Investor Group Seeks Transparency on Netflix Political Lobbying, Citing ‘Potential Reputational Damage’

A Netflix investor group has submitted a shareholder proposal seeking more transparency regarding the streamer’s political lobbying and contributions.

In a May 18 regulatory filing, Boston Common Asset Management said it is seeking shareholder support for its Proposal 8 on the company’s upcoming 2022 shareholder proxy vote.

The group seeks input on Netflix policy and procedures governing lobbying, both direct and indirect, in addition to any payments made by the streaming behemoth. Specifically, Boston Common seeks intel on Netflix’s membership in and payments to organizations that write and endorse legislation. It also seeks a description of co-CEO’s Reed Hastings and Ted Sarandos’ management and the board’s decision-making process and oversight for making the aforementioned payments.

“Without a clear system ensuring accountability, corporate assets can be used to promote public policy objectives that are misaligned with company public positions and principles, and therefore can pose risks to Netflix’s reputation to the detriment of shareholder value,” Boston Common wrote in the filing.

According to the filing, Netflix spent about $690,000 on federal lobbying in 2021, and more than $8.8 million since 2012. The tally does not include state lobbying expenditures. Boston Common claims Netflix spent $406,250 on lobbying in California from 2019 to 2020. Netflix also reportedly spent between €700,000 ($739,000) and €799,999 ($845,000) on lobbying in Europe in 2020.

According to press reports, Netflix has “focused more of its public policy strategy internationally, where most of its growth lies and where it faces tenacious regulators.”

Netflix says it opposes Proposal 8, contending it already discloses political and lobbying expenditures.

Shareholder Sues Netflix Over Sub Loss, Stock Valuation Freefall

A San Antonio, Texas-based investor has filed a lawsuit against Netflix, claiming the SVOD behemoth mislead investors about the extent of its subscriber woes. The streamer last month disclosed it lost 200,000 subscribers worldwide in the first quarter, ended March 31. Netflix is also projecting a loss of 2 million subs in the current second quarter, ending June 30, due largely to the shutdown of operations in Russia.

Netflix had projected a Q1 subscriber gain of 2.5 million.

The suit (Pirani v. Netflix, No. 22-cv-02672), filed in U.S. District Court, San Francisco, alleges co-CEOs Reed Hastings, Ted Sarandos, and CFO Spencer Neumann, didn’t disclose to investors the extent of the service’s subscriber churn.

Fallout from the subscriber loss has been swift, with Netflix losing more than $50 billion in market valuation. The suit seeks unspecified damages for Netflix shareholders of record from Oct. 19, 2021, to April 19, 2022.

Netflix, which doesn’t comment on pending litigation, was not available for immediate comment.

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Netflix Ups Executive Compensation Despite Shareholder Disapproval

Facing a swarm of new SVOD competition apparently requires hikes in executive compensation at Netflix. The SVOD behemoth Dec. 23 disclosed a lucrative 2020 senior executive compensation plan that shareholders largely voted against earlier this year.

In June, 158.66 million shareholders voted against the plan while 158.46 million voted for it. While the margin was only 190,862 votes against, Netflix said the vote was non-binding.

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As a result, co-founder/CEO Reed Hastings will see his base salary (what Netflix pays taxes on) decrease to $650,000 (from $700,000) while stock-based compensation increases to $34 million from $30.8 million. CCO Ted Sarandos, who reportedly once managed a small chain of video stores in Arizona in the 1980s, gets a $2 million salary increase to $20 million and $14.6 million in stock options (from $13.5 million).

First-year CFO Spencer Neumann will receive $6 million salary and $5.5 million in stock options, while chief product officer Greg Peters receives a salary boost to $12.9 million (from $10 million) and stock options of $6.9 million — up from $3.85 million.

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Netflix shares are down slightly at $332.07 per share. The company, which spent $15 billion on content in 2019 remains profitable on paper, despite generating $3 billion in negative free cash flows.

Netflix Now Allowing Shareholders to Nominate Board Members

Netflix has amended its bylaws to enable a stockholder, or group of up to 20 stockholders, owning at least 3% of the company’s common stock continuously for at least three years, to nominate two board directors or 20% of the board.

