Wall Street Journal reporter Shalini Ramachandran talks about Netflix's high-pressure corporate culture.

At one time or another, every employee has experienced what it’s like to be in a difficult workplace. Perhaps a hyper-critical manager makes a habit of reprimanding workers in front of others. Or, a supervisor might insist that everyone do things his or her own way — or face consequences. A sick employee might be told that he or she needs to report to work regardless, or else pay will be docked. These and other tyrannical behaviors — even the smallest ones — can quickly add up to a toxic environment.

Is Fear a Good Motivator?

Research shows that as tools for motivating workers, fear and intimidation come with a lot of risk and have been largely discredited for some time. A tyrannical management style can lead to low self-esteem and performance as it eats away at team cohesiveness, increases stress and helplessness, and creates a feeling of work alienation, according to “Petty Tyranny in Organizations,” a paper written nearly a quarter century ago by psychologist Blake Ashforth, who is now an Arizona State University professor.

And yet the use of fear as a motivator persists. Open office plans, transparent and flattened organizational hierarchies and a tightened job market aside, fear continues to exert its influence in many a workplace. “All emotions have some type of function value. So fear does have a value,” said Wharton management professor Sigal Barsade. “The value, though, usually is to signal that something has gone wrong, something needs to be fixed and it gives energy. And though those are positive outcomes, the problem with fear is it can also cause people to become rigid, less creative, unhappy, and it tends to be better in [small] doses.”

If the message the workplace culture is constantly sending to employees is to be afraid, is that company getting the most out of its workers? “Fear is a normal human emotion, and — when held in check — can sometimes be a functional or even necessary way to ensure that people do not become complacent,” said Wharton management professor Andrew Carton. “But when fear becomes an entrenched marker of an organization’s culture, it can have toxic effects over the long run. In addition to stifling creativity, it can inhibit collaboration and lead to burnout.”

The Netflix Way

But burnout may be of little concern for some employers, especially in certain high-growth industries. Netflix has been praised for its progressive company culture — offering perks such as a high level of employee autonomy, making sure business decisions are transparent to all employees, giving maternity and paternity leaves of up to a year, providing unlimited vacation, and generally adhering to a philosophy the company calls “freedom and responsibility.”

“The problem is negative emotion often breeds other negative emotions.” –Stephanie Creary

In a Knowledge at Wharton interview earlier this year, Patty McCord, former chief talent officer at Netflix, touted the company’s unique culture that focuses on high performers. “We realized that when we had the right people, the right focus and the right deadlines, people operated pretty independently,” she said. “It was about adults. It was about them knowing what they were doing. It’s about having people who are passionate about the work that [they] need to get done.”

According to McCord, Netflix wanted to avoid “generic” company rules and processes that characterize many workplaces; these devolve into best practices, “which is what happens when we copy each other.” One example: Netflix differentiates between values and behaviors. Values are aspirational while behaviors are what one actually does. “It’s an important distinction,” she said. “So if we value honesty, and you keep secrets, then something in the system should either punish that behavior or help reward the behavior” of honesty.

The pressure to perform, though, is high, and Netflix has a culture that is quick to fire employees. And so while these policies might make Netflix seem “very utopian in your head … in real life it’s messier,” Shalini Ramachandran, a Wall Street Journal reporter who wrote an article on Netflix’s tough corporate culture, said on the Knowledge at Wharton radio show on SiriusXM channel 132. (Listen to the podcast at the top of this page.)

One way Netflix creates a culture of fear, some feel, is through using a ritual that makes a public exercise out of firing employees. When a worker is let go, a meeting is held with team members detailing why. An email is sent out to potentially hundreds of other employees explaining what the employee did wrong. But the story that gets told is very much from the point of view of Netflix, said Ramachandran.

One episode cited in the Journal article involved a vice president who was fired by the CFO and an ensuing memo that stated that he had not been forthright with the company around a major employee issue. “That sounds pretty bad,” said Ramachandran. But it turned out that the vice president was protecting an employee with a sensitive medical condition. “So that’s a little more nuanced. There’s one official narrative that might go to hundreds of people, but you might not be there to defend yourself.”

At its best, this practice can make every firing a learning experience for other people at Netflix. “At its worst, it sows gossip and more rumors,” Ramachandran said. Netflix also employs a kind of keeper test. Managers continually go through the mental exercise of asking themselves whether they would want to keep workers if another company made them an offer. “If it comes to ‘I wouldn’t keep you,’ then you’re fired,” she said.

Is this culture likely to spread to other companies? “I think the Netflix culture is something a lot of people have admired,” said Ramachandran. “While it can be at its worst ruthless and demoralizing, at its best it can allow the company to transform itself multiple times and overturn entire industries” — as Netflix has done with the DVD, cable, movie and TV industries.

“There is a quarter century of research that shows how people feel at work has a direct and powerful influence on how they perform.” –Sigal Barsade

“A lot of current and former employees attribute [the nimbleness of Netflix] to its culture, because of … distributive decision-making power … and how fast you can move,” Ramachandran said. “One tech employee was telling me, ‘I can come up with an idea at 9 a.m. and get out the code for it by noon without approval.’ So this kind of moving fast is something this culture encourages.”

