DANHOF: Disney Did Everything They Could To Prevent Meaningful Change In The Company

(Photo by Charley Gallay/Getty Images for Disney)

Justin Danhof Contributor
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On Wednesday, Disney won a hard-fought battle to keep its current leadership intact, fending off shareholders fed up with Disney’s unprofitable foray into the culture wars, who were demanding change from the top, a position that Strive wholeheartedly agreed with. Looking a gift horse in the mouth, Disney made its priorities clear with this fight — cultural appeasement meant more to this board than fixing the business. It also demonstrated the lengths to which it was willing to go to prove it.

In one of the most-watched corporate elections in history, Disney’s Bob Iger defeated Trian Fund CEO Nelson Peltz’s bid for two board seats. The victory was made possible with the backing of big-name investors including BlackRock and Vanguard. Despite being offered a lifeline by Peltz to bring the company back to its roots, Disney leadership fought to protect the policies that have caused numerous self-inflicted reputational and financial wounds over recent years. But beyond the merits of each side’s positions, there’s reason to question whether the fight was fair.

Well before all the votes were cast, leaks began trickling in about the preliminary results. Disney complained that revealing such information was “a highly inappropriate attempt to sway votes.”

That’s correct, but it’s also possible Disney doth protest too much. There are very few players privy to the preliminary vote totals. Disney is one of them. And for a company that spent at least $40 million to try and keep Trian’s nominees off the board, it had a lot of skin in the game.

The night before the meeting, renowned activist investor Bill Ackman speculated that Disney was to blame for the disclosures. In a post on X, he wrote, “[t]he company and/or its advisors have leaked that Disney is winning the contest.  It is really inappropriate that they have done so. And how does one know that it is Disney and/or its advisors that are the source of the leak? If Peltz were ‘winning,’ there would be no leaks to the press.”

And why does such a leak favor Disney? In a word, access.

Unlike in political elections, there is no secret ballot at the corporate ballot box. Companies know how each investor voted. That means Disney’s current board members will know which shareholders tried to fire them. And they’re unlikely to be happy about it. For an individual that holds a few shares of Disney stock, that might not matter. But to a large institutional investor with millions at stake, it’s a big deal. They want to be on the winning side of the election, or their access to the company’s leaders is likely to be cut off.

Ackman shares this view: “[i]nstitutional shareholders worry about offending management by voting with an activist. They are concerned that if management learns that they have voted against the incumbent directors … Bob Iger is less likely to come visit and/or take a call.”

While we don’t know for sure if Disney was the source of the leak, it makes a lot of sense. And it’s unfortunate because Peltz was Disney’s best chance to turn the company around. Peltz’s campaign promised to pull Disney out of the culture wars, fix its executive pay and help the company with its botched succession planning—three areas in desperate need of reform.

There’s little question that Disney’s Diversity, Equity and Inclusion (DEI) obsession has hurt shareholders. The Disney General Entertainment President expressed her support in 2022 for “many, many, many LGBTQIA characters in [Disney’s] stories” and the goal of a minimum 50% of characters being from “underrepresented groups” like the LGBT community or a racial minority. How’s that working out? Well, “Strange World” and “Lightyear” topped  a list of “The Biggest Box Office Bombs Of 2022,” losing about $300 million dollars combined. Peltz concurs: “[p]eople go to watch a movie or a show to be entertained. They don’t go to get a message.”

But as Peltz knows, Disney is unlikely to change without governance reform, including how executives are paid.

Disney rewards executives with cash bonuses for meeting DEI goals, even when those goals alienate customers and hurt the company’s bottom line. Trian’s promise to reform these pay practices is a commonsense way to ensure that executive pay aligns with shareholder value.

Trian also wanted to help Disney “finally complete a successful CEO succession.” It’s time. Bob Iger’s hand-picked successor, Bob Chapek, ended his short-lived tenure in disaster. Now Iger’s back. His return was supposed to be temporary, but Disney’s board recently extended his contract through 2026. Trian’s leadership would have brought a much-needed sense of urgency to this transition that Disney seems to lack.

Disney needs to prioritize quality entertainment over identity politics. Peltz was the right man for the job. It’s a shame he won’t get that chance. And it’s even more shameful if we find out that Disney did indeed use the press to tip the scales.

Justin Danhof is the Executive Vice President and Head of Corporate Governance for Strive Asset Management, an Ohio-based firm with over $1 billion in assets under management, whose mission is to maximize shareholder value by leading companies to focus on excellence. You can follow Justin on X (formerly Twitter) at @justindanhof

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.