure bosses.

Such observations make you wonder whether a no-rules environment really is the embodiment of “the reinvention of HR”, as the HBR article’s title implied, with little false (or indeed genuine) modesty.

(Image by Ket Quang)

For sure, it is an illusion that introducing more rules is the way to contain risk, and certainly that you can do this without any adverse effect. But that doesn’t mean that, in general, giving employees complete freedom brings out the best in everyone. Most of us work better when we have unambiguous guidance about what is (and what is not) appropriate. We like to know where we stand.

We may generally prefer more freedom over less freedom. But we are also quite happy to trade some freedom in return for security and clarity, so that our cognitive systems can focus on the job, rather than on worrying whether we’re transgressing some unwritten convention. Some individuals may thrive in this type of strong culture, others may indeed worry about the “Keeper Test” at Netflix. There are many glowing reviews of the Netflix culture, such as this one, but it is definitely not for everyone.

Rules as collective heuristics

It’s one thing to keep rules to a minimum and weigh up the pros and cons of introducing a new rule before doing so. It’s quite another thing for an employer to abdicate all responsibility to the employees, yet still hold them accountable for their actions.

Rules are, at best, the distillate of relevant wisdom: they provide guidance where our own knowledge is insufficient. They are like collective heuristics that help us make the right trade-off, and choose the right course of action without the need for costly deliberative decision-making.

A no-rules model for organizations echoes the flaws of the homo economicus model in economics. Both view people as idealized decision-makers. But real people are humans, quirky beings that need a context that makes sense to them, so they can interact sensibly with each other.

It is an illusion that we can function properly without rules.


This story is a sequel to The Rule Illusion, and was also co-written with Paul Thoresen. This article was originally published on Medium, the New Organizational Insights.


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Koen Smets

Koen Smets

Koen Smets is an accidental behavioural economist, who works as an organization development specialist. He uses elements from both orthodox microeconomics and behavioural economics to bring about behavioural change. He is on Twitter as @koenfucius.

“No Rules” Illusion: can we do without rules?
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