Corporate Governance & Ethics

This document provides an overview of Netflix's corporate governance and ethics. It discusses the company's data, players, issues, and information related to governance. It also analyzes and synthesizes the data and provides recommendations for managers.

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netflix
Corporate Governance & Ethics
6/8/2019

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Contents
Overview of company data, players, issues, and information that pertains to governance.............2
Analysis and synthesis of data and information..............................................................................4
Conclusion with recommendations for managers including how and why to
use this information/analysis for decisions......................................................................................8
References........................................................................................................................................9

Corporate Governance & Ethics 2
Overview of company data, players, issues, and information that pertains to governance
Netflix Company is founded in the 29 August 1997 and has the headquarters in the Los
Gatos, California, the U.S. The company is providing the video for the entertainment purposes
served to the people worldwide. The company offers online streaming for the television
programs or the movies but it gives the one month trial to everyone and then subscription has to
be taking. The company is earning a huge profit and has a high rate of revenue. At the early
stage, the company decided to sale the DVD through the mail on the rental basis but later on the
company has introduced the streaming media. For the films and the television series, Netflix
plays an essential role as it helps in taking the active role as producer and distributor (Oranburg,
2014). In more than the 190 countries, Netflix is providing their services. The company provides
the original content which plays a prominent role in the independent film distribution. It is one of
the leading entertainment services of the world which are providing the TV series, documentaries
and various kinds of films which belongs to the different languages and genres. Without any
commercials and commitments, the members can use Netflix as much as they want at any time
with the internet connection.
There are many players of the which needs the data and information and they want to
know whether the company complies with corporate governance and ethics or not. The major
three players in the company are the creditors who give the credit rating to the company,
investors who invest in the company and the senior management and the board of directors of the
company which manages and handles the operation of the company (Gordon, 2018).
Directors of the company: The Netflix was founded in the year 1997 which has the co-
founder of the Reed Hastings who has founded the Pure Software tool for the developers of the
software. There are many other boards of directors the company has such as the Mathias Dpfner,
Susan Rice, Rodolphe Belmer, Anne Sweeney, Richard Barton, etc. Reed Hastings is the founder
and the CEO of the company. Jessica Neal is the chief talent officer of Netflix. Kelly Bennett is
the chief marketing officer of the company who leads the international online campaign. Rachel
Whetstone is the chief communication officer who works on the communication and the
technology misuses related things. David Hyman and Greg Peters are the general counsel and the

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chief byproduct officer who also manages the functioning of the company (Fenwick and
Vermeulen, 2016).
Director of the company faces many challenges in the corporate governance of the
company as they are aligned with the interest of the board, and they are also acceptable for the
transparency in the company (David, 2013). They have to comply with all the rules and
regulations of the company so the major issue which was found is that there was a lack of
transparency in the duties and the responsibilities of the company.
Investors of the company: As the company is earning a huge profit in recent years so
there are many investors the company have. The major investors of the Netflix are Reed
Hastings, Neil D. Hunt, and the Ted Sarandos. Reed Hastings owns 5.5 million shares and has
ownership of 2.48% of the company stock. Neil D. Hunt is the chief product officer of the
company who owns the 401296 shares. Ted Sarandos is the chief content officer of the company
who owns the 497699 shares (Gordon, 2018). There is a large number of the shareholders the
company have so the investment position of the company is good.
Investors of the company are the major contributors to corporate governance in the
company. The effective corporate governance in the company is built by the investors as they
take the decision of the board and also monitors the operation of the company. Investors of
Netflix ensure whether the company is running according to the standards and norms set by
corporate governance. The transparency with the board, any change in the proxy access, voting
rules, etc. is governed by the investors. They have the ability to make any changes with the
simple voting and also nominate the directors.
Creditors of the company: The Company also has the large number of the creditors
which are raising the debt for the company as recently the company has the debt of the $1.6
billion to pay for the content. To buy the original movies and the television shows the company
has to finance the cost which becomes very costly. The debt of the company has been increasing
from the last five years. As the company has a large amount of the creditors and their debt in the
market is also higher so the chances of the profit of the company get declines (Polonetsky and
Tene, 2013).

