In Rebuke to Netflix Board, Shareholders Back Proxy Access, Annual Director Elections and Elimination of Supermajority Voting Requirements
WEST SACRAMENTO, Calif.—The California State Teachers’ Retirement System was among the Netflix investors who spoke out today following the entertainment company’s annual meeting, at which shareholders again backed multiple proposals to reform the company’s corporate governance practices.
“It’s time for the Netflix board to respect the clear message shareholders have sent them year after year,” said Aeisha Mastagni, Portfolio Manager for CalSTRS. “Netflix should adopt a range of corporate governance reforms and take the necessary steps to refresh its board.”
Proposals calling for proxy access, annual director elections, and the elimination of supermajority voting requirements all passed with majority support from shareholders. Netflix did not disclose vote totals so it’s not yet known to what extent the re-election of directors Reed Hastings, Jay Hoag, and Skip Battle faced opposition from investors. Only one director – Hastings, who serves as CEO and Board Chair – attended the annual meeting in person.
“It’s time for the Netflix board to respect the clear message shareholders have sent them year after year. Netflix should adopt a range of corporate governance reforms and take the necessary steps to refresh its board.”
Investor frustration with Netflix has grown in recent years as the board failed to replace directors after significant opposition from shareholders and disregarded 17 majority-supported shareholder proposals.Shareholders have also been concerned that the Netflix board, despite its ambitions to be a global entertainment company, has no racial or ethnic diversity and is based entirely on the west coast of the U.S.
This year, Netflix faced a rare binding shareholder proposal to adopt a majority vote standard for uncontested director elections. In three prior years, advisory proposals on the topic received at least 80 percent support from shareholders but were not adopted by the board.
“A binding shareholder proposal is a troubling signal that shareholders have lost faith in the board to act,” said Bill Dempsey, Chief Financial Officer for the Service Employees International Union (SEIU), which filed the proposal. “This proposal should be a wake-up call for the Netflix board. Their shareholders are not going away and we won’t rest until Netflix is ready for prime time.”
According to Netflix, the binding proposal was not approved, but it faced substantial barriers in order to pass. Netflix maintains a supermajority vote requirement for binding shareholder proposals, which means that two-thirds of all outstanding shares – as opposed to one-half of votes cast – must vote for the proposal in order for it to be approved. On four prior occasions, Netflix shareholders have overwhelmingly backed proposals to end supermajority vote requirements at Netflix, but the board has failed to implement the change. Today shareholders again voted to end supermajority voting requirements.
“We know that insulated and unaccountable boards create risks for investors in the long term,” said Oregon State Treasurer Tobias Read, whose office oversees the management of the $74 billion Oregon Public Employees Retirement Fund. “Investors will be looking to the Netflix board to exercise leadership in addressing its governance and board composition weaknesses.”
A group of Netflix shareholders – including SEIU Master Trust, CalSTRS, the Oregon State Treasurer, Friends Fiduciary Corporation, CtW Investment Group, Dominican Sisters of Hope, and Ursuline Sisters of Tildonk, U.S. Province – engaged company representatives in April to urge the board to adopt governance reforms that had previously won majority support from shareholders and replace Director Richard Barton through “a robust search process designed to recruit a diverse group of candidates qualified to navigate our company through its next phase of growth.”
Investors didn’t need to look far today to find a contrast to Netflix’s resistance to reform. Salesforce, which went public two years after Netflix and became a constituent of the S&P 500 two years before, also held its annual meeting in the San Francisco Bay Area on June 6th. Yet Salesforce has added six new directors in the past five years, including two people of color, revamped its compensation in response to shareholders, and adopted the majority vote, annual election, and proxy access provisions that Netflix is currently opposing – all without compromising performance.
For more background, read the SEIU and CalSTRS letter to shareholders regarding the majority voting for director elections proposal.
The California State Teachers’ Retirement System, with a portfolio valued $206.5 billion as of April 30, 2017, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. CalSTRS serves California’s more than 914,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts.
The Service Employees International Union (SEIU) has more than 2 million public and private sector members in the United States and Canada. These members participate in more than 50 state, county, and municipal pension funds and 19 private Taft-Hartley funds with more than $1 trillion in assets.