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Apr 10, 2019

Netflix adopts proxy access

Shareholders voted for the change last year

Netflix has become the latest US public company to give investors a greater say in who is picked for its board.

According to a regulatory filing, the Netflix board of directors late last month amended and restated the company’s bylaws to add a proxy access provision. The updated bylaws state that a shareholder owning at least 3 percent of the company’s outstanding shares for at least three years may nominate up to the greater of two directors or 20 percent of the board.

The change comes several months after Netflix shareholders voted to approve a non-binding proposal urging the adoption of a proxy access bylaw, which the board had opposed.

The proposal was filed by the New York City pension funds: the New York City Employees’ Retirement System (NYCERS), New York City Fire Pension Fund, New York City Teachers’ Retirement System, New York City Police Pension Fund and New York City Board of Education Retirement System.

When New York City comptroller Scott Stringer, who acts on behalf of New York City pension funds, launched his Boardroom Accountability Project in November 2014, he targeted giving shareowners the ability to nominate and vote for directors to run against a company’s slate. Stringer was the main sponsor of these proxy access proposals from 2015 to 2017.

In February 2018, Stringer issued a report stating that more than 440 US companies, including more than 60 percent of the S&P 500, had enacted proxy access rules. By contrast, only six US companies had ‘meaningful proxy access’ in 2014, according to a note accompanying Stringer’s report.

'This is a welcome and positive step by the Netflix board of directors that marks a major turning point for the company,' Stringer says in a statement. 'By enacting proxy access, Netflix is finally giving investors a meaningful voice in board elections and they are no longer an outlier holding out on their long-term shareowners. That’s good for accountability and independence at Netflix — and for our pension beneficiaries. Now the board of directors has to demonstrate its commitment to addressing shareholder concerns and they should consider a number of other proposals that have received wide support but which the company has not adopted.'

In their proposal for Netflix last year, the funds argued that proxy access would make directors more accountable and enhance shareholder value and noted that the terms of the access they suggested were similar to those in vacated SEC Rule 14a-11.

‘The SEC, following extensive analysis and input from market participants, determined that those terms struck the proper balance of providing shareholders with viable proxy access while containing appropriate safeguards,’ the proposers wrote.

Writing in opposition, the board stated that the nominating and governance committee is responsible for evaluating, proposing and approving nominees for election to the board and has a fiduciary duty to act in the best interests of all stockholders when doing so.

‘Stockholders who would be provided with access to the company’s proxy via a proxy access bylaw do not have a similar fiduciary duty,’ the board wrote. ‘These stockholders could nominate directors who advance their own specific agenda without regard to the best interest of the company and its stockholders or to the overall composition of the board, including independence, expertise and diversity considerations.’

Among other things, the board objected that the proxy access proposal could be detrimental to the company due to the ‘increased distraction caused to management and the board from proxy contests, the short-term or special interest focus of directors elected through proxy access and the increase in board turnover, which could create a board without the experience to lead the company to achieve its long-term goals.’

In amending its bylaws generally in accordance with the proposal, Netflix did not provide any comment on the timing or reason for the change. A requests for comment from Netflix was not returned.


Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...