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Source: Netflix, (2019). Trade Creditors [Online] Retrieved from
https://tradingeconomics.com/nflx:us:trade-creditors Accessed: 9 June 2019.
The company faces many problems of arranging the funds so the creditors play an
essential role in the company as they provide the financing at the wide range at the very
reasonable rates. Creditors play an essential role in corporate governance as it helps in restricting
the financial distress.
Issues of corporate governance in the company: As the number of the subscriber is
increasing yearly so to maintain the new subscriber growth is the biggest issues which the
company is facing. As per the data point of the Netflix investors, the new subscriber growth is an
obsessed (Avery and Cheek, 2015). Another corporate governance issue which the company was
facing is the increasing competition in the market as there are many companies who are
providing the streaming services and their subscription of the membership is also very low. Now
the investors of the company also become very alert as the company is raising the content cost so
they were demanding the higher contents which are difficult for the company to arrange.
The major issue which was found in the Netflix in relates to the corporate governance
and the ethics is that the transparency un the company is very low and there was also the
violation of the ethics rules (Zhou, et al., 2014). There was the lack of transparency in the
company but the board of the directors of the company has properly distributed their roles and

Corporate Governance & Ethics 5
responsibilities properly and also equally treat their stakeholders of the company and also protect
the interest of the shareholders. Netflix has a lack of leadership quality which also fails in
governing the rules and regulations to their employees and creates the issues for the company.
The management of the company has distributed the rules and regulations of the company to the
employees properly but still while telling any important decision of the company the poor
governance of the company has been seen.
Netflix faces have many corporate governance issues but the major issue which the
company faces was due to the information gap. The corporate governance issues have been
raised by the shareholders of the company during the meeting that the directors will be
nominated by the investors and they have the ability to make any changes with the simple
majority vote. Change in the bylaws related to the election of the directors and removals create
the biggest issue for the company (Marshall and Lee, 2016).
Analysis and synthesis of data and information
The framework of corporate governance is the rules and regulations which help in
directing and controlling the company. The interest of stakeholders is controlled by corporate
governance so it is essential for the company to maintain the rules and regulations. The major
three players are the investment advisors, the board of directors or the senior management and
the creditors which has the great influence of the corporate governance of the company. The
major issue is the conflicts of interest of these three players are different and has the different
conflict of roles and serving so it losses the public confidence and creates an issue for the
company. For the board of directors, the conflict of the interest is the arrangements and the
transaction which benefits the officer on the personal level. For the investors, the conflict of the
interest is that the trust is losing as the company owns the vested interest. The conflict of interest
of the creditors is that they have to separate the ownership and control (Fenwick, et al., 2017).
Agency theory has entered in the company so that the relationship between the principals
and the agents can be understood. This theory is very helpful in corporate governance as it helps
in analyzing the problem of the directors which might not act well in the interest of the
shareholders. Agency theory is helpful in designing the framework of governance and helps in
controlling the management of the company. This theory is the management and the economic

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theory which helps in understanding and explaining the relationship of the principal agents and
the delegation of the control and also maintains the self-interest in the business (Avery and
Cheek, 2015). With the help of this theory, Netflix can easily maintain the relationship of the one
party which determines the work with the other party and effective decisions are taken on behalf
of the principal.
Code of ethics is very important in making any financial planning as the financial
statements of the company should be full of integrity, honesty, and fairness. The financial
planner needs ethical consideration only as it helps in reviewing the financial report accurately
and they can trust the general norms that they are accurate and correct. Ethical consideration is
required in the company to reduce the risk in the company (Krasnow and Bruening, 2014). The
important information of the company should not be disclosed to any person as it creates the risk
for the company. Ethical consideration is to decide which information is important or essential
for the investors to know so that it should be disclosed and how to disclose it. If any information
is disclosed without any ethical consideration then it creates the risk for Netflix and it can harm
to that person also. Ethical consideration is very essential in corporate governance as it dealt in a
fair manner with all the stakeholders such as creditors, customers, employees, competitors, etc.
Corporate social responsibility plays the essential roles in the company Netflix as it refers
to the duties and obligations which the company has towards the society and the economic
environment. For the well-being of the company corporate social responsibility also has to fulfill
which regulates the different models. Netflix has to consider the things which are in the favor or
in the interest of the society and the company has to take the responsibilities which are affecting
the activities of the customers, employees, suppliers, etc. The company corporate governance
should have the rules that the main motive of the company is not to earn the profit only but they
also have to share some social values and operate the business sustainably (Katz and McIntosh,
2013). The vision of the business should be of addressing and advancing the social ideas also.
The corporate social responsibility of Netflix helps in building the awareness, trust and social
change in the company. The positive change has been seen and the community and consumer
become more supportive when the company is responsible for doing social things.
Cybersecurity also plays an essential role in Netflix as it maintains the business
reputation by keeping the data safe and secured. It protects the company from minimizing the

