Transparency?

This recent publication by Larcker and Tayan caught my eye: "Netflix Approach to Governance: Genuine Transparency with the Board".  It's a short descriptive account of the "highly unique practices" (can "unique be qualified?) of the Netflix board. 

I'm a fan of Netflix (love "The Crown") but I'm not convinced that what is described represents "genuine transparency", whatever that means.  We are told:

"The Netflix approach incorporates two highly unique practices: (1) board members periodically attend (in an observing capacity only) monthly and quarterly senior management meetings, and (2) board communications are structured as approximately 30-page online memos in narrative form that not only include links to supporting analysis but also allow open access to all data and information on the company’s internal shared systems, including the ability to ask clarifying questions of the subject authors. This quarterly memo is written by and shared with the top 90 executives as well as the board."

I do think that distance from management is a problem for boards, now that executive directors and NEDs don't sit around the boardroom table together. But attending management meetings? Reed Hastings, the CEO, says:

 “I don’t want the management meeting to be any different because they’re there.” 

Really? Has he heard of the Hawthorn effect? I can't believe that management won't behave differently if observed by the board. I also find it difficult to believe that board members could keep their mouths shut if they think that mistakes are being made. Transparency? The cynic in me whispers that meetings can be stage managed to avoid difficult issues and important discussions can take place outside management meetings. Just like board meetings, in fact...

The board memo could be a good idea. Maybe this is transparency. The ability to drill down and ask direct questions could be very valuable. But how much time would this take out of a director's day? Would they bother?  We are not told how long the Netflix board has been operating in this way, although it implies that the practices were in place at the time of the Qwikster debacle which was in 2011. So the directors interviewed could have been asked about the actual use they make of this facility and how much of their time they devote to it.

"Hastings cautions that directors granted this level of access to management discussion and documentation need to exercise self restraint about influencing decisions outside the boardroom." You bet!

At a broader level, these practices raise an issue about the boundaries of corporate governance. The challenge is to provide board members with information that enables them to fulfil their oversight duties but not so much that they are tempted to become de facto management.  Or at least that is the received wisdom: the discussions I have had with NHS NEDs suggest that the boundary could be permeable under some circumstances.

We need to know much more about information flows around the board. It's quite possible that other companies use similar - or even more innovative - methods. Some rigorous research into this would be very valuable.