Netflix 2020 annual meeting is 6/4/2020 at 3PM Pacific virtually by entering the eligible shareholder’s 16-digit control number found on the proxy card. To enhance long-term value: Vote AGAINST all Directors, Auditor, Pay, Stock Plan, EEO Ideology Risk Report. Vote FOR Political Disclosure, Simple Majority Vote. See list of all virtual-only meetings maintained by ISS. Vote by 6/3 or miss your chance.
Netflix, Inc. provides subscription streaming entertainment service. It offers TV series, documentaries, and feature films across various genres and languages. Reading through 100 pages of the proxy takes too much time for most. Your vote could be crucial. Below, how I voted and why.
If you have read these posts related to my portfolio and proxy proposals for the last 25 years and trust my judgment, skip the 9 minute read. See how I voted in my ballot. Voting will take you only a minute or two. Every vote counts.
I voted with the Board’s recommendations only 11% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Netflix 2020: ISS Ratings
From the Yahoo Finance profile: Netflix, Inc.’s ISS Governance QualityScore as of December 5, 2019 is 10. The pillar scores are Audit: 2; Board: 10; Shareholder Rights: 10; Compensation: 10. Corporate governance scores courtesy of Institutional Shareholder Services (ISS). Scores indicate decile rank relative to index or region. A decile score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. We need to pay close attention to it all at Netflix.
Netflix 2020 Proxy Scorecard: Board Proposals
1. Netflix 2020 Directors
Egan-Jones Proxy Services recommends Against 1A) Reed Hastings and 1B) Jay Hoag. Mr. Hastings should not be considered independent, since he holds both the CEO and chair positions… an inherent conflict of interest. Mr. Hoag has served for 10 years or more, so should no longer be considered independent nor should they serve on compensation, audit or nominating committees. In addition, since I voted against the pay item, I voted Against Mathias Dopfner who sits on the compensation committee.
Vote: AGAINST Reed Hastings, Jay Hoag. Mathias Dopfner.
2. Ratification of Independent Auditor
I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. Egan-Jones recommends voting against the auditor if they served for seven years. Independence becomes compromised by that time. Ernst & Young LLP has served more than seven years. No other issues appear significant.
Vote: AGAINST
3. Executive Compensation
Netflix 2020 Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Reed Hastings at $38.6M. I’m using Yahoo! Finance to determine market cap ($185B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Netflix is a large-cap company.
According to MyLogIQ , the median CEO compensation at large-cap corporations was $12.2M in 2019. Netflix shares underperformed during the last one and two year time period but outperformed five year time period. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 190:1.
Egan-Jones Proxy Services recommends against:
We believe that shareholders cannot support the current compensation policies put in place by the Company’s directors. Furthermore, we believe that the Company’s compensation policies and procedures are not effective or strongly aligned with the long-term interest of its shareholders.
Given the far above median pay, mixed performance, E-J recommendation and my general concerns about inequality, I voted AGAINST.
Vote: AGAINST
4. Netflix 2020 Stock Plan
The 2020 Plan permits the grant of the following types of incentive awards: (1) stock options, (2) stock appreciation rights, (3) restricted stock, (4) restricted stock units, and (5) dividend equivalents. The 2020 Plan is intended to attract and retain (1) employees of the Company and its subsidiaries, (2) consultants who provide significant services to the Company and its subsidiaries, and (3) directors of the Company who are not employees of the Company or any subsidiary. The 2020 Plan is also intended to encourage stock ownership by such employees, directors, and consultants, thereby aligning their interests with those of the Company’s stockholders.
Egan-Jones recommends Against:
After taking into account the maximum amount of shareholder equity dilution this proposal could cause, as well as both the quantitative and qualitative measures outlined below, we believe that shareholders should not support the passage of this plan as proposed by the board of directors. We recommend the board seek to align CEO pay more closely with the performance of the company and work to reduce the cost of any similar plan that may be proposed in the future.
Vote: AGAINST
Netflix 2020 Shareholder Proposals
5. Shareholder Proposal: Political Disclosure
This proposal from my wife and I (Myra Young and James McRitchie). It requests Netflix provide a semiannual report disclosing policies and procedures, as well as expenditures, both direct and indirect. E-J recommends Against.
Disclosure is in the best interest of the Company and its shareholders. The Supreme Court recognized and assumed this in its 2010 Citizens United decision, when Judge Kennedy wrote,
[D]isclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.
Relying on publicly available data does not provide a complete picture of the Company’s electoral spending. This proposal asks the Company to disclose all of its electoral spending, including payments to trade associations and other tax-exempt organizations, currently hidden, which may be used for electoral purposes.
This would bring our Company in line with a growing number of leading companies, including Alexion Pharmaceuticals Inc., Celgene Corporation, and Biogen Inc., which present this information on their websites.
Proposals on this topic at Alliant Energy and Cognizant Technology Solutions passed last year, despite board opposition. This year, shareholders of Centene Corporation, J.B. Hunt Transport Services, and Western Union have also passed similar proposals.
Vote: FOR
6. Shareholder Proposal: Simple Majority Vote
This good corporate governance proposal from John Chevedden. Chevedden’s proposal on this topic won 88% last year at Netflix but the Board ignored it, just as they did the year before that when the proposal was submitted by CalSTRS and won 85%.
