NETFLIX CORPORATE GOVERNANCE
Netflix has not only revolutionized entertainment delivery, but it has also built a new model of
corporate governance.
What started with some DVD deliveries has become a $133 billion company that generates its
own content and gives new meaning to on-demand entertainment. Behind the scenes, the
company has also redefined the corporate governance structure in a way that brings the board of
directors closer to managers and “arms them with a rich and accessible trove of operational
information,”
“At Netflix, there is sort of an open book — the managers basically share everything [with the
board] that they see and use,”
As the elected representatives of shareholders, corporate directors are supposed to monitor
management’s performance and conduct, weigh in on strategic decisions, and ensure a CEO
succession plan is in place. All too often, though, directors lack the critical information and
intimate knowledge of the company’s operations needed to make well-informed decisions.
board members attend monthly and quarterly senior management meetings as observers, and
communications to the board are usually 30-page, analysis-laden memos that have hyperlinks to
relevant data on Netflix’s internal computer systems.
“Being armed with the memo before the board meeting makes for ‘an intelligent and informed
conversation,’ according to one director. Netflix directors spend twice as long preparing for
board meetings than their counterparts at other companies, the researchers found, but meetings
are often shorter because the attendees are so well informed. What’s more decision-making
happens faster because the of the openness, the directors said.
Companies looking to replicate Netflix’s arrangement might have a tough time, the researchers
said, in part because of its infrastructure that allows for data sharing. “Many companies do not
have companywide systems that enable data sharing.
CSR OF NETFLIX
The company is targeting to achieve net-zero gas emissions by end of 2022. Thus, the goal is to
reduce the internal emissions by the Paris Agreement’s goal and the Science-based Target
Initiative Guidance. In addition, the company is committed to investing in projects conserving atrisk natural areas like a tropical rainforest, restoring grasslands and mangroves. In addition,
scientists raise awareness on how much carbon footprint we are generating by producing a
documentary (My Octopus Teacher and Down to Earth with Zac Efron). The Story of
Sustainability is another documentary stream by Netflix in April 2019. The documentary narrates
the interdependency of Earth’s systems and living creatures.
On the other hand, in terms of its corporate operation, Netflix initiative is to:
(1) provide employee commuting options (shuttle),
(2) offer free charging and parking for electric vehicles, and
(3) install onsite solar panels providing 100% renewable energy.
For streaming delivery, Netflix opted to:
(1) install content delivery caches close to members, reducing traffic on networks, and
(2) encourage data centers and other technology partners to continue decarbonizing their energy
supply and disclose details to their customers.
Internal Audit
The scope of the responsibilities of the Audit Committee of Netflix include: Providing oversight
and monitoring of the activities of Company management, including without limitation, the chief
financial officer and principal accounting officer and controller, and the independent auditors
with respect to the Company’s financial reporting and compliance process; Reviewing on a
continuing basis the adequacy and effectiveness of the Company’s system of internal controls
over financial reporting as well as the Company’s disclosure controls and procedures, and the
Company’s risk assessment and risk management policies related to financial and legal risk,
including cybersecurity risk; Appointing, compensating, retaining, terminating and overseeing
the Company’s independent auditors (including resolving disagreements between management
and the independent auditors regarding financial reporting), for the purpose of preparing or
issuing an audit report or performing other audit, review or attest services for the Company, for
which the Audit Committee shall have sole and absolute authority;
As per the internal analysis Netflix has a reputation for excellence, offering only the highest quality
subscription services, along with customer service that is second to none. In fact, Netflix has done so well
that it had been placed among Fortune Magazine’s “50 Most Admired Companies” in March of 2011.
This would not have been possible without senior management’s forward-looking strategies, tenacity, and
the company culture they fostered for their passionate employees. Board of Directors Netflix’s Board is
comprised of a diverse group of individuals and includes pioneers in the tech industry, investors, venture
capitalists, Netflix executives, and former executives of major motion picture corporations.
There are seven unique aspects of the culture at Netflix:
1. Values are what we value. Netflix desires employees to embody nine different values: judgment,
communication, impact, curiosity, innovation, courage, passion, honesty, and selflessness. These values
represent the way of thinking and doing that Netflix expects employees to exemplify and are the
guidelines for every decision made.
2. High Performance. Unlike major competitors Google and Apple, Netflix does not offer unnecessary
luxuries in the workplace that may hinder performance. Instead, Netflix rewards good performance with
generous severance packages. Performance is measured by how much work is done, how quickly it is
done, and how well it was done. Also, managers use a “Keeper Test” for determining whether to keep
someone or let them go. The test assists the manager in determining which employees the manager would
fight to keep if they were leaving for a similar job with a competitor.
3. Freedom & Responsibility. The ultimate goal for Netflix is to increase the freedom for its employees as
it grows, rather than limiting it, in order to draw in innovative and responsible employees for the longterm. This represents an interesting strategy, as most companies tend to restrict freedoms as they grow.
Netflix also doesn’t track vacation days, as long as employees complete their work efficiently. Dress code
policies are absent. Travel expense tracking is considered unnecessary if employees agree to “act in
Netflix’s best interests.”
Internal Control
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that
our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within Netflix have been
detected.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) of the
Securities Exchange Act of 1934 as amended (the Exchange Act)). Our management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2019. In making this
assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013 framework).
Based on our assessment under the framework in Internal Control— Integrated Framework (2013
framework), our management concluded that our internal control over financial reporting was effective as
of December 31, 2019. The effectiveness of our internal control over financial reporting as of December
31, 2019 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as
stated in their report that is included herein.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter
ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting