In a blow to Disney, a major proxy advisory service on Thursday told investors that change is needed at the House of Mouse, and recommended support for activist shareholder Nelson Peltz’s effort to obtain a seat on the company’s board.
Institutional Shareholders Services’ recommendation was not, however, a fullthroated endorsement of the proxy fight led by Peltz, CEO of Trian Capital Management. ISS recommended that Disney shareholders vote for Peltz, but against Trian’s second nominee, former Disney exec Jay Rasulo.
Peltz would presumably replace current board member Maria Elena Lagomasino, who has served on the board since 2015, and got a thumbs down from ISS. The company’s annual meeting is scheduled for April 3.
The service also recommended that shareholders withhold their votes for the second slate of activist shareholder nominees, backed by Blackwells Capital: Craig Hatkoff, Jessica Schell, and Leah Solivan.
The recommendation ran counter to another top advisory service’s view. Glass Lewis on Monday backed all 12 Disney director nominees, pointing to The Walt Disney Company’s clear strategy, its strong additions to the board and “measurable shifts” in the business since the return of CEO Bob Iger in late 2022.
But it was Iger’s return after the disastrous three years with his hand-picked successor, Bob Chapek, at the helm that troubled ISS and led to its support for Peltz, who has received support from other quarters as well.
“The fact that Disney’s ship was taking on water is obvious,” ISS wrote in its analysis. “Iger’s return may have been sufficient to plug the holes, and management has since taken several actions to plot a better course. With any luck, the favorable winds of renewed cinematic success should convince shareholders that Disney is again headed for safer ports.”
“What remains missing is tangible progress towards succession to give investors sufficient confidence that the company will not run aground after Iger departs, and in doing so, avoid future mutinies,” the analysis continued.
Iger has said he will “definitely step down” at the end of his contract in 2026.
The ISS report echoed some of Peltz’s criticisms, pointing to deteriorating profit margins, the decline in television network profitability and the underperforming studio business. But it saved its most cutting criticism for the succession process.
“How the board became comfortable with Chapek, who by all accounts lacked the creative vision that seems so integral to success at DIS, is puzzling; ultimately, the obvious conclusion is that the board simply trusted Iger’s judgment without conducting more rigorous due diligence,” the analysis said.
“Hindsight is undoubtedly 20/20,” it continued, noting that Chapek likely got a bit of bump early in his tenure from streaming growth at the beginning of the pandemic. “Yet, Chapek seems to have taken enough wrong turns during his tenure (at least by the board’s own assessment) that a more engaged board should arguably have recognized these issues sooner.”
It noted that the board admitted that it spotted ‘red flags’ and that Chapek even failed to heed direct advice from directors, yet the board renewed his contract just two months before firing him.
“By definition, the decision to ask a former CEO (especially one who indicated it was time for him to retire) to return to the company to replace a successor whom the board did not adequately vet is evidence of a critically flawed succession process,” ISS said. In Disney’s case, “shareholders paid a steep price.”
ISS said it backed Peltz because Trian represents “significant share ownership” — it beneficially owns $3 billion in Disney stock — while Blackwells has not bought up additional shares.
Despite Peltz’ ties with fired Disney exec Ike Perlmutter, his “considerable experience on other boards and fiduciary duties owed to a large shareholding group” best positions him to “bring a shareholder perspective to the board.”
Rasulo’s potential presence, given his past with the company and rumors that Perlmutter wanted Rasulo to be Iger’s successor, “might create added friction on the board,” ISS wrote.
ISS’ endorsement of Peltz is critical in garnering the support of institutional shareholders. Iger himself noted in his 2019 memoir that the firm can influence “more than a third” of votes in a proxy and that it was key to Roy E. Disney’s campaign 20 years ago that stripped Michael Eisner of his chairman role.
Disney board chairman Mark Parker said that while the company is “heartened” to see ISS support Michael Froman and recommend withholding votes for Rasulo and the Blackwells nominees, he argued that the firm “reached the wrong conclusion” with regard to adding Peltz to the board.
“In contrast to Glass Lewis, ISS fails to acknowledge the breadth of perspective and expertise Ms. Lagomasino adds to the Board,” Parker added. “The strong recent performance and results overseen by the Disney Board demonstrate our focus on long-term shareholder value creation and succession planning and our commitment to good governance practices.”
The company added that 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” and reiterated Disney’s previous criticism of Ike Perlmutter’s involvement and “fraught history and longstanding personal agenda” against Iger.
In addition to ISS, over a dozen current and former public company directors who worked with Trian and Peltz on their boards have expressed their support for his campaign.
Meanwhile, Disney has received support from “Star Wars” creator George Lucas, activist investor ValueAct Capital, J.P. Morgan CEO Jamie Dimon, former Walt Disney Imagineering president Bob Weis and Walt Disney’s grandchildren.
Disney shares have climbed 20.7% in the past year, 28.5% year to date and 40.8% in the past six months.
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