Netflix Changes Bylaws to Allow Shareholders to Nominate Board Members

In a victory for Netflix’s shareholders on a key corporate-governance issue, the company’s board adopted a provision to let certain investors nominate new members of the board and have them included in its annual meeting proxy materials — something most Netflix stockholders have voted in favor of over the last several years.

Netflix disclosed the new proxy access provision Wednesday in an 8-K filing. Under the amended bylaws, any Netflix stockholder (or group of up to 20 stockholders) owning at least 3% of the company’s outstanding shares of the common stock continuously for at least three years may nominate up to two directors or 20% of the board (whichever is greater) and have their candidates included in Netflix’s annual meeting proxy materials.

The soonest Netflix would consider outside adding nominations for the board to its proxy materials would be at the 2020 annual meeting of shareholders.

In a statement, a Netflix spokesperson said, “The board periodically reviews our corporate governance, and determined that adopting proxy access is appropriate at this time.” Until now, all directors have been nominated by the board itself. Stockholders have had the right to nominate board members but only by launching a proxy fight and sending out their own ballots.

The move comes after shareholders at last year’s Netflix annual meeting of stockholders approved a proposal to adopt the proxy access bylaw. Some activist investors have been frustrated that Netflix’s board isn’t receptive to their calls for a more diverse composition of directors, among other governance issues.

“This is a welcome and positive step by the Netflix board of directors that marks a major turning point for the company,” Scott Stringer, comptroller of the City of New York, said in a statement. Stringer — who had lobbied for the change — is an investment adviser to and custodian and a trustee of the New York City Retirement Systems, which owns Netflix shares. “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,” he said.

The new proxy access bylaws adopted by Netflix are similar to the requirement under a rule the SEC adopted in 2010 but which a federal appeals court vacated a year later.

Still, there are a number of other issues that Netflix investors have been unhappy about. A majority of shares cast by Netflix shareholders at the company’s 2018 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. Currently, Netflix uses a plurality voting standard for directors, which allows nominees in uncontested elections to be elected to the board even if a majority of shareholders oppose them.

Shareholders also approved a measure to eliminate the supermajority voting provision for corporate matters (requiring at least 66 2/3% of the voting power of all the company’s then-outstanding shares of capital stock to approve a measure) to allow for simple majority votes. But that’s a non-binding measure, so the board isn’t required to act on it.

According to Stringer, Netflix’s board now “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 repeatedly ignored and “refused to adopt.”

At last year’s meeting, Netflix shareholders approved the re-election of four directors through 2021: 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%.

Netflix currently had 11 board members. The other seven are: chairman and CEO Reed Hastings; Axel Springer CEO Mathias Döpfner; Timothy Haley, managing director at Redpoint Ventures; Jay Hoag, general partner at Technology Crossover Ventures; Leslie Kilgore, former Netflix CMO; Ann Mather, ex-CFO of Pixar and Village Roadshow Pictures and a former Disney exec; and former U.N. ambassador Susan Rice.

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