Dead End: Paranormal Park. Alex Brightman as Pugsley in Dead End: Paranormal Park. Cr. COURTESY OF NETFLIX © 2022
COURTESY OF NETFLIX
Netflix shareholders are set to vote on a number of proposals during the upcoming annual meeting of the Netflix Board of Directors. Including two that focus on subjects that are of great interest to politically conservative groups and critics of the company.
The first proposal (proposal #5 on the agenda) asks for the issuance of an ESG ROI report. The proposal requests that the Board of Directors publish a report disclosing the extent to which the Environmental, Social, and Governance (ESG) investments identified in the 2024 ESG Report were authorized and are maintained based on Net Present Value (NPV) and Return on Investment (ROI) calculations.
The proposal argues Netflix is devoting financial resources to ESG projects which don’t provide a reasonable rate of return.
Here are the examples given in the proposal:
1. Sustainable Aviation Buyers Alliance (SABA): The Company is a co-founder of SABA, participating in a collective commitment of nearly $200 million to purchase Sustainable Aviation Fuel (SAF) certificates. The Report states the goal is to “send market signals” to producers, but subsidizing a nascent market to send signals sounds like an economic policy action not a corporate investment strategy. There is apparently no evidence this premium expenditure was authorized based on an NPV calculation justifying the cost against standard procurement.
2. Fund for Creative Equity: This initiative represents a $100 million commitment, with approximately $57 million invested by the end of 2024. Success is reported strictly through non-financial metrics, such as “25k+ people supported” but shareholders have apparently been provided no data demonstrating that this $100 million outflow meets an internal hurdle rate or generates a measurable financial return through recruitment savings or accretive content revenue.
3. Operational Efficiency Investments: While the Company references “return on investment,” it qualifies this metric as applying to “energy used.” This phrasing suggests a siloed capital bucket where energy projects compete only against other energy projects, rather than competing for capital against high-yield core business opportunities. If these investments do not meet the enterprise-wide cost of capital, they may represent a destruction of shareholder value despite being “efficient” relative to other energy options.
4. “Matching” Emissions via Carbon Credits: The Company purchases and retires millions of tons of carbon credits annually to “match” emissions. Unlike an investment that generates cash flow, this is a recurring expense that purchases an asset immediately retired for zero financial gain. Based on the report, shareholders are left unaware if management has calculated the compound opportunity cost of these funds had they been invested in profitable operations rather than retired assets.
The current Netflix Board of Directors is recommending Netflix shareholders vote “no” on the proposal. They argue the ROI study is unnecessary and that its adoption would not be in the best interests of Netflix or the company’s stockholders.
The statement further argues Netflix already transparently reports on how ESG initiatives align with business objectives through an annual Environmental, Social & Governance Report. And that this additional study would not provide any meaningful additional information and would consume additional resources to produce:
The proposal assumes that all ESG initiatives should be judged only by traditional financial impact metrics. However, many of these initiatives address compliance, risk management, stakeholder expectations, or company business objectives —factors that are important to our long-term success in shareholder value creation that are not always measurable by financial metrics across traditional financial reporting time horizons, and could therefore be impractical and misleading.
A second proposal (proposal #6 on the agenda) asks for Netflix to issue a report on “Politicized Brand Misalignment.” That proposal argues the company has been damaged financially by its alleged focus on various “woke” ideas and character portrayals:
"Netflix has faced significant backlash over its use of gender ideology in children’s programming. Shows such as Dead End: Paranormal Park and films such as Cuties have been widely criticized for promoting highly controversial narratives regarding gender ideology & sexual activity to young audiences. The most recent example, Dead End: Paranormal Park, features a transgender teen protagonist and was rated TV-Y7, indicating suitability for children aged seven and older.
Tesla CEO Elon Musk publicly canceled his Netflix subscription over the show and urged others to do the same, leading to a reported drop in Netflix’s stock price.
