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Netflix Shareholders Again Fail to Change Rules to Elect Board Members by Simple Majority Vote

Here’s one for corporate-governance wonks: A majority of shares cast by Netflix shareholders at the company’s June 6 annual stockholders meeting were in favor of changing the bylaws to elect directors by a simple majority — but the measure failed, because it did not meet Netflix’s supermajority voting requirement.

Netflix disclosed the results of the votes at the shareholder meeting in an SEC filing Friday. Of shares voted on the proposal to adopt simple-majority voting for directors, 71.7% were in favor. However, that failed to meet the requirement that two-thirds of outstanding shares of common stock vote affirmatively for a measure to pass.

Currently, Netflix uses a plurality voting standard for directors, which allows nominees to be elected even if a majority of shareholders oppose them. The same measure to switch to simple-majority director elections was proposed last year — and also failed.

Some activist investors have been frustrated that Netflix’s board isn’t receptive to their concerns for a more diverse composition of directors, among other governance issues.

Case in point: Also at this week’s meeting, shareholders approved a measure to eliminate the supermajority vote requirement on corporate matters to allow for simple majority votes, with 85% shares in favor. (In other words, to change the provision that prevented approval of the change to simple-majority vote director elections.) However, that’s a non-binding measure, so the board doesn’t have to act on it. Netflix’s board has ignored similar non-binding measures in the past.

The proposal to elect directors using a simple majority — both this year and in 2017 — was made by the Services Employees International Union. The union in its statement said, “Shareholder support for current Netflix directors is low.” SEIU pointed out that Netflix director Richard Barton failed to receive majority support in his last election, while directors Ann Mather and Jay Hoag were last elected with under 60% support. According to the union, average support for directors in S&P 500 director elections in 2017 was 97%.

The composition of Netflix’s board also is an issue, according to SEIU: Half of Netflix’s independent directors have tenures of at least 12 years and “the board lacks racial diversity,” it said.

Netflix, in its opposing statement recommending a “no” vote on the measure, said in part: “The Board does not believe that majority voting in the uncontested election of directors augments the role of stockholders in the election of directors. Netflix has had plurality voting in place since the Company’s initial public offering, and the Board believes that this practice has served the Company well in electing highly qualified and independent directors.”

For the record, Netflix shareholders approved the re-election of four directors at Wednesday’s meeting: Anne Sweeney, former president of Disney-ABC Television Group; Richard Barton, executive chairman of Zillow Group and founder of Expedia; Brad Smith, Microsoft president and chief legal counsel; and Rodolphe Belmer, the former CEO of Canal Plus Group.

Barton received 54% of the shares voted in favor of his election (the rest were “withheld”); Smith received 55.8%; Sweeney received 61.2%; and Belmer received 86.7%.

Also at the online meeting, Hastings said Netflix doesn’t currently have plans to offer a dividend to shareholders. He also responded to a question about how Netflix considered the renewal of “13 Reasons Why” for a third season, given the controversy surrounding the teen-suicide drama. Hastings replied that the show “has been enormously popular and successful,” adding: “It is controversial. But nobody has to watch it.”

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