Egan-Jones recommends for:
We believe that a simple majority vote will strengthen the Company’s corporate governance practice. Contrary to supermajority voting, a simple majority standard will give the shareholders equal and fair representation in the Company by limiting the power of shareholders who own a large stake in the entity, therefore, paving way for a more meaningful voting outcome.
Vote: FOR
7. Shareholder Proposal: EEO Policy Risk Report
This proposal from Justin Danhof, of the conservative National Center for Public Policy Research, seeks a report detailing the potential risks associated with omitting “viewpoint” and “ideology” from its written equal employment opportunity (EEO) policy. E-J recommends For.
I am opposed to the idea of screening or collecting information from employees regarding their “ideology.” I have no idea how people would characterize my ideology. The proponent seems to have a personal vendetta against the Southern Poverty Law Center. Sure, every company should welcome diverse views but this is not the way to achieve that objective.
Vote: AGAINST
Netflix 2020 CorpGov Recommendations
Proxy Insight had no meaningful advance votes when I wrote this but may have some now. Looking up a few funds announcing votes in advance, NYC Pensions and Calvert voted the same as me, except they voted for the Stock Plan. Trillium voted the same as me.
CorpGov Votes
- Directors: AGAINST Reed Hastings, Jay Hoag and Mathias Dopfner
- Auditor: AGAINST
- Executive Pay: AGAINST
- Stock Plan: AGAINST
- Political Disclosure: FOR
- Simple Majority Vote: FOR
- EEO Policy Risk Report: AGAINST
Netflix 2020: Mark Your Calendar
Under SEC rules, any shareholder who wishes to present a proposal to be included in our Proxy Statement and introduced at our 2021 Annual Meeting of Shareholders must submit the proposal to the Secretary of the Company so that it is received no later than the close of business on December 4, 2020, and must satisfy the other requirements of SEC Rule 14a-8.
Warnings
Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.
Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” chosen by aspiration. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs. For more on the subject, see CEO Pay Machine Destroying America.
My presentation at the AGM
5. Shareholder Proposal: Political Disclosure
This proposal is from my wife and I (Myra Young and James McRitchie of CorpGov.net). It requests Netflix to report policies, procedures, and expenditures of its political spending.
In its much despised 2010 Citizens United decision, which removed limits on corporate political spending, Judge Kennedy was not worried about the corrupting influence of corporate money because he thought such expenditures were reported. Here’s two of his sentences from that decision:
With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable… Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.
Unfortunately, much of the data Judge Kennedy assumed to be public is not public. This proposal simply seeks to fill that gap by asking Netflix to disclose all of its electoral spending, including payments to trade associations and other tax-exempt organizations like super PACs.
This would bring Netflix in line with a growing number of leading companies too long to list here in this short presentation.
This election year, the stakes have never been higher. Dark money is everywhere, trying to influence us through social media and other avenues. Don’t you want to know what payments Netflix is making to trade associations and other tax-exempt organizations that can be used for political purposes?
Let’s trust our Board, but let’s also verify. We can do that by shining a light on dark money.
Our advice is, don’t drink the bleach. Disclosure is the best disinfectant against the dark money virus. Please vote For Proposal #5.
Hi James,
I am a law student from MSU. I am writing an article on Mr. John Chevedden for a law journal. I was wondering if you knew any way I could contact him via email to interview him on his activism.
Thank,
Bamdad
I’ll forward you email to him.
John Chevedden’s presentation at the AGM
Shareholders request that our board take each step necessary so that each voting requirement in our charter and bylaws that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws.
Currently a 1 %-minority can frustrate the will of our 66%-shareholder majority in an election with 67% of shares casting ballots. In other words a 1 %-minority could have the power to prevent shareholders from improving the governance of our company. This can be particularly important during periods of management underperformance or an economic downturn. Currently the role of shareholders is downsized because management can simply shun an overwhelming 66%-vote of shareholders.
This proposal won more than 80% support 4-times at Netflix since 2013:
80%, 81%, 82% and 88%.
However our governance committee has thrown water in the face of Netflix shareholders and has not yet put this proposal topic on the ballot as a management proposal. Shareholders were not happy with this shunning by directors and gave governance committee Chairman Mr. Jay Hoag a negative vote of 48%. Mr. Hoag is on the ballot today and shareholders have the option to vote against Mr. Hoag again if they have not already done so.
Shareholders with diversified portfolio might want to look closer at Mr. Hoag’s performance as a director at Electronic Arts, Tripadvisor and Zillow Group. The Zillow meeting is on June 9th.
The other 2 members of the governance committee are Ambassador Susan Rice, who was previously rejected by 63% of Netflix shareholders and Brad Smith, who was previously rejected by 44% Netflix shareholders. Ambassador Rice’s 63%-rejection may be the all-time record rejection vote regarding a director who held the title of ambassador. With these high rejection rates for the governance committee directors these 3 directors may have limited prospects of being a director at any other company except for their current directorships.
This shunning of shareholder votes on this proposal topic is all the more outrageous since Mr. Hastings was reported to have received $222 million in total realized pay in 2019. And shareholders rejected executive pay at last year’s annual meeting – a stunning outcome.
Please vote yes:
Simple Majority Vote – Proposal 6