Another example, Strawberry Shortcake: Berry in the Big City, promoted transgender characters and was rated TV-Y, indicating suitability for children of all ages, and The Baby-Sitters Club reportedly “featured a child character shaming doctors for referring to a child patient by biological pronouns.” Another example was 2018’s Baby, which “portrayed a group of teenagers entering into prostitution as a glamorized ‘coming-of-age’ story” as per NCOSE analysis.
This promotion of sexualized content, particularly to Netflix’ youngest viewers, has alienated customers, employees, and shareholders, and exposed Netflix to litigation and regulatory scrutiny. One earlier example of programming, the 2020 film Cuties, sparked so much controversy over depicting the sexualization of children that a grand jury indicted the company over child exploitation charges.6 Crucially, this has exposed Netflix to significant contingent liability and material legal risk, incurred costs of litigation, regulatory enforcement, and compliance, and materially affected other segments of the business.
At the same time as these widespread public controversies, Netflix has notably underperformed its peer group competitors over the past 5 years (as per Bowyer Research analysis). When Netflix’s $500 billion market value is negatively impacted by public controversies related to sexualized children’s content that hurt stock prices, shareholders are right to ask the company to take a serious look at how its brand performance has been hurt by such consistent controversies. It is imperative that Netflix reassess its approach to public engagement.
By commissioning a report that transparently evaluates these risks, the Board will demonstrate its commitment to fiduciary duty and corporate accountability. Shareholders deserve clarity on how Netflix’s ideological positioning may be undermining enterprise value—and how the company intends to mitigate these risks moving forward.
The Netflix Board of Directors is recommending shareholders vote “no” on this proposal, stating they have concluded that it is unnecessary and that its adoption would not be in the best interests of Netflix or its stockholders for these reasons:
The proposal is unnecessary in light of existing oversight and disclosure practices. Netflix already maintains processes for identifying, assessing and managing legal, regulatory and reputational risks associated with its business operations, including those arising from branding, marketing and public policy activities. The Company’s governance structure is expressly designed to ensure that the Board, through its committees and regular engagement with management, exercises effective oversight of risk management.
The proposal would inappropriately interfere with management’s day-to-day operations.
The evaluation and management of risks associated with branding, marketing and public policy positions are core functions of management, who possess the requisite expertise and access to real-time information necessary to make informed decisions in these areas. The Board, in its oversight capacity, regularly reviews management’s risk assessments and strategic decisions, ensuring that appropriate controls and mitigation strategies are in place.
Requiring the Board to conduct a separate, duplicative evaluation and issue a public report on these matters would divert time and resources from the Company’s primary business objectives. Moreover, the Company’s branding and marketing strategies, as well as its public policy positions, are integral to its business model and are continuously adapted in response to market conditions, regulatory developments and stakeholder feedback. Mandating a public report on these matters could expose the Company to unnecessary risk and would not provide stockholders with meaningful incremental information beyond what is already disclosed.
The proposal would not meaningfully benefit stockholders.
Netflix’s public disclosures already provide comprehensive information regarding the Company’s approach to risk management and public policy engagement and the Company is committed to transparency and regular engagement with its stockholders. The Board and management routinely solicit and consider stockholder feedback on a wide range of issues, including governance, risk management and strategic priorities. These engagement efforts have contributed to enhancements to the Company’s governance structure and disclosure practices.
It’s unlikely either of these proposals will be approved by shareholders. And it’s worth noting that both of these issues are ones often cited by politically conservative critics who argue the company is too “woke.” Despite Netflix streaming stand-up specials from a number of pro-Trump, politically conservative comedians.
But the identity of the shareholders making these proposals is also worth knowing.
The first proposal comes from the National Center for Public Policy Research, a self-described conservative think tank. The firm has launched a number of similar proposals at other companies, including a 2014 proposal to force Apple to “disclose the costs of its sustainability programs.” That proposal argued Apple’s decision to have all of its power come from green sources would lower shareholders' profits.
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