Netflix’s board consists of 13 directors, including chairman/CEO and co-founder Reed Hastings.

The subscription streaming video pioneer, which initiated the change on March 28, said any nominees would be subject to certain limitations, including that both the stockholders and nominees satisfy requirements specified in the amended bylaws.

Shareholders approved the change – dubbed proxy access – in a vote at the annual meeting in June.

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“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,” New York City Comptroller Scott Stringer told Reuters.

Netflix had rebuffed previous attempts by shareholders – notably the California Public Employees’ Retirement System (CalPERS), which owns about 689,000 shares – to get a seat on its board.

“The board periodically reviews our corporate governance and determined that adopting proxy access is appropriate at this time,” Netflix said in a statement.

 

Comcast Shareholders Nix Lobbying Transparency

Comcast shareholders June 11 voted against a proposal that would have called for greater disclosure of funding spent by the media company on industry lobbying.

Comcast spent more than $29 million in 2016 and 2017 on federal lobbying activities — fourth highest among U.S. companies, according to shareholder Kate Monahan. Speaking at Comcast’s annual shareholder meeting, Monahan claimed the company fails to reveal how much is spent lobbying at the state and local level.

She called on shareholders to approve her proposal requesting the board disclose all funds spent on lobbying. Monahan also called on Comcast to exit the American Legislative Exchange Council, a non-profit she claimed works against clean energy adoption.

“Investors have no idea how much the company is spending overall and yet the company could easily and inexpensively disclose this information,” Monahan said.

Shareholders, not surprisingly, rejected the proposal, according to preliminary vote tallies.

CEO Brian Roberts, after reiterating company highlights in fiscal year, reminded shareholders that anyone fortunate to buy a lot Comcast stock 46 years ago would be very rich today.

“If you had bought 1,000 shares of our stock with my dad at $7 a share in 1972, you would now have $10 million versus nearly $700,000 if you’ve invested in the S&P 500,” Roberts said.

Netflix Brass Receives Compensation Windfall

Life is good for Ted Sarandos, chief content officer at Netflix. The long-time executive saw his 2018 annual salary balloon to $12 million from $1 million in 2017, excluding stock options, according to a regulatory filing.

Chief Product Officer Greg Peters’ salary increased to $6 million from $1 million, while CFO David Wells received a $300,000 pay raise to $2.8 million.

The pay raises (which count as corporate taxable income) reflect changes to executive compensation following passage of President Trump’s tax overhaul.

Netflix’s board scrapped executive bonuses at the end of 2017 and now pays straight salary to executives as bonuses are no longer deductible under the new corporate tax structure.

Notably, general counsel David Hyman and co-founder/CEO Reed Hastings received “pay cuts” to $2.5 million and $700,000, respectively. Hyman and Hastings were paid $3.3 million and $850,000, respectively in 2017, excluding stock options and bonuses.

Shed no tears for Hastings. The billionaire is slated to receive $28.7 million in stock options in 2018, up from $21 million in 2017.

Separately, Netflix’s board is facing a number of shareholder proposals critical of how the board operates.

Specifically, the board suggests shareholders reject proposals that would enable shareholders (with minimum 15% equity stake) to call for special shareholder meetings; adopt a “proxy access” bylaw that would allow shareholders to directly nominate board members; and enact a “claw-back policy” affording shareholders the legal clout to recoup executive incentive pay.

The board is also against a shareholder proposal allowing written consent against board nominees. The proposal argues shareholders should have the right to directly vote against any board nominee getting a high percentage (48%) of negative votes.

Netflix is also against allowing shareholders to vote on proposals by simple majority and amend the company’s bylaws to majority vote from “a plurality of shares voted.” The proposal argues that existing bylaws have enabled Netflix’s board to remain unchanged.

“Half of Netflix’s independent directors have tenures of at least 12 years and the board lacks racial diversity,” read the proposal.

Netflix in late March named Susan E. Rice, a former U.S. National Security Advisor and Ambassador to the United Nations under President Obama, to its board of directors.