Have you ever spent a weekend binge watching a series on Netflix? I wonder if that’s what it’s like to serve on the board of Netflix. It takes a lot of time, but there’s high engagement in content.
That’s my take-away from the Stanford Closer Look Series article on Netflix’s approach to corporate governance (May 1, 2018, Larker & Tayan). Described by Netflix founder and CEO Reed Hastings, as “extreme openness for extreme duty of care,” Netflix gives directors significant access to the company’s inner workings, more so than most companies.
To understand what makes Netflix different, it’s important to understand what’s typical. Normally, corporate boards meet 4 – 8 times per year with directors serving on committees convening another 2 – 8 times. To prepare for each meeting, directors receive potentially hundreds of pages of power point decks, financial data and business analysis to review about a week in advance. There may also be ad-hoc, informal calls between and among directors and the CEO throughout the year depending on the circumstances.
In a dynamic, changing environment, is this typical approach enough? By its actions, Netflix thinks not. Netflix engages directors in ongoing strategic discussions by exposing them to discussions of performance and strategy on a regular basis. Netflix does this by having directors attend – as observers only – the CEO’s monthly direct report meeting (1 director attends), quarterly executive staff meetings (1 -2 directors attend) and quarterly business reviews (2 – 4 directors attend). Further, directors are free to follow up with management after these meetings. As a result, directors have substantially deeper knowledge of the company, its culture, depth of talent as well as its challenges, opportunities and strategies.
In addition, Netflix directors receive an in-depth, written memo quarterly containing links to additional supporting materials. No death by Power Point here. Directors can pose questions directly through the online portal and senior management is expected to answer. This board memo, including director questions and comments, is shared across the executive management team so everyone is on the same page as to priorities and performance.
As a result of these practices, Netflix board meetings are very efficient. There’s little need for presentations or performance recaps. Instead, time is spent on dialogue and discussion. Decisions can be made sooner because of the board’s deep and current understanding of the business and its people. As one director said: “Netflix has made two big “chasm crossings” and most companies don’t even do one. One was getting from DVD to streaming, and number two going to streaming licensing to original content. It was a huge leap, and it’s hard to imagine we could have done it without the intimate knowledge of the operations and the people.”
Can this approach work at other companies? I can see it working in cultures where there is a high level of openness, confidence and trust in the business, strategy and each other at all levels of the organization. I think a degree of humility is also required to truly benefit from the diverse perspectives such cultures can nurture.
Lead-IR Advisors, Inc.
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