Saturday, April 13, 2019
Every year, when we get to the section on shareholder voting in my Business Associations class, I assign this article about Netflix. As it describes, Netflix has a staggered board and plurality voting and it takes a two-thirds vote of the stockholders to amend the bylaws. Every year, shareholders submit proposals to change these matters; every year, a majority vote in favor, and every year, Netflix just ignores the vote and keeps on keeping on.
But now it seems there are some cracks in the wall.
Last year, Netflix went on what I can only interpret as something of a charm offensive, publicizing what it claimed was unusually strong board oversight and transparency between the board and the management team. I take this to mean that their shareholders had become sufficiently restive that the company felt it needed to respond.
But that apparently did not work as well as hoped. This year, shareholders again submitted a series of governance reform proposals, seeking the right to call meetings, proxy access, the ability to act by written consent, the ability to amend bylaws by majority vote, and a bylaw amendment that would provide for director elections by majority rather than plurality voting. All passed except the bylaw amendment, which did not reach the required two-thirds vote, but did get 57% of the vote of the outstanding shares and 72% of the voting shares.
But this time, instead of ignoring the vote, Netflix actually amended its bylaws to provide for proxy access.
It seems that even Netflix cannot resist the pressure from investors forever. And now I’ll have to give my students a different lesson.
Glad you found it helpful! What I find fascinating here is that Netflix clearly looked at all the governance changes shareholders want - easily amended bylaws, majority voting for directors, declassified board - and decided that proxy access, that hard-fought right, was the least threatening option to them. Something to think about.
Posted by: Ann Lipton | Apr 15, 2019 9:51:50 AM
Thanks for this, Ann. This is a great example of the impact that public sector and labor affiliated pension funds are having on corporate governance. I argue that this is a new form of "transformational" activism in a new paper that will appear soon in the Cambridge Journal of Economics. A link to the pre-publication version is available at LUN and I welcome any feedback.
Posted by: Steve Diamond | Apr 15, 2019 9:40:01 AM