Downstream for Netflix -- It Won't Be What they Think

Over the past week there has been a lot of discussion on the airwaves about Netflix and their new leave policy granting a year's paid leave to new parents.  Coming on the heels of some states looking at or passing laws mandating more generous leave policies, particularly forced granting of sick leave, this is really worth looking at.

Because, as always, there are unintended consequences, same as there would be with the inane proposal by the White House to mandate sick leave to be given by employers, which I ripped into little shreds in this piece.  While the left is doing their "Ooh, ooh, what wonderful people run Netflix, they're so sensitive; everyone will want to work there" thing, I'm sitting here going "I wouldn't apply there on a dare."

Let's get right to why Netflix will eventually come to regret this policy in ways they clearly hadn't thought through.  Now, Netflix is surely made up of some smart people; you don't get to be industry leaders at distributing movies someone else made, without a brain or two sitting around the office.

But perhaps those brains at Netflix are young and idealistic, and haven't developed enough cubbyholes yet, certainly not enough to think this one through to its logical conclusion.  And that "logical conclusion" relates to the fact that workplaces are, effectively, zero-sum environments.

To explain that, let me start with this: a business exists because of demand for its goods and services, and a public willingness to pay an amount for those goods and services that exceeds the cost to produce, provide and distribute them.  Make sense?  It should; it's not rocket surgery.

At the same time, there is a fairly consistent amount of effort -- we call it "labor" -- needed to produce, provide and distribute them, and that is in proportion to whatever level of production the marketplace drives.  If you sell X products, or produce Y amount of services because of public demand, that equals Z amount of labor required to deliver.  Simple.  Within reason, those proportions will be pretty stable.

So let's say that Netflix in one department has 100 employees.  Three of them are pregnant at the same time, and all decide to go on parental leave for a year. During that time, as allowed, they do not work, and thus produce zero output for Netflix, though Netflix is paying them full salaries.  Now, with or without these three people -- whose salaries are still a cost to the company -- the public demand for Netflix services is the same.  So the costs to provide those services are now the same as they were before, plus three extra salaries needed to come in and do the jobs of the three people who are being paid to do nothing at all.

The work still needs to get done.  So Netflix has two options -- either (A) hire three new people from the outside as noted, hiking the cost to produce and either slashing profit to shareholder investors, or raising prices, or (B) pile the work of the missing people onto existing employees, to do their own tasks plus carry the weight of the three missing people.

It is a zero-sum game -- push down here and you have to pull up there.  The same amount of work still needs to get done.  So put this policy in place, Netflix, and after the left salutes you and tells you how wonderful you are, either:
(A) Your stock price takes a dive because of the added cost burden you've taken on without a shred of benefit (if you have to hire to get the work done)
(B) Your revenues decline because you've had to raise prices to offset the additional cost burden you've taken on without a shred of benefit (if you have to hire to get the work done)
(C) Your good, loyal and hardest-working employees start trickling out the door rather than pick up the slack for a policy that helps others but forces them to work longer and harder for no benefit (if you distribute the workload of the missing to current staff), and
(D) You start seeing a change in applicants, and not in the good way (no matter what you do)

I mean, no, I have no intention of applying to Netflix.  But it certainly does not escape me that, if I go to work there, I know I will have to work harder to make up for the people out on maternity.  Natural selection will push me away; there are plenty of more-attractive workplaces.

Look at it this way -- in any population of applicants large enough, there are going to be really diligent ones who would be attractive employees, but who are single, or don't intend to have (any more) children.  Netflix is not going to get those any more, first because they know they'd have to work more than their own jobs to make up for the parental leave policy, and second because it is clear that the policy discriminates like mad against them, and they'd see themselves as second-class employees.  When Netflix takes the next logical step and has mothers bring their infants in to work, well, you know how much fun the workplace will be for them then.

Netflix will get far fewer of those candidates, and far more of those likely to use that benefit.  What kind of impact is that going to have on Netflix?  Do you not think that if maybe 2% of their employees would use that benefit in 2015, that by 2020 it might be 6-7% just from the natural selection of applicants and the departure of those who would not use the leave?

Ah, the idealism of young CEOs.  Willing to put their company and the investments of their shareholders at risk, to take well-meaning but ultimately company-threatening steps because of their lack of vision and forethought.  Where, we ask, is their Board when sanity is needed?

Thank God they're all out in California and far away.

  Copyright 2015 by Robert Sutton
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