The Netflix culture also motivates high performance. “When you are looking over your shoulder wondering, ‘Well, am I a keeper or not?’ you always strive to be your best. Now, of course it can also wear you down, and that’s another part of it,” Ramachandran added. “A refrain that was commonly repeated to me was, ‘It was the best place I ever worked, and the worst.’”

Fear in the Workplace: Viewing Emotions as Noise

In some circles, the conventional wisdom is that fear can be enormously helpful for spurring change, especially during periods of extreme threat, said Carton. But fear and other negative emotions can backfire under certain circumstances, especially when creativity is necessary. “Fear leads people to panic and narrow their attention to such an extreme degree that they may overlook opportunities that unexpectedly present themselves. Employees may become so consumed by the specter of a specific negative outcome that they suffer a form of cognitive paralysis and lose the imagination necessary to conjure novel paths to success.”

Perhaps most problematically, fear can inhibit learning, “which is essential for evading the very catastrophes that some people believe a culture of fear can help avoid,” Carton added. He pointed to a study by Harvard professor Amy C. Edmondson that found hospital employees who operated under a culture of fear reported fewer errors than those experiencing “psychological safety.” But, in the study – “Learning from Mistakes is Easier Said Than Done: Group and Organizational Influences on the Detection and Correction of Human Error” — Edmondson found this was really a result of employees being afraid to report errors.

“In reality, they actually committed more errors,” said Carton, “in part because they did not learn from their colleagues’ past mistakes. It was likely that they were never even made aware of those mistakes, as their colleagues were worried about the consequences that would ensue if their mistakes were discovered. Thus, fear may appear at first to be a mechanism that helps people stay alert to the unacceptability of failure, but it can ironically be a source of failure instead.”

However, many companies don’t see it as their job to actively manage emotional culture in the workplace. Why? “It’s because people just tend to view emotions in general as noise, an ancillary matter that gets in the way of the facts of the situation,” said Barsade. “What many managers and leaders don’t understand is that emotions are not noise, they are data — and they are data about not only how [employees] feel but also how they think and will behave. There is this feeling that in some ways emotions don’t matter or are off limits. But there is a quarter century of research that shows how people feel at work has a direct and powerful influence on how they perform.”

Hope vs. Fear as a Motivator

While there are some people who feel motivated by fear, others are paralyzed by it. “The problem is negative emotion often breeds other negative emotions,” noted Wharton management professor Stephanie Creary. “Fear can manifest into anxiety, depression and hopelessness, and an environment in which these negative emotions are prevalent can become a very hard one to work in and be productive. Hope, on the other hand, can breed happiness, confidence and all sorts of positive emotions that are much more tied to positive performance and well-being.”

“Fear may appear at first to be a mechanism that helps people stay alert to the unacceptability of failure, but it can ironically be a source of failure instead.” –Andrew Carton

When it comes to external threats, it’s easier to deal with fear, since “the support people get helps to buffet you from that fear and it also gives you hope,” said Barsade. In a study currently in process, she and her co-authors examine the influence of two conflicting emotions — group fear and group hope — in entrepreneurial team decision-making to see which emotion will be more strongly related to whether the entrepreneurial teams escalate their commitment to a currently failing venture or terminate that venture.

Using data from 66 teams across 569 decision-making rounds, they find that hope trumps fear. “The relationship between group hope and escalating commitment to a failing venture is stronger than the relationship between group fear and terminating that venture,” wrote Barsade, Tori Yu-wen Huang and Vangelis Souitaris in “Which Matters More? Group Fear Versus Group Hope in Entrepreneurial Escalation of Commitment Versus Venture Termination.”

A single worker who finds him or herself in a workplace where fear is the reigning emotion can try to build personal support for dealing with it. But, said Barsade, “if you can’t find that support that creates a mini-emotional culture of companionate love around you — consisting of affection, caring, compassion and tenderness — trying to weather that culture of fear is difficult.”

Workers might also take comfort in realizing that there is safety in numbers, and approaching management as a group to confront a climate of fear is more effective than one-on-one. “If I am in a company where it feels like all we are doing is being coached in what we shouldn’t do, then I would prefer to hear what it is we should be doing,” said Creary. “One person might approach their manager and say, ‘I’d love to hear more about what we can do than not do,’ but that might not be as effective as a collective conversation. A better approach could be to hold a group conversation with a manager to explain that fear is creating toxicity and threatening their productivity and effectiveness, and then suggest ideas for how to improve the culture and what the positive consequences for doing so might be.”

The salient questions for organizations that deploy fear is whether they are using it intentionally, what it is ultimately achieving, and at what cost? “In Netflix, as in any company’s case, to have a culture work for them, the culture has to be in alignment with the strategy and structure, and in Netflix’s case it seems they have aligned it with their strategy and have created a structure to support it,” said Barsade.

“The question is, are they actually really retaining the best talent?” Barsade continued. “Motivation is a long game, and are they really gaining the best motivation and outcomes? With regard to the people they are losing in their ‘keeper’ test — are they only losing the people they don’t want to keep? People who don’t line up with the culture might also be leaving. And perhaps an employee might not be a keeper in six months, but maybe in a year, they are.”

Sometimes, though, it might just be time for the employee to turn the tables on the employer. You can fight the larger culture only for so long before you’re forced to do what Netflix itself does, said Barsade, and you “do a keeper test of the organization and decide whether to go or stay.”