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damage and also keep the sensitive information protective of the customer. It helps Netflix by
protecting from the cyber-attacks (Lauterbach and Bonim, 2016). The data protection in the
company is very important as it is screaming video company so to protect the data is very
essential. Cybersecurity helps in protecting the company from the risk also as there are many
hackers, malware and viruses which are trying to get the data for the web series and movies. It
helps in administrating the security and also detects the users who are unauthorized access to the
data.
The board of directors plays the diversified roles in the company and they are responsible
for complying the rules and regulation which are set in the corporate governance. The better
decisions can be taken in the company if the three are the diversified board of directors. The
performance of the company can be monitored on a regular basis and the discussion goes the
boardroom can be done which helps in dealing with the negative forces of the company. For the
better governance in the company diversifying the board is the better step as it helps in
diversifying the financial and the operational practices of the company. Board of the directors of
the Netflix is the pillars of the framework of the corporate governance so the effective
monitoring by the board and their accountability to the company are essential for the effective
working of the company (Roohani and Attaran, 2014).
The compensation and the incentive structure of the company also affect the governance
of the company and value of the company also gets affected by this structure. The incentive
restructure in the company is that if the performance of the company is higher than the incentive
will get. The compensation structure is competitive as it is line up with the market conditions.
The annual compensation of the employees in the company is higher as they are at the top of the
personal market. It helps in attracting the employees to work with more passion and helps in
achieving the outcomes.

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Conclusion with recommendations for managers including how and why to
use this information/analysis for decisions
The managers can take the above information analysis and data evaluation in taking
effective decisions. As in this report, it is clearly stated the major issues which the company
faces in corporate governance. The three players which are the investment advisors, the board of
directors or the senior management and the creditors which has the great influence of the
corporate governance of the company. Netflix has great cyber security which protects the
unauthorized data accessing of any person. The company also has the good compensation and
incentive structure which helps in achieving the outcomes more easily. The corporate social
responsibility of the company is also very good as it builds the awareness, trust and social
change in the company. So it is recommended that the company has only had the major issue of
lack of transparency and the gap of information which can be solved by the company if the
proper corporate governance rules and regulations are adopted.

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References
Avery, A., & Cheek, K. (2015). Analytics governance: towards a definition and framework.
Retrieved from:
https://pdfs.semanticscholar.org/4959/3272f013fa3bad991e933c3e6c3d6c984fc5.pdf
Accessed: 9 June 2019.
David, F. R., & David, F. R. (2013). Strategic management: Concepts and cases: A competitive
advantage approach. London: Pearson.
Fenwick, M., & Vermeulen, E. P. (2016). The house of cards of corporate governance: re-
thinking transparency and disclosure of ownership. Lex Research Topics in Corporate
Law & Economics Working Paper, (2016-1).
Fenwick, M., Kaal, W. A., & Vermeulen, E. P. (2017). The ‘Unmediated’And ‘Tech-
Driven’Corporate Governance of Today's Winning Companies. Retrieved from:
https://kyushu-u.pure.elsevier.com/en/publications/the-unmediated-amp-tech-driven-
corporate-governance-of-todays-win Accessed: 9 June 2019.
Gordon, J. N. (2018). Is Corporate Governance a First-order Cause of the Current
Malaise?. Journal of the British Academy, 6(s1), 405-36.
Katz, D., & McIntosh, L. (2013). The Board, Social Media, and Regulation FD. New York Law
Journal.
Krasnow Waterman, K., & Bruening, P. J. (2014). Big Data analytics: risks and
responsibilities. International Data Privacy Law, 4(2), 89-95.
Lauterbach, B. A., & Bonim, A. (2016). Artificial intelligence: A strategic business and
governance imperative. NACD Directorship, September/October, 54-57.
Marshall, R., & Lee, L. E. (2016). Are CEOs Paid for Performance?. Evaluating the effectiveness
of equity incentives. MSCI ESG Research Inc. July, 1-23.
Oranburg, S. C. (2014). A little birdie said: How Twitter is disrupting shareholder
activism. Fordham J. Corp. & Fin. L., 20, 695.

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Polonetsky, J., & Tene, O. (2013). Privacy and big data: making ends meet. Stan. L. Rev.
Online, 66, 25.
Roohani, S., & Attaran, S. (2014). Social media: New challenges and opportunities for corporate
governance. International Journal of Disclosure and Governance, 11(4), 366-379.
Zhou, M., Lei, L., Wang, J., Fan, W., & Wang, A. G. (2014). Social media adoption and
corporate disclosure. Journal of Information Systems, 29(2), 23-50.