CalSTRS, Shareowners Call for Changes in Netflix Board Policies

Growing investor frustrations at the company’s annual meeting suggests change is imminent, but the board’s history makes implementation unlikely.

The California State Teachers’ Retirement System (CalSTRS) and other Netflix investors let their voices be heard at the entertainment company’s annual meeting Tuesday, voting against the companies wishes on several proposals.

The proposals in question were in favor of reforming Netflix’s corporate governance policies, including proxy access, annual director elections, and the elimination of supermajority, two-thirds voting requirements. Although Netflix’s board recommended voting against these proposals, shareowners put their proverbial feet down and the majority voted in support of these changes.

Of the shareholders, a large group calling for these changes included CalSTRS, Service Employees International Union (SEIU) Master Trust, the Oregon State Treasurer, Friends Fiduciary Corp., CtW Investment Group, Dominican Sisters of Hope, and Ursuline Sisters of Tildonk, US Province. They reached out to company representatives in April urging the board to adopt the majority supported governance reforms 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.” Whether Netflix’s board chooses to do so remains a mystery.

“It’s time for the Netflix board to respect the clear message shareholders have sent them year after year,” Aeisha Mastagni, portfolio manager for CalSTRS, said in a news release. “Netflix should adopt a range of corporate governance reforms and take the necessary steps to refresh its board.”

While Netflix has not yet disclosed the official vote totals as of this writing, it should be noted that of the directors up for re-election, only CEO and board chair Reed Hastings attended the meeting in person.

Since 2014, Netflix has not adapted proposals to adopt a majority vote standard for uncontested director elections, despite receiving at least 80% support from shareholders. This year, the company was met with a binding shareholder proposal on the subject. However, Netflix claims that the binding proposal was not approved as it faced a bevy of barriers in order to pass. The company sustains a supermajority vote on its binding shareholder proposals. Two-thirds of all outstanding shares must vote for the proposals in order for them to be approved. Majority backing in favor of ending supermajority votes have occurred on four prior occasions with no implementation by Netflix’s board. While shareholders again voted to end supermajority voting requirements, implementation will remain a mystery as well.

“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 SEIU in a CalSTRS news release. “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.” Dempsey is also responsible for filing the proposal.

In recent years, Netflix has had a history of frustrations from its investors, refusing to replace directors after significant shareholder opposition. The board has also disregarded 17 majority supported proposals. Shareholders are also concerned that although the company has global entertainment ambitions, the board features no racial or ethnic diversity in addition to being entirely based on the West Coast.


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