Business
Summary of the analysis essay
Arguably, Netflix has had its fair share of roller coaster conditions and battles for the past few years. They include posting losses in 2012, the CEO Hastings Reed posting enormous salary increase, which do not match the company’s financial conditions, and fluctuating stock among others. Among all these, arguably company-wrecking troubles, Netflix has managed to remain afloat and even post profits in the last quarters of 2012 onwards. However, according to Merced (2014) the Netflix shareholders want to vote on June 9, 2014 about a proposal to separate the roles of the chairman and chief Executive. Reed Hastings, who is also Netflix’s co-founder, is currently holding these two positions. Notably, the matter was proposed by two public pension funds.
Another financial management matter about to be put on the vote is the proposal to put all board members of the company on re-election every year instead of every three years like before. However, according to Merced (2014), perhaps the most noteworthy request is a proposal to have an independent board chairman in Netflix. Notably, the proposal is being supported by Calpers, who are the California public pension plan giant fund, the New York City’s comptroller, and the overseer of the city’s pension fund. In addition, two big proxy advisory firms are also supporting the proposal. They are the Institutional Shareholder Services and Glass, Lewis and Company.
Such controversial and mind boggling proposals have been part of the company since the company’s investors cast more than 26.8 million shares favoring the proposal to change the way the board of directors was selected while 9 million investors opposed (Hacking Netflix 2012). In this vote, the investors and shareholders voted to get rid of the classified board in 2012. While this proposal meant that all directors were to be up for an election, every year so that it would be easier for the shareholders to call for special meetings, Hacking Netflix (2012) states that it was never fully implemented. Under this proposal, the company three classes of directors would end giving way to the one class that would face reelection every year for a three-year term. People supporting this policy argued that the annual elections would make the directors more accountable to the shareholders as well as the customers in the United States and all around the world. They would increase performance and therefore increase the value of the firm, therefore, increasing the profits margins thereof (Hacking Netflix 2012). Netflix opposed to this proposition because they argued that the classified board encouraged the board of directors to focus on the long term interests of the company instead of the short-term focus, which might not be beneficial for the company in the long term.
These overwhelming numbers have given Netflix investors an edge in controlling the company’s management since the investors believe that they had a big role to play in supporting the company in its prior years. Therefore, they believe that they deserve to be heard. Mr. Stringer, who has become very popular with the shareholders, was the first to propose a policy change which was put into the vote. However, since the company has not implemented any of the proposed and voted upon policies, he argues that the company might pay dearly for its actions in the future. Mr. Stringers, who has also joined with Calpers, is expected to cast his votes in favor of the proposal against three directors who are also up for reelection this year, which includes Reed Hastings (Merced 2014).
Merced (2014) argues that separating the two roles has become a popular issue in United States corporate financial management governance. Companies like J. P Morgan Chase, and Abercrombie and Fitch are some of the few facing pressure to follow suit in the recent years. Management scholars argue that such a separation ensures the independence of the board. In addition, it reduces the influence of management in the top positions. This way, they argue that the company is more inclined to pick up the best ideas from the management as well as the shareholders with a critical perspective that stand to benefit the company and not certain individuals.
Others opposing the vote argue that Netflix already has an independent lead director. However, this independent director is not only elected by the company’s other independent board members. The company’s argument ‘one size fits all’ is argued to be unsatisfactory by the I. S. S., who also backed the separation proposal. Although the company’s profit margins have substantially increased, and its shares rose above 95%, Mr. Stringer argues that the proposal is more about principle. According to (Merced 2014), he wants to make sure that the company is operating at the highest possible level of corporate governance and eradicate poor management tendencies as a whole.
Executive summary (bullet points) and its relation to financial management
- The shareholders proposal to separate the roles of the chairman and chief Executive, which both roles are currently being played by Reed Hastings.
- The proposal to put all board members of the company on re-election every year instead of every three years like before.
- The proposal to have an independent board chairman in Netflix.
- The proposing shareholders argue that these policy changes will reduce the influence on the top positions.
- Overall, these changes will ensure that financial management issues are handled by the highest possible level of corporate governance.
References
Merced, M. J. (2014, 8 June). Netflix investors to vote on CEO.-Chairman split. New York Times, 2014, 9 June. Retrieved from: http://dealbook.nytimes.com/2014/06/08/netflix-investors-to-vote-on-c-e-o- chairman-split/?_php=true&_type=blogs&partner=socialflow&smid=tw- nytimesbusiness&_r=0
Hacking Netflix. (2012). Netflix investors voted to change board of director terms. Retrieved from: http://www.hackingnetflix.com/2012/06/netflix-investors-voted- to-change-board-of-director-terms.html
