Netflix Inc. has filed a lawsuit against Mike Kail, its former Vice President of IT operations, claiming that he improperly accepted kickbacks from vendors. Mr. Kail is now the Chief Information Officer at Yahoo Inc. In the complaint, Netflix claims that Mr. Kail engaged in fraud and breached his fiduciary duties by accepting the kickbacks.
Apparently, Mr. Kail accepted 12% to 15% monthly fee commissions based on payments to two IT service companies with which Netflix contracted. Mr. Kail then apparently funneled these commissions to his personal consulting company. In addition, Mr. Kail may have also received other benefits, including stock, gift certificates, and cash, from companies that contracted with Netflix.
According to an article in the Wall Street Journal, Netflix’s lawsuit raises issues of corporate governance problems within the company. According to corporate governance analysts, Netflix may have granted Mr. Kail too much freedom to enter into contracts and to approve appropriate invoices. Christopher McClean, a corporate governance analyst at Forrester Research Inc., stated in the article that “this is a classic segregation of duties violation” and one individual should not have authority to choose and approve vendor payments. Netflix’s apparent lack of internal controls and oversight may have led to the kickbacks.
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