What Boards Can Learn From Disney’s Proxy Fight With Nelson Peltz

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One key lesson? Acknowledging mistakes and correcting them quickly.

The Walt Disney Co. board recently repelled a contentious proxy fight from billionaire Nelson Peltz’s Trian Fund Management, demonstrating how taking quick, substantial action can work to end shareholder attempts to gain board seats.

Corporate boards can no longer take time before implementing decisive steps to correct problems that erode shareholder value. After Disney reported a 66% decline in quarterly profit last November, Peltz, whose Trian Fund has a 9.4 million share stake in Disney, began making a case for changes at the entertainment giant. Among the changes was the suggestion that he should be added to the board of directors. Some key moves the Disney board made that led to Peltz ending the proxy fight include:

• Disney corrected a mistake in company leadership—quickly. After just two years, poor company performance led the Disney board to fire Bob Chapek and replace him with long-time Disney CEO Bob Iger. Since it was Bob Iger who had chosen Chapek as his replacement in 2020, bringing back Iger was no doubt awkward, but a necessary move to renew investor confidence. Iger’s stellar track record at Disney immediately sent a message to shareholders that they could have greater confidence that the board and Iger would be able to get the company back to profitability. Leadership matters, and the board’s decision to cut ties with a CEO after just two years underscores how quickly boards are being pushed to make course corrections by activist investors. The lesson here is that boards (and CEOs) may not be given as much time for their strategies to show progress as they have been given in the past. Acknowledging a mistake and correcting it quickly must be something all boards consider in the best interests of all stakeholders.

• Disney responded publicly to activist attacks with rational arguments that highlighted board member attributes. Once Peltz began a public campaign to discredit the Disney board and propose what could be done to turn the company around, it was important that the board presented logical arguments against what Peltz was pushing for—obtaining a seat on the board. Communicating by sending letters to shareholders is essential during a proxy fight. In its communication with shareholders Disney did a good job of emphasizing the array of executive experience on its board while also highlighting past periods of profitability under CEO Iger, who they had just reinstated.

The board also made rational arguments why Peltz did not have a distinguishable skill set that was desperately needed on the board. Additional communications disclosed the strategy the board would take under Iger’s leadership—including a reorganization plan that appeared to gain traction with market analysts. Once Wall Street analysts were on board with the board’s new approach, Peltz’s involvement was viewed as counterproductive. The lesson here is that Disney made an immediate public defense of its board’s experience and ability to create shareholder value—then followed-up with a clear plan of action that investors and market analysts could endorse. Countering activists’ criticism quickly is key—but there must be reasonable arguments against adding or replacing board members. And it must be demonstrated how sticking with the current board will provide the greatest opportunity for increasing shareholder value.

• Disney took immediate action to create profitability. Investors want to see decisive actions to fix problems, so boards must make some type of major move if a proxy fight is going to end. If no action is taken, it gives the impression that the board is satisfied with whatever situation sparked the proxy fight in the first place.

Once the Disney board publicly stated that it was better qualified to return the company to profitability than Peltz, it had to get on with the process. Announcing the immediate reorganization of the company into three divisions (entertainment, sports and parks) with creative executives given responsibility for their growth addressed some of the complaints raised by Peltz and created a pathway to future expansion. Announcing 7,000 job cuts also showed the board’s willingness to make tough choices to curb expenditures in ways that could benefit shareholders. The lesson here is that actions speak louder than words—especially during a proxy fight. If the board delays making changes, shareholders will align behind someone who will.

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