Tag Archives | Netflix

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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Will Netflix Ignore Stockholders Again?

Netflix Statement Re Proposal #4: Right to Call Special Meetings   

This proposal simply asks for a shareholder right to call a special meeting. Special meetings are a way to bring an important matter to the attention of both management and shareholders outside the annual meeting cycle. That is important because there could be 15-months between annual meetings. The 15% threshold is still well above the 10% allowed by law, which many other companies provide. Emergencies do happen. 64% of S&P 500 companies provide for special meetings. 

Let me also put this proposal in context. 

Last year a majority of shares were voted in favor of proxy access, to declassify the board, 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.  Continue Reading →

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Netflix Inc: Proxy Score 0

Netflix Inc

Netflix Inc

Netflix Inc $NFLX., one of the stocks in my portfolio, an Internet television network, which engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. Their annual meeting is coming up on June 9, 2016.

ProxyDemocracy.org had collected the votes of one fund family when I checked. Vote AGAINST directors, pay, auditor; FOR all shareholder proposals. I voted with the Board’s recommendations 0% of the time. View Proxy Statement via iiWisdom. Continue Reading →

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Netflix: Proxy Score 11

NetflixNetflix, Inc. (NFLX), an Internet television network, engages in the Internet delivery of TV shows and movies directly on TVs, computers, and mobile devices in the United States and internationally. It is one of the stocks in my portfolio. Their annual meeting is coming up on 6/9/2015. ProxyDemocracy.org had the vote of two funds when I checked and voted on 6/3/2015.  I voted with management 11% of the time and assigned Netflix a proxy score of 11. Continue Reading →

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Netflix $NFLX: Proxy Vote

netflixNetflix (NFLX), is one of the stocks in my portfolio. Their annual meeting is June 9, 2014. ProxyDemocracy.org had collected the votes of three funds when I checked and voted on 6/4/2014.  I voted with management 27% of the time.  View Proxy Statement (why no linked Table of Contents?) Read Warnings below. What follows are my recommendations on how to vote the NFLX proxy in order to enhance corporate governance and long-term value.   Continue Reading →

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Netflix: More Reasons for Proxy Access

Netflix, Inc. ($NFLX) is one of the stocks in my portfolio. Their annual meeting is coming up on 6/7/2013. I reported how I voted and why I am proposing proxy access in Netflix Needs Proxy Access – Proxy Score 10 Out of 100.

I’ll just add that so far this year, insiders of NFLX have sold approximately 635M in shares and have purchased zero shares. The stock price has risen dramatically since my wife filed har proxy access resolution last year. Hopefully, that won’t deter shareowners from voting for better corporate governance, which should help protect shareowners now and in the future. Below, I reproduce the full analysis by John Laide of proposals to be voted on at the NFLX annual Continue Reading →

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Netflix Needs Proxy Access – Proxy Score 10 Out of 100

Netflix, Inc. ($NFLX) is one of the stocks in my portfolio. Their annual meeting is coming up on 6/7/2013. ProxyDemocracy.org had collected the votes of one fund when I checked on 5/25/2013. I voted with management only 10% of the time.  View Proxy Statement. NFLX is another supposedly high-tech company with no hyperlinks in their proxy statement. In fact, they don’t even include an index. They either don’t want investors to be able find information or they just don’t care enough to bother. While the stock has risen recently, the company remains risky because of poor corporate governance. Continue Reading →

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Proxy Access at Bank of America May 8th

Re opposition to John Harrington’s proxy access proposal at Bank of America ($BAC), based on language that I helped develop.  For background, see Bank of America (BAC) Faces Proxy Access on May 8th. I hope opponents will reconsider. From one analysis recommending a vote against:

While this amount ($660 million) is significant in absolute terms, shareholders may have divergent views on whether it constitutes a meaningful ownership interest for the purpose of nominating board candidates. Historical voting results show little investor support for proposed access rights with low ownership thresholds, particularly when such thresholds fall well below the 3 percent threshold adopted by the SEC in its now-vacated proxy access rule.  (my emphasis and addition of the $660M figure)   Continue Reading →

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Proxy Access Proposals Move Forward

On March 26, 2012, SEC staff issued their decision on a request by iRobot (IRBT) to exclude my proxy access proposal from their proxy. Although similar proposals had survived no-action requests last year, IRB management held out hopes that small changes made in the proposal might have made the proposal “vague” under rule 14a-8(1)(3) or “ordinary business” under rule 14a-8(1)(7). SEC staff could not concur and therefore advised IRBT not to omit my proposal based on those rules. Continue Reading →

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Corporate Governance Quick Bites

Holly Gregory

Holly Gregory’s post Applying Securities Laws to Social Media Communications is the best I’ve seen on when the SEC’s Enforcement Division is likely to recommend an enforcement case to the Commission based on the potential for liability arising from disclosures by corporate officers through social media.

As widely reported, including by WSJ, Netflix and CEO Reed Hastings both received Wells Notices from the SEC, related to something Hastings wrote on Facebook back in June 2012. (Netflix Gets Wells Notice Over CEO Hastings’ Facebook Post, 12/6/2012) Continue Reading →

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Netflix: A Candidate for Proxy Access

Netflix Inc. (NFLX),  which has lost half its value in the last two years, adopted an antitakeover plan (poison pill) intended to block activist investor Carl Icahn from expanding his nearly 10% stake. They did so without seeking shareowner approval and the pill may make it harder to find a buyer. Writing for the WSJ, Miriam Gottfried notes, Netflix Pill Should Give Shareholders Pause. Let’s hope shareowners do more than just pause; let’s take action! Continue Reading →

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Will Netflix Listen to Shareowners?

eBay moved to eliminate supermajority requirements in its bylaws at its first regularly scheduled meeting after shareowners approved a ballot measure by John Chevedden. So far, no real word from Netflix on whether or not they will heed the will of shareowners.

It is great to see this issue covered by Bocco Pendola in Seeking Alpha.

This push to move from a supermajority to simple majority vote came after shareholder activists, led by John Chevedden, got the proposal on the ballot at eBay’s recent annual meeting of shareholders. If you follow the link to the official SEC filing of eBay’s proxy statement, you’ll see that the company opposed the proposal. eBay shareholders, however, voted in favor of it, prompting the eBay board to adopt the proposal just two months after it held the meeting.

This move by eBay puts considerable pressure on Netflix (NFLX)… Netflix notes it “will consider” ratifying the proposal ” in due course.” Like an online auction, the clock is ticking.

via Will Netflix Follow eBay’s Lead in Heeding Its Shareholders? – Seeking Alpha, June 29, 2011.

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