Tag Archives | governance

Netflix Approach to Governance: One-Sided

Netflix Approach to Governance: Genuine Transparency with the Board (download) by David F. Larcker and Brian Tayan takes a look at one aspect of corporate governance at Netflix and finds “a radically different approach to information sharing” by management with the Board. Shareholders are largely left out of the equation.

Netflix Approach to Governance: Management

Netflix Approach to Governance has the appearance of a balanced look at how management shares information with the Board. There is no suggestion the approach can be widely copied. Says Larker,

I think it would be hard to put this type of system in place at older and more mature organizations. Innovative organizations that want and need the insights from board members can clearly adapt this type of approach. You need a CEO who wants a high level of discussion about strategy, etc., and is open to alternative points of view.

Transparency works at Netflix, at least in part, because CEO Reed Hastings understands board members would not have the confidence to make tough calls unless they have a better understanding of the company.

Transparency is hard to argue against, unless it leads to directors leaking information that reaches competitors. Larcker and Tayan interviewed CEO Reed Hastings and most of the board members. They describe two key features of what they appear to believe is remmanagement transparency.

Board members attend monthly and quarterly senior management meetings as observers. Communications to the board take the shape of approximately 30-page memos that are heavy on analysis and contain links to all relevant data on the company’s internal computer systems. (Another Netflix Disruption: A Transparent Board)

More frequent meetings with senior staff and more information allows Netflix directors to work more effectively, since they are better able to assess strategic developments. It is hard to tell what impact transparency is having on the company but,

Netflix has been enormously successful over the last five years. Revenues have nearly tripled, increasing to $11.69 billion from $4.4 billion at the end of 2013, while the market cap soared to $133 billion from $4.4 billion.

Directors like the approach.

The overall tone Reed has set, really from early days, is around transparency. … There is no editorializing. There’s no censorship.

It’s just a deep desire to hear rational, well-argued pros and cons of any decision.

No censorship and frank discussions between management and board; if other companies are not operating that way, why not? Equally important, why does that approach not carry through to the relationship between shareholders and the board?

Netflix Approach to Governance: Shareholders

Their research, part of the informative Stanford Closer Look Series, begins with the following sentence:

The hallmark of good corporate governance is an independent-minded board of directors to oversee management and represent the interests of shareholders.

The only other significant reference to shareholders comes later in the following sentence:

While fiduciary rules allow directors to rely exclusively on information provided by management, dynamics such as these can reduce the quality of that information and impair their ability to make good decisions on behalf of shareholders.

Even through the law allows directors to rely on what the CEO and other senior executives tell them, directors make better decisions when the company is more transparent – when they can observe meetings further down the chain and have more direct access to company relevant data. Yet, the Netflix approach to governance appears one-sided. Transparency and dialogue are missing when it comes to management and shareholders.

As I pointed out in a recent post, Netflix has repeatedly ignored shareholder votes. (Will Netflix Ignore Stockholders Again?) While proxy proposals are generally precatory, most companies implement those receiving a majority vote and often those that do not. The Netflix approach to governance appears to ignore proxy votes whenever legally possible.

  • In 2014 a majority voted to declassify the board and to require a majority vote to elect directors.
  • In 2015 similar proposals were voted and won.  A majority of shareholders also voted against director Barton, who, although he lost, was up for reelection this year.
  • In 2016 a majority of shares were voted in favor of proxy access, reducing supermajority vote requirements, and declassifying the board.
  • In 2017 a majority of shares were voted in favor of proxy access, to declassify the board, to require a majority vote for electing directors and to eliminate all supermajority voting requirements. As far as I know, none of those proposals were implemented by the Board.
  • In 2018 a majority of shares were voted in favor of the following:
    • Reduce Ownership Threshold for Shareholders to Call Special Meeting (57%)
    • Adopt Proxy Access Right (58%)
    • Provide Right to Act by Written Consent (52%)
    • Adopt Simple Majority Vote (85%)
    • Amend Bylaws (72%) This was a binding proposal to require directors in uncontested elections to be elected by a majority of shares voted

Given the Netflix approach to governance with regard to shareholders, I expect the only proposal that will be adopted from this year is the binding proposal to require a majority vote in uncontested directors elections. The vote in favor surpassed the bylaw requirement of a two-thirds threshold.

