Recent news reports have speculated that activist investor Nelson Peltz’s Trian Fund Management may soon initiate a proxy fight to gain one or more seats on the Disney board of directors. Disney has had a difficult time over the last few years and the company’s stock price is now approaching a 10-year low. And making matters worse is the board’s failure to find a suitable successor to Bob Iger, who returned as CEO last year after Bob Chapek, Iger’s personal choice to succeed him, was fired after just 11 months.
While there are many factors Disney and other companies can point to that have hampered stock price growth over the last few years – continued recovery from the pandemic, supply chain disruptions, higher interest rates, inflation, wars in Ukraine and Israel, worker shortages, recession fears, etc. – corporate boards should not expect activist investors to be sympathetic. In fact, for companies that have experienced stock price declines over the last 18 months, corporate board members should expect shareholder scrutiny to increase. As we approach the start of 2024, corporate boards and management should consider working together to determine how they are going to convince shareholders that:
1. Strategies that are currently in place are improving financial results;
2. Additional moves that are planned or in the process of being implemented are projected to accelerate growth in the short-term; and
3. The CEO and board of directors have the right experience and skills to navigate any headwinds and lead the company into the future.
From the looks of things, the Disney board may have a lot of convincing to do. Peltz unsuccessfully pressured the board to grant him a board seat in January, and the company stock price has fallen since then. The current board’s track record is sketchy. As CNBC reported, “Every board member, aside from Iger, has presided during a time where shareholder return has been negative.” The company has made layoffs, hired a new CFO, and made other cuts to address some of its issues, but those changes are just now beginning to show positive results. Now it is up to Disney’s board and management to outline a compelling turnaround story for investors before Peltz makes his case for removing several of Disney’s board members. To his credit, Iger started singing the praises of Disney’s potential turnaround this week.
This is why any company that has had negative shareholder returns for a year or more must begin the process of crafting a “turnaround story” for investors that demonstrates that the board and management have a grasp of the company’s current situation and a viable plan for long-term growth (if they haven’t already). Companies must create a process where they continuously talk to investors year-round to build trust for those times when things aren’t going so well. Even if your board has an experienced team with great skillsets and a conceivable business plan, the board’s ability to communicate the effectiveness of its plan to investors and the financial markets may make all the difference.