Even as its market valuation soars amid Wall Street’s enthusiasm for its strong subscriber gains, Netflix shareholders raised corporate governance issues during the company’s annual shareholder meeting.
Investors supported a number of stockholder proposals that would give investors a role in the nomination of directors and the ability to make changes with a simple majority vote.
“The voice of shareholders is being ignored and has been ignored for many years,” said James McRitchie, publisher of a popular corporate governance portal CorpGov.Net. “Once again, let’s send a message to the board. Hopefully, the board will get the message. Shareholders want good governance.”
Over the course of the 20-minute annual meeting, conducted via the internet, investors returned four board members, Zillow Chairman Richard Barton, Eutelstat Communications CEO Rodolphe Belmer, Microsoft President Brad Smith and former Disney/ABC TV President Anne Sweeney. Shareholders also lent their nodding approval to Netflix’s executive compensation packages.
Corporate governance issues dominated the meeting.
Shareholders backed a proposal from a group of pension funds representing retired New York City employees, firefighters, teachers and police officers, and the Connecticut Retirement Plans Trust Fund. The measure would grant proxy access, and allow shareholders to nominate their own slate of directors.
It’s part of New York City Comptroller’s Scott Stringer’s Boardroom Accountability Project, which he launched in 2014 in an effort to give investors a real voice in who sits on corporate boards. He has been publicly applying pressure to some of the biggest publicly traded companies to make room on their boards for more diverse, independent voices.
A representative for Stringer’s office described Netflix as “an outlier” in opposing proxy access, and noted it has ignored majority votes against its directors.
Netflix warning investors that it could result in stockholders nominating directors who would work to advance their own agenda without regard to the best interest of the company or its shareholders.
Shareholders also supported a proposal from the California State Teachers’ Retirement System to allow investors to make change through a simple majority vote. The fund argued that Netflix’s bylaws put obstacles in the way of shareholder oversight — such as requiring a supermajority of votes to change provisions of the bylaws that relate to director elections or removals.
A representative of CalSTRS noted during today’s meeting that shareholders have supported majority rule change on four separate occasions, “but the board has refused to act on stockholders’ clear direction.”
Investors also voted in support of a proposal from Myra K. Young of Elk Grove, who said Netflix’s bylaws should be amended to allow shareholders who represent 15% of the company’s outstanding shares to call a special meeting, arguing it’s an important tool to bring issues to the attention of management.
The company countered that such a measure is unnecessary, that its board members have a responsibility to act in the interest of all shareholders and can determine whether an issue is so pressing it must be addressed at a special meeting.
Netflix stockholders rejected a proposal from the City of Philadelphia Public Employees Retirement System, which urged the compensation committee to adopt a clawback policy that would determine when to recover incentive pay awarded to executives who engage in misconduct that violates the law or damages the company’s reputation.
The company argued the company already holds its executives to high standards — that such expectations are “an integral part of our Netflix culture.” Anyone who violates the company’s code of ethics is subject to discipline, including firing.
Netflix noted that federal law (Sarbanes-Oxley) already requires recoupment from the CEO and CFO if a company has to restate its financial results because of misconduct. The SEC also is in the process of developing rules requiring publicly traded companies to adopt policies about recouping compensation.
Shareholders also withheld support for a proposal from the Services Employees International Union, which would have changed the company’s bylaws to allow directors to be elected with the support of a majority of Netflix’s stockholders, not the current threshold of a plurality.