At Disney, a board meeting this Wednesday will decide a proxy fight that has dragged on for months, pitting CEO Bob Iger against activist investor Nelson Peltz. Whoever is the victor, tension at the House of Mouse is unlikely to go away for good.
Why the tension? Investors like Peltz are concerned about Disney’s financial woes, including its streaming business—Disney+, ESPN+ and Hulu. Per Peltz, Disney stock has been a “losing proposition,” while Iger has urged shareholders to stay the course.
Proxy fights are nothing new in corporate America. They predate Disney and will happen many times over, perhaps even at the Mouse again. Every future officer and director of public companies will deal with it, in some form or another, for as far as the eye can see. Here’s a primer…
(NOTE: This primer is not a “how-to” guide for winning proxy fights.)
First, it is important to understand the terms “AI” and “PC.” “AI”—not “artificial intelligence” in this case—refers to an activist investor, often a specialized hedge fund (Trian Partners, in Peltz’s case), that buys a significant minority stake in a publicly traded company (like Disney) to change how it is run. “PC” refers to a proxy contest. Time Warner (2006) and EBay (2014) come to mind as famous proxy fights, both involving activist investor Carl Icahn.
AIs and PCs come in an impressive panoply of types of challenge, and an even more diverse mix of motives and players. Therefore, approaches and solutions sets very much depend on who is looking to get what on a proxy statement for that decisive shareholder vote.
Let’s start with the what, or the nature of the ask. The candidates may include:
- Resolutions for shareholder endorsement
- Amendments to by-laws on corporate policies and processes
- Commitments to certain kinds of actions, such as spin-offs and division sales
- Proposals for an alternate slate of directors (one or more) to join the board or replace existing membership
- Ideas for hostile mergers or takeovers put up to a shareholder vote
The other dimension is the why, or the range of various motivations. These motives may include:
- “Good governance gadflies”: These range from goofs to people selling “advisory services” that promise to boost corporate ratings
- Director nomination processes: This is normally a question of nominating a single-issue director on the slate
- Popular cause petitions: Concepts like “DEI” and “ESG” take center stage here, including boycotts and divestments that are more political in nature
- Self-interested groups with an agenda behind a generic cause: Right-to-work bills, minimum wage increases, and import-export constraints are commonly touted
- Self-acknowledged “green mail”: This is less prevalent now, but the activist demands, “I will stop being a nuisance if you pay me to go away by buying my stock at a premium”
- Pressing for public confessions or apologies: The goal is to make it easier for class action lawyers to negotiate a settlement for a large class of people
- Financial activists who are “big-chunk investors”: Committing companies to quick-fix actions like stock buybacks or dividend increases, enabling them to flip holdings at a quick profit
And then, there are the true activists, who genuinely believe that they can help deliver more productive corporate strategies and tactics. They press for changes in good faith, so their activism is not a smokescreen for another motive.
But wait, you say! Why are you addressing this primer solely to those who are, or aspire to be, officers or directors of public companies? Don’t all managers have to do what is best for shareholders, finding common ground with people who are different and self-interested themselves?
Yes, all managers—at Disney and other public companies—have to give customers and clients a valid reason to spend their money on a particular good or service, versus the competition. Should you visit Disneyland or Six Flags?
Managers also have to give their employees a compelling combination of doing worthwhile work, finding the potential for growth, and being compensated appropriately. As I often argue, it is not enough to just pay your employees more—managers also need to make employees’ jobs more interesting, as Frederick Herzberg noted. And, on top of that, managers need to engage with broader communities and government at all levels in competing for customers, investors, and talent.
That is all very true. But it is the manager’s job to make a choice: To serve customer sets, provide employment to various types of talent, and locate in cities and states that make it possible to provide competitive returns to investors. All of these involve negotiations with groups that also have choices, while serving different constituencies than we managers do.
When dealing with those who push a company’s shareholders to vote on ideas that managers may or may not think are in their best interest, those are not negotiations. They amount to politics that affect elections.
As officers and directors, we have the absolute duty to describe why the votes that we recommend for or against a shareholder proposal are in the shareholders’ interest. Other groups have no such duty—no obligation for fairness or balance in their arguments, or a disclosure of self-interest in what they are proposing. It is fair game to disguise that self-interest and assert rationales that may or may not be accurate or honest, and we can’t just ignore them.
During proxy fights, officers and directors have to engage, communicate with shareholders, and become their true advocates. We can’t do that unless we explain—accurately and honestly—what activist proposals will actually do, and why certain groups advocate for them. There is no ducking this responsibility—it comes with the top jobs at any public company.
Before it’s your turn, read the news and catch up on what happened elsewhere, including Disney. Figure out who has what stakes in the game. Then, you can advocate for the people whom you serve against the groups serving themselves.