Although I do not question the scholarship of Larcker and Tayan, their discussion of the Netflix approach to governance would benefit from an examination of shareholder relations with the board. We hope that is on their agenda for a closer look

Netflix Approach to Governance: Other Views

   

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Governance, Liquidity, and Employee Retention

Governance, Liquidity, and Employee Retention in an Era of Capital Abundance was the full title of last Thursday’s morning event sponsored by the Silicon Valley Directors Exchange and Stanford’s Rock Center for Corporate Governance. As billed, we were to hear

 a panel of experts discuss the role of the board of directors in addressing challenges of governance, liquidity, and employee retention in an era of capital abundance. The discussion will cover trends in venture capital investments in private companies, including increased funding levels and the rising number of unicorns, the length of time companies are staying private (which is generally longer now than in the past), and exit strategy and valuation trends in acquisitions versus IPOs.

In addition, the panelists will debate the governance implications and the consequences for employees of companies staying private with relatively unlimited access to capital, including:

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Report from CII Winter Meeting: ESG

CIIEven in Washington, the numbers are impressive. The Council of Institutional Investors, who met in Washington DC this week, represents 23 trillion (with a t) dollars, mostly made up of retirement and other savings of working families. Compare that to the entire budget of the US government, less than two trillion a year. Like most industry group meetings in Washington, this one had presentations on what to expect from Congress and the regulatory agencies and how millennials will change the way the members do business, plus snack breaks and wireless sponsored by firms trying to sell products and services to the attendees. But the a two and a half day session featured repeated agenda topics on climate change and what are called ESG issues, suggesting that pension funds may step in where governments have failed. Continue Reading →

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Park and Dibadj Consultancy

Douglas Park of Park and Dibadj Consultancy

Douglas Park

Douglas Park and Reza Dibadj have launched their boutique business and legal consultancy, Park and Dibadj (P&D)—a unique firm that addresses unmet needs in corporate strategy and governance. We bring decades of successful experience as both lawyers and strategists in extraordinarily challenging environments.

We believe that a siloed approach—law on the one hand, business on the other—cannot adequately address the most pressing problems of corporate governance and strategy. As such, we develop business strategies and also implement transactional structures and substantive legal arguments.

Reza Dibadj of Park and Dibadj Consultancy

Reza Dibadj

Our experience practicing, consulting, and teaching both business law and strategy allows us to address two critical issues that companies face: corporate development and mitigating legal, operational, and financial risks to organizations and their directors and officers.

Corporate Development

With respect to corporate development, Park & Dibadj:

  • Collaborate with domestic and international business entities that seek financing strategies that do not require securities registration.
  • Advise on mergers & acquisitions, including identifying targets, contractual structures, appraisal rights, and due diligence to maximize the chances of a successful deal.

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Positive Impact of SRI Investors

SRI InvestorsSustainable, responsible and impact, SRI investors, have influenced the investment industry, companies, governments and other actors to address environmental, social and governance (ESG) challenges in four major areas, according to The Impact of Sustainable and Responsible Investmenta report released today by the US SIF Foundation.

Influence of SRI Investors

Drawing upon a range of data, surveys and examples, the report focuses on four significant impacts of sustainable, responsible and impact – SRI investors over the past 25 years.  SRI investors have:

  • changed the investment industry, leading to more SRI products and greater access to expert practitioners;
  • improved public companies by stepping up active shareholder ownership and engagement on ESG issues;
  • aided communities and individuals via community investing and other initiatives; and
  • influenced public policy and launched organizations to promote sustainable investment.

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July 2010, 2005, 2000 in Corporate Governance History

Mr. Peabodys WayBackMachineI don’t think we’ve gone back in time all year… too busy with proxy season. Join us as Mr. Peabody and Sherman prepare to go back in time to visit corpgov.net 5, 10 and 15 years ago. Yes, many links are broken. The world and the internet move on… still, it is worth a few minutes to reflect on where we’ve been.

Five years ago in Corporate Governance

What Would Proxy Access Look Like if Done Right?

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Boardroom Insider: Aren’t Boards Supposed to Work That Way?

Boards od Directors

A meeting of a board of directors of the Leipzig–Dresden Railway Company in 1852 (Wikipedia)

Those of us involved in corporate governance issues for a living enjoy talking shop with others in the field. One reason, I suspect, it that it’s so damned difficult to explain corporate governance norms to people on the outside. “You mean CEOs pretty well select the very board members who set those CEOs’ pay and performance standards? How can I get a job like that?”…and so on. Continue Reading →

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Governance, Disclosure and Share Price

Correlation

Correlation from XKCD.com

Good corporate governance means quicker, more frequent disclosures to the stock market. Or does it? The evidence varies by country, and in our research we wanted to check the relationship.

