The hallmark of good corporate governance is an independent board of directors to oversee management. However, it is not clear that independent directors receive the information they need to make fully informed decisions on all key matters. Partly, this is due to an information gap, whereby outside directors know substantially less about the business and market because of their limited exposure to the day-to-day activities of the company. Netflix has devised a unique approach to information sharing with the goal of significantly increasing transparency among the CEO, executive team, and board of directors: Board members attend senior management meetings throughout the year, and board presentations are structured as online memos in narrative form with direct links to supporting analysis as well as all data and information on the company’s internal shared systems. We examine these practices in detail and ask: Does greater transparency improve board decisions? Would other boards benefit from more active interaction with management and an open view of its decision-making processes? How transferable is the Netflix approach to other companies? What qualities are required of a CEO to be willing to engage with board members in this manner? Could a company adopt one of these practices and not the other and still benefit from greater transparency?
Copyright held by David F. Larcker and Brian Tayan. Further inquiries about reproduction and use should be directed to the Corporate Governance Research Initiative.
