A major proxy advisory firm has recommended Disney shareholders support one of the company’s rival nominees in the upcoming dictator board elections.
On Thursday, Trian announced that Institutional Shareholder Services (ISS), the largest and most influential proxy advisory firm, has recommended that Disney shareholders vote for Mr. Peltz at the April meeting.
Proxy advisory firms detail risks associated with board proposals to ensure that shareholders are able to make more informed judgments while voting. “ISS recognizes that Disney has a record of ‘multi-year underperformance’ and emphasizes the need for change on the Disney Board,’” Trian said in a March 21 press release.
“ISS also states that Nelson Peltz, with his ‘considerable experience on other boards and fiduciary duties owed to a large shareholding group, appears best positioned to bring a shareholder perspective to the Board.’”
The ISS noted that Mr. Peltz could be “additive to the succession process” at Disney, offering “assurance to other investors that the board is properly engaged this time around.” It recommended not voting for Mr. Rasulo.
“Disney has woefully underperformed its peers and its potential,” Trian said in a Dec. 14 news release. “Earnings per share (EPS) in the most recent fiscal year were lower than the EPS generated by Disney a decade ago and were over 50 percent lower than peak EPS despite over $100 billion of capital invested.”
“Margins in both Disney’s Direct-to-Consumer business and its consolidated media operations significantly lag peers despite Disney having scale and superior IP. For shareholders, this subpar performance has destroyed value.”
“Disney is the most advantaged consumer entertainment company in the world,” the memo said. The company “lost its way” with a deterioration in financial performance, ultimately making losses amounting to tens of billions in shareholder value.
“We believe the root cause of Disney’s underperformance is poor oversight from a Board that lacks focus, alignment and accountability.”
A recommendation from ISS plays a key role in the selection of board members, having the potential to influence numerous voters.
In a March 21 statement, Disney said it “disagrees with ISS’s recommendation to support Trian nominee Nelson Peltz and believes Disney’s 12 Board nominees are best qualified to provide diligent oversight of management and create sustainable shareholder value.
“Nelson Peltz does not bring additive skills to the board, nor does he have a meaningful plan to deliver superior shareholder value in an evolving and increasingly complex global landscape, in stark contrast to the director Trian seeks to replace—Maria Elena Lagomasino.”
ISS also recommended shareholders withhold votes from Ms. Lagomasino, nominated by Disney.
Battle for the Board
In addition to Trian, another activist investment firm Blackwells Capital announced three nominees to the board. However, the ISS report recommended not voting for these three nominees.Blackwell chief investment officer Jason Aintabi claimed that its nominees will bring “invaluable expertise” to Disney as the company “faces the challenges and opportunities of a generational transformation.”
“Only two of Disney’s non-executive directors have significant media experience, and, as a whole, the Board lacks the qualifications that our candidates possess,” he said.
For the upcoming board elections, ISS has so far supported 11 out of 12 Disney nominees, one out of two Trian nominees, and none of Blackwell’s nominees.
In making its recommendations, the advisory pointed out that Disney has “significantly underperformed the S&P 500 over the one-, three-, and five-year periods through Oct. 6, 2023.”
“Operational performance over the past five years shows deterioration in margins, free cash flow, and return metrics, as well as increased leverage,” it said. “The key decision points that led to the company’s challenges over the past five years, not to mention multiple activist campaigns, can be traced to the board.”
Disney faced a full-fledged proxy fight over board seats two decades back, during which time over 40 percent of shareholders voted against the company’s board. In his 2019 memoir, “The Ride of a Lifetime,” Mr. Iger wrote that ISS’s recommendation to support the activists played a crucial role.
“I remember thinking that it was like we’d entered a conventional war … and now another party had launched nuclear weapons,” he wrote in the memoir, according to Hollywood Reporter. ISS “typically influences more than a third of the voting shares in a proxy election.”
“I remain a significant shareholder because I have full faith and confidence in the power of Disney and Bob’s track record of driving long-term value,” Mr. Lucas said in a statement supporting Disney, referring to company CEO Bob Iger. “I have voted all of my shares for Disney’s 12 directors and urge other shareholders to do the same.”
Mr. Iger retired in 2021 but was brought back a year later in 2022 after his successor Bob Chapek was ousted. “When Bob recently returned to the company during a difficult time, I was relieved. No one knows Disney better,” Mr. Lucas said.