We used cross-country data from 23 OECD countries, firms with financial years ending between 1 January 2003 and 31 December 2008. We looked at company announcement information from more than 2,000 different firms, and share prices relating to 5,800 different firms. Continue Reading →

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Unions Launch Global Proxy Review 2014

CWC Global Proxy ReviewThe 4th annual Global Proxy Review has now been published by the Global Unions Committee on Workers’ Capital (CWC), a joint initiative of the International Trade Union Confederation, Trade Union Advisory Committee to the OECD and Global Unions Federation.

The report and interactive website encourages investors to take an active role in proxy voting oversight for global equity portfolios. Readers will learn how to take active role in proxy voting oversight for global equity portfolios. Continue Reading →

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What is Corporate Governance?

Niamh Brennan

Niamh Brennan

In this guest post, first published by Business and Leadership on July 28Niamh Brennan of the University College Dublin (UCD)  explains what the term corporate governance means. I’ve added a few links to her original. We have a host of other definitions for corporate governance in our Library but I like Professor Brennan’s reference to etymology and her point about the centrality of limited liability.

The word governance comes from a Latin word – gubernare – which means to steer. Cicero wrote “he that governs sits quietly at the stern and scarce is seen to stir”. Thus my colleague, Dr Collette Kirwan, has conceptualised the board as being the navigator of the company. Continue Reading →

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GMI Ratings Offers Webinar on Emerging Market Ratings

GMI RatingsGMI Ratings, the leading provider of research, data and analytics on environmental, social, governance (ESG) and forensic accounting risks affecting the performance of public companies, is introducing Accounting and Governance Risk (AGR®) ratings on over 9,000 companies in nearly 60 emerging market countries. GMI’s AGR ratings capture a variety of accounting irregularities and corporate governance weaknesses associated with negative events. With the addition of the emerging market companies, GMI now offers AGR ratings on nearly 29,000 companies worldwide. Continue Reading →

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MSCI to Acquire GMI Ratings

MSCIMSCI Inc. (MSCI) announced it has agreed to acquire GMI Ratings, a provider of ESG (environmental, social and governance) ratings and research to institutional investors, through its subsidiary MSCI ESG Research Inc. The transaction is expected to close in the third quarter, subject to customary closing conditions. Said Remy Briand, Managing Director and Head of ESG Research.  Continue Reading →

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IRRCi Award Winners Announced

IMG_2967

Lucian Bebchuk & Edward Waitzer

Two seminal research papers have won the Investor Responsibility Research Center Institute’s (IRRCi) prestigious annual researchcompetition focused on the interaction of the real economy with investment theory. One research paper highlights the financial market’s ability to learn the value of corporate governance, and the second explores evolving fiduciary responsibilities resulting from the need for long-term value creation. IRRCi Chair Linda Scott announced the 2013 prize recipients yesterday at the Columbia University Millstein Governance ForumCorporate Governance in the New ‘Normal’: The Impact of New Patterns of Corporate Ownership. Continue Reading →

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Environmental and Social Shareowner Proposals Gain Traction

Key Characteristics of Prominent Shareholder-sponsored Proposals on Environmental and Social Topics, 2005-2011, released by the IRRC Institute (IRRCi) and researched by Ernst & Young LLP finds environmental and social (E+S) shareowner proposals are gaining increased support from investors at US companies. Download the report, presentation, press release and even replay the webinar from IRRCi’s website. Continue Reading →

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Corporate Governance Archives: July 1999

Stephen Davis, of Davis Global Advisors, is assembling a long-range list of global corporate governance-related conferences/workshops/events for the World Bank website and Global Proxy Watch newsletter. Please pass on the date, city, title, sponsor, location, and contact information for any such events you may know about by e-mailing [email protected]. Please cc me at [email protected] so that I can add a select few to our education pages. You can also post a message on the ECGNlist, the information and discussion list of the European Corporate Governance Network.

When is a company ready to form a board? A recent article in the Atlanta Business Chronicle offers advice from Paul Lapides, director of the Corporate Governance Center at Kennesaw State University, Donald R. Duckworth, chairman and CEO of Atlanta-based Horton International Inc., an executive search firm, and others. Continue Reading →

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