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Governance Activists Set Their Sights on Netflix's Annual Meeting
New York - May 9, 2013 John Laide


Netflix, Inc. has rewarded its shareholders with a 190% stock price increase over the last twelve months but the company will nonetheless face shareholders seeking change when its annual meeting is convened on June 7th. Five proposals related to board structure and shareholder rights/takeover defense will be presented by shareholders at the meeting. That's the most such proposals appearing on the ballot of any S&P 500 company that has filed proxy materials so far this year (approximately 86% of S&P 500 companies have filed). Only General Electric Co., with six, has more shareholder proposals related to corporate governance practices in its proxy statement in 2013.

It's not surprising that Netflix has attracted these types of proxy proposals. While part of the S&P 500 since December 2010, several of its governance practices, particularly related to shareholder rights and takeover defense provisions, are not in line with a majority of its index peers. Netflix is among the only 7% of S&P 500 companies with a poison pill in force, 15% with a classified board, and 8% that have not adopted a majority or plurality-plus vote standard to elect directors. It's also in the minority in denying shareholders the right to call special meetings and requiring a supermajority vote to amend certain charter and bylaw provisions. Overall, only four S&P 500 companies have a higher Bullet Proof Rating (BPR) than Netflix's 9.25 in the FactSet SharkRepellent database. The BPR is a relative measurement of a company's takeover defense protection. It is based upon an index that considers poison pill and charter and bylaw provisions that contribute to defending against hostile takeovers and proxy battles.

The specific proposals to be voted on are: Declassify Board, Eliminate Supermajority Requirements, Adopt Majority Vote Standard to Elect Directors, Separate Chairman and CEO Positions, and Allow Proxy Access. The board recommends shareholders vote against each of the proposals. Based on recent results three of the proposals have a good chance of passing. In 2012, 87.5% of proposals to de-stagger boards and 84.2% of proposals to eliminate supermajority vote requirements that were voted on were approved. Proposals to adopt a majority standard to elect directors were approved in 64.9% of the cases; however, several of the companies where the proposal did not pass had a director resignation policy for directors receiving a majority withhold (i.e. a plurality-plus standard). This approach is often acceptable to certain of the large fund families that will be voting on the proposal. Netflix does not have such a policy so expect above average shareholder support for the proposal.

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