Comment: Four lessons for governance and IR professionals from Disney’s proxy fight with Trian Partners

2024 is almost over and, while it is not yet time to wrap it up (earnings season is not over yet and we still have a slightly consequential election coming up), it is worthwhile to return to one of the hottest corporate stories of the year: the larger-than-life fight between The Walt Disney Company, with its superstar CEO Bob Iger, against activist fund Trian Partners led by Nelson Peltz. It delivers great learnings for both governance and IR practitioners.

This clash of the titans has had many plot twists between 2022 and 2024. There were a total of three activist funds involved with confronting views: Trian Partners, ValueAct (friendly with Disney to ‘advise it on strategy and support its director nominees at its AGM’) and Blackwells (more neutral but very critical of Trian). Not mentioning Third Point, which has been in and out of Disney’s story since 2020.

With Disney involved, there was also bound to be a collision of high-profile individuals. Jamie Dimon (JP Morgan CEO), George Lucas (Star Wars creator), Laurence Powell Jobs (Steve Jobs’ wife), Ike Perlmutter (the former owner of the Marvel brand) and Elon Musk (because Elon is everywhere) were all involved at different degrees.

In the end, two formal proxy fights were launched by Trian Partners, the first one lasting just few weeks. They ended up costing Disney an eye-watering $40 m and Trian $25 m, according to the Financial Times.

Peltz put forward the usual activist’s selling point of being the ‘agent of change’ at companies that are seen as being stuck in the past. In a nutshell, he blamed the board’s poor oversight which was ‘lacking focus, alignment and accountability’. His main criticisms were:

• The board lacked media experience
• It did a poor job at managing Iger’s succession plan. This was definitively a pain point for Disney: it was reported that Bob Chapek – who replaced Bob Iger early 2020 as Disney CEO – was imposed by Iger himself with insufficient board oversight. Bob Chapek was then replaced by Iger end of 2022. The optics were not good
• It accepted executive compensation plans that were not properly tailored. Trian specifically targeted director Maria Elena Lagomasino who, according to the activist, had a poor track record on compensation policies over her professional life as a director on other boards
• Its support for the 21st Century Fox acquisition which, according to Trian’s math, destroyed $50 bn of value
• Its members’ ownership of Disney stock was too low and proof of their lack of alignment
• The chair Mark Parker was overcommitted as he was also Nike’s chair.

Trian backed its narrative by highlighting Disney’s poor shareholder returns over the past few years.

Ultimately, Disney prevailed and won shareholders’ support at its AGM held on April 3, 2024. It ended up being a low-drama affair, held only virtually and lasting just 52 minutes. Peltz was offered a three-minute presentation and was mostly neutral in his tone. The quorum was 69 percent and Disney’s nominees were all approved. Trian and Blackwells’ nominees were voted against.

However, it wasn’t a clear-cut victory. Disney’s nominee Lagomasino only got around 60 percent support while other Disney nominees were above 80 percent (notably, she was recommended against by ISS who also recommended for Peltz’s nomination, while Glass Lewis fully supported Disney). What’s more, Peltz still got around 30 percent backing, a level of support consistent with the rising trend of increased engagement from institutional shareholders.

Still, it was viewed as a success for Disney. What explains this support, despite the group’s poor financial and stock price performance on top of embarrassing succession issues? Four key considerations weighed in Disney’s favor:

• Recent years had been hard on all media groups, not just Disney, with Covid impacting production and theme parks, on top of the challenges of adapting to the streaming revolution
• Iger has an exceptional pedigree of value creation. Investors felt he remained the best positioned to fix Disney’s struggles
• Disney made the smart tactical move of, as their numbers got better, bringing back the dividend. Rewarding shareholders remains the best defense
• Since the proxy fight, it had been driving change across the company.

An activist’s usual ‘agent of change’ narrative to attract minority shareholders’ support is centered on how only they can bring in the change necessary to turn a company around. But Disney showed that it could enact deep transformation by itself, bringing in new board profiles – notably Morgen Stanley' prior CEO, James Gorman, who had been praised for properly handling his own succession by cutting costs aggressively, signing high-profile deals and setting up a new organization, sending a powerful message to the investment community: we are our own agent of change. As Iger said during an interview with CNBC about Peltz’ proposal to join the board, ‘what’s the need?’

Tactically, many of these changes were directly addressing concerns raised by Trian, as was the case with the powerful move of getting ValueAct on Disney’s side. It implied that the company was not entrenched, that they were open to listening to external views to maximize shareholder value. Why get Trian in while another renowned activist is already engaged in a constructive way?

Disney also significantly increased dialogue with its shareholder base to right the engagement ship. One of the criticisms I have heard during my research, including through discussions with analysts and proxy solicitor experts, is that Disney’s prior shareholder engagement program was not as structured and thorough as one could expect from a company of its size and reputation. That may be one of the reasons behind Peltz gaining significant support at the AGM.

In its fight for shareholders’ support, Disney also made sure to keep the moral high ground; or, in other words, to act in accordance with all shareholders’ interests. On the other side, Trian sold some of its Disney shares in the middle of the battle, giving the impression that they may not be as committed as they said they were and that they had their own agenda.

It is also interesting to highlight two press articles that were published end of March 2024, just before Disney’s AGM, that were damaging to Peltz and Trian. They leveraged data presented by Disney in its pre-AGM slideshow and cast a different light on Trian’s historical performance, countering Peltz’ assertion that every company where he had served on the board had outperformed benchmarks.

What can governance professionals and IROs take away from this all? In short:

1. Do not wait for a crisis to hit. Put in place right now a comprehensive engagement program with your minority shareholders. It will show them you respect their rights and the return on investment will be worthwhile
2. Demonstrate, at every financial communication opportunity, that you are your own agent of change. In other words, let minority shareholders know they don’t need an external party to defend their interests. While sell-side analysts won’t care, your shareholders’ stewardship teams will, and they are the ones who will vote
3. Deconstruct your opponent’s narrative by quickly addressing each one of their arguments. That will take the breath out of their actions
4. Keep the moral high ground. You must show in every one of your actions that you are here to defend the interests of all shareholders. Demonstrate that you are not entrenched and that you are open to constructive ideas. This will provide comfort to your shareholders that they can justify supporting you. Remember that they have a fiduciary duty to their own clients and that they are accountable for their voting decisions.