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Despite multiple requests to change, Netflix continues to ignore its shareholders.

By Paul Hodgson
June 20, 2016

Since 2011, a majority of Netflix nflx shareholders has asked the company to change the way it operates on 15 separate occasions. How many of these changes have the board implemented? None.

There’s still time for the last four proposals, which were voted on last week. But given Netflix’s track record, as well as the fact that all four requests have previously received majority support, shareholders shouldn’t hold their breath.

Netflix shareholders are not asking for extraordinarily special treatment. They are asking for policies that most well run companies have adopted; things like majority vote standards, so directors are only elected to the board if a majority of shareholders want them there. That’s not a popular idea with Netflix’s board because two of its directors, Leslie Kilgore and Richard Barton, have been re-elected in the past with less than 50% of the vote. Jay Hoag was elected by a whisker in 2014, and the same went for Timothy Haley and Ann Mather in 2013.

Shareholders also want to “declassify” the board. Netflix’s board is divided into three separate classes, so shareholders don’t even get to vote for or against all the directors every year, just a selection of them. A request to change that structure at Netflix has received majority support for the last five years. This year, Kilgore was reelected with 38% of shareholders withholding their votes for the director. Meanwhile, 37% withheld their votes from Timothy Haley and 43% from Ann Mather’s election. This level of shareholder dissatisfaction with directors is virtually unknown in the Fortune 500. And you certainly wouldn’t want that kind of vote happening for every director every year.

Shareholders also want the opportunity to nominate their own directors – known as proxy access – especially since they don’t seem to like those put forward by the two members on Netflix’s nomination committee. That request received majority shareholder support last year and this year, but there is no sign Netflix will make a change. Meanwhile, proxy access has been implemented at around 200 companies, sometimes without being asked by shareholders. Netflix did not respond to a request for comment for this article.

Netflix suffers from what’s called an “interlocked board.” That’s the phrase used to describe a board made up of directors who have overlapping relationships with each other aside from serving on the same board. Shareholder group CtW wrote a letter to investors before Netflix’s annual meeting that urged them to vote against directors and described some of the interlocks. For example, “Besides being an early investor in Netflix, Jay Hoag’s Silicon-Valley-based Technology Crossover Ventures provided early-stage funding to Zillow and Expedia, two companies founded by [fellow director Richard] Barton. The men served together as directors on those company’s boards. Hoag and Barton also sit on the board of Avvo Inc.”

CtW’s letter describes other similar interlocks. Kilgore, a former Netflix executive, and George Battle serve together on LinkedIn’s board; Ann Mather and Anne Sweeney worked at Disney at the same time; Brad Smith is the chief legal officer at Microsoft, where Netflix founder and CEO Reed Hastings served as a director between 2007 and 2012. The letter continues: “Timothy Haley’s Redpoint Ventures, another Silicon-Valley venture fund and an early investor in Netflix, has provided funding to Arista Networks, where Mather serves as a director, and to Ask Jeeves, where Battle previously served as CEO.”

CtW also calls out Netflix for its all-white board and wants greater ethnic and geographic diversity, especially given that the company its service to 130 additional countries. At the moment, every board member is from California except Smith, and Seattle is not that far away.

But does any of this matter for Netflix’s performance? Up until the middle of last year, apart from a couple of missteps, the company’s stock was on a meteoric rise. The problem is that this is not the board that is going to be able to help Netflix make the transition away from “growth company” to one that generates reliable cash flow and long-term value. Up until now, Netflix has practically had the streaming content field to itself, but all sorts of problems are beginning to crop up, from content providers demanding higher licensing fees to increasingly heated competition from the likes of Amazon Prime.

But Netflix’s board is full of directors who are too close to each other, too close to CEO Reed Hastings and too insulated from shareholders. And just because Netflix offers service in almost every country in the world aside from China does not mean that it knows what content it should be offering there, and there is not enough experience on the board to help it clear that hurdle, either.

If the board had abided by its shareholders’ votes, it would have remade itself by now. Even more importantly, although shareholder votes on issues like majority voting and proxy access are non-binding, after years of majority support, the SEC might want to change the rules and say enough is enough; after five years, it’s binding now.

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