Should You Care if Netflix Separates the Chairman and CEO Roles?

Netflix voted down the separation of powers between CEO and Chairman. Should you care?

Jun 25, 2014 at 5:30PM

Recently, shareholders of Netflix (NASDAQ:NFLX), the fast-growing video streaming service, voted against a proposal to split the roles of Chairman and CEO with a non-binding resolution at its annual shareholder meeting. In a close race, shareholders voted down the proposal with 53% voting against the resolution . Will this help or hinder Netflix going forward?

Not the board's top priority
If this had been high on the board's agenda, Hastings would have been replaced over the last year. At last year's board meeting, a non-binding resolution to separate the two was passed with 73% of the votes. However, because the resolution was not binding, it gave the board the flexibility but not the requirement to make the change.

Why bother?
Reed Hastings co-founded the company with Marc Randolph in Scotts Valley, CA back in 1997 and has held the role of chairman since 2002. Over this time, he has made bold decisions. Some were revolutionary and some were borderline disastrous.

Would innovation be stifled?
Would Netflix have been the source for such dramatic innovation if the CEO could not make dramatic decisions quickly?  DVDs by mail, without late fees, streamlined the video-rental business to the point of forcing Blockbuster to close its doors. Personalized recommendations for movies at Netflix were replicated at online shopping hubs for cross-selling items. Video streaming is revolutionizing the entertainment industry with Amazon and Google's Youtube following Netflix's success. If Netflix didn't originate these ideas, it was at the cutting edge of their development.

Netflix's disastrous pricing change
However, in order to cover the rising costs of postage and streaming content, Hastings spun out the DVD rental service and separated the company into two businesses: Qwikster , the DVD by mail service, and Netflix, the content streaming business. In doing so, he raised the prices for existing customers by 60% as the single $9.99 per month service was split into two $7.99 per month services. This sparked a tremendous backlash and caused the company to reverse the decision, issue debt in order to fund content acquisition, and apologize, something you rarely hear from a CEO .  It is possible that the company might not have implemented this plan if Hastings was more accountable to a board.

Is separation more appropriate for a mature company?
Hastings is on the board of Microsoft (NASDAQ:MSFT) which separated church and state in January 2000. At that time, Bill Gates turned over the CEO role to Steve Ballmer but retained the Chairman's position . This may have been an admission that the company was mature and Gates had simply had enough of being CEO. Over the next 14 years, Microsoft's share price hasn't come close to the $58.69 level that Ballmer inherited.

Success dictates policy
Perhaps the reason Hastings kept his dual role was the dramatic increase in shareholder value as the company fended off an attack from Carl Icahn. Back on Halloween in 2012 , Icahn Enterprises LP (NASDAQ:IEP), the holding company controlled by the very pubic activist investor, announced that it owned 10% of Netflix stock. At the time, Icahn wanted to sell the company if it could fetch a reasonable premium.  Hastings, however, had other plans.  He was able to demonstrate that the company could increase its value without external intervention and this showed up in the share price. On the first day of November 2012, shares were trading at $77.85 and they closed at $436.36 yesterday.  Hastings successfully fended off the attack and even though the company was never sold, Icahn pocketed more than a billion dollar profit .  

Shareholders clearly benefited from Hasting's ability to follow through on his long term plan.  If he had to fight with a Chairman over short term safety, perhaps shareholders would have suffered from a lower share price or an acquisition price that was less than a 460% return.  In situations where decisive CEO decisions can dramatically increase shareholder value, even if it isn't academically popular it could make sense to keep the roles combined.  After all, as Mark Twain said, "keep all your eggs in one basket...and watch the basket".


David Eller has no position in any stocks mentioned. The Motley Fool recommends, Google (C shares), and Netflix. The Motley Fool owns shares of, Google (C shares), Microsoft, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers