Inside Disney’s Star CEO Wars
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September 16, 2024
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Epic battles are the stock in trade for The Walt Disney Company (“Disney”), and not just on the big screen. Over the past 40 years, Disney has faced three waves of shareholder activism, with the first two resulting in its CEO being replaced. The most recent fight, which culminated in Disney’s annual meeting on April 3, 2024, left CEO Bob Iger intact.
How did Iger avoid replacement? His exceptional ability to persuade others allowed him to obtain substantial goodwill from the financial press, the Disney “family” and investors – groups that criticized Disney’s previous leaders.1 His public commitment to step down in 2026 perhaps dispelled concerns that he would linger as an “Imperial” CEO.2 At the same time, in today’s clouded media industry landscape, it is unclear who Iger’s immediate successor would be.
1984: The Shareholder Force Awakens
The media environment, and Disney itself, were both much simpler when the Company encountered shareholder activism in 1984. Walt Disney’s son-in-law, Ron Miller, was in his second year as CEO. Disney released three or four movies each year, mostly in the family genre.3 Miller recognized Disney’s need to evolve and had begun to move the Company into edgier movies, such as the 1984 hit film “Splash,” which marked the launch of the Touchstone Pictures banner.4
However, equity investors viewed Disney as undervalued and undermanaged. On two separate occasions in the spring and summer of 1984, an investor accumulated a large block of Disney shares and hinted at seeking control.5 Director Stanley Gold, counsel for fellow director Roy Disney, Walt’s nephew; and the Bass family, who were shareholders and had Board representation, led the charge to remove Miller as CEO.6 That September, Disney’s Board replaced Miller with Paramount Pictures President Michael Eisner.7
Under Eisner’s leadership, Disney had two distinct periods. The Company initially thrived. It greatly increased its movie production, expanded the types of movies it made, revitalized its animated division and released a string of blockbuster films.8 Disney’s shares skyrocketed (Table 1).
Eisner’s departure in 2005 resulted in Bob Iger becoming CEO. Iger’s tenure also began well. Disney purchased Pixar Films (2006), Marvel Entertainment (2009) and Lucasfilm (2012), and the newly acquired franchises contributed to Disney dominating the box office, producing one hit movie after another.9 Disney’s shares soared again.
Table 1: Disney TSR with Michael Eisner as CEO
Source: Bloomberg
2004: Attack of the Disney Family
Both Eisner and Iger ran into difficulties after ten to 12 years. The second part of Eisner’s tenure saw executive turnover, less popular animated films (e.g., “The Emperor’s New Groove”), a lack of exciting new characters and a sluggish share price.10 At the time, Disney was partnering with Pixar, whose successful animated films and new characters had become increasingly critical to Disney. However, in early 2004, Pixar decided to end the partnership.11
A month earlier, in December 2003, Roy Disney and Stanley Gold left Disney’s Board and called for Eisner’s removal as CEO and Chairman.12 They ran a “Vote No” campaign, asking shareholders to withhold their votes on Eisner and three other directors.13 Their criticisms included a value-destructive acquisition, excessive executive compensation and high executive turnover.14
As the campaign progressed, Eisner seemed to lack a reservoir of goodwill among the media or investors. He “resembles an aging caudillo hanging on to power long past the flower of his youth,” wrote one prominent financial journalist.15 “He's a lightning rod,” a Wall Street stock analyst said.16 Large public pension fund CalPERS said Eisner should resign as Chairman and later, as CEO.17
Both Institutional Shareholder Services (“ISS”) and Glass Lewis recommended that shareholders withhold votes on Eisner as a director.18 Forty-three percent of votes were withheld for Eisner at Disney’s March 2004 annual meeting, leading to his removal as chairman.19 Undeterred, Eisner continued as CEO.20 However, in March 2005, he agreed to step down, with Iger becoming CEO on October 2, 2005.21
2024: The Return of Bob Iger
Iger’s successful first decade evolved into a second decade filled with challenges, in a much less favorable media environment. Many American households no longer subscribe to cable TV, hurting ESPN, while Covid-19 restrictions reduced industrywide theme park attendance and box office revenues, the latter of which remained lower after restrictions were lifted. Disney feuded with Florida Governor Ron DeSantis.22 Conservative activists criticized Disney for adopting a “woke” agenda, with Iger seeming to agree.23, 24 These factors have combined to result in Disney shares struggling in recent years, leading up to the 2024 shareholder meeting (Table 2)
Table 2: Disney TSR under Bob Iger’s leadership*
*Iger was CEO from October 2, 2005, through February 23, 2020, and has been CEO since November 20, 2022. From February 24, 2020, through December 31, 2021, he was Executive Chairman.
Source: Bloomberg
As Disney faced these issues, Iger postponed his departure as CEO several times, and potential successors left the company.25, 26 Iger stepped down as CEO in February 2020 to become Executive Chairman, but he returned as CEO in November 2022 after discontent with successor Bob Chapek.27
Since 2022, multiple shareholder activists have sought changes at Disney. However, after publicly suggesting improvements at Disney, Third Point settled with the company that September.28 Trian Partners took steps toward a proxy fight in late 2022 but ended its campaign in February 2023.29
Between February 2023 and October 2023, Disney shares fell 25%, leading Trian to resume its campaign.30,31 For Disney’s 2024 annual meeting, Trian nominated two candidates: founder Nelson Peltz and ex-Disney CFO Jay Rasulo; fellow activist Blackwells Capital nominated three directors.32 Neither major proxy advisor recommended for any of Blackwells’ nominees, and its nominees received only 2% of votes cast.33, 34
Trian’s criticisms included a value-destructive acquisition, high executive compensation and a lack of succession planning.35 In its defense, Disney touted ongoing cost reductions and heavily criticized Peltz and Rasulo.36, 37
Trian attempted to replace two directors, but not Iger, who declared that he would step down as CEO when his contract ended in 2026.38 Media reports identified four internal Disney contenders, each of whom seemed to have strong knowledge of their segment, but less experience in other Disney segments.39 The tough environment for media conglomerates in the post-cable TV, post-Covid world made it difficult to identify potential outside candidates. In previous situations, Eisner’s track record at Paramount and Iger’s experience at Disney rendered them somewhat natural choices as Disney’s next CEO.
Despite Trian not targeting Iger, the media often portrayed its campaign as Peltz against Iger. “The Bob Iger v Nelson Peltz rematch,” blared an Economist magazine headline.40 Fortune magazine called Peltz’s campaign a “personal vendetta against the iconic CEO.”41
Unlike 20 years earlier, this time the business press portrayed Disney’s CEO favorably. Bloomberg Businessweek called Iger a “legendary CEO (who) came out of retirement to save the company.”42 MarketWatch said he “appears to be making good progress in his turnaround efforts at the Magic Kingdom, and is now getting his hands dirty to fix the content problem at its studios.”43
The extended Disney “family” all backed its CEO and Board, including the grandchildren of Walt Disney and Roy Disney, plus Disney shareholder George Lucas, the creator of Star Wars.44, 45 ISS recommended for Trian, while Glass Lewis supported Disney.46 Shareholders Neuberger & Berman and CalPERS backed Trian, while BlackRock and T. Rowe Price supported the Company.47, 48
A New Hope at the House of the Mouse
Why were there such contrasting opinions of Disney’s CEOs during these last two shareholder activism campaigns? The differing media environment could be one reason; shareholders may prefer a trusted hand in today’s turbulence. Personal likability and charm also seem to have played a large role. Eisner “apparently didn't realize how many people in Hollywood felt so bitterly betrayed by him,” one journalist wrote.49 By contrast, The Hollywood Reporter described Iger as having Marvel superhero-like powers of persuasion.50
Trian’s campaign ended with Disney shareholders electing all company nominees; its most popular nominee, Peltz, received only 31% of votes cast.51 Such results do not appear to have weakened Iger. They leave him free to figure out how to unlock the value of Disney’s many strong assets. While Iger has spent many years leading Disney, it may be the decisions during his last two years that largely shape how investors remember his tenure.
Are You Prepared for the Phantom Menace of Shareholder Activists?
What lessons can CEOs take from the Disney experience? Activists are drawn to companies by a variety of perceived vulnerabilities, upon which they can agitate with other shareholders to push for changes. FTI Consulting’s quarterly Activism Vulnerability Report shows how our quantitative screener ranks industries’ vulnerability to activism.
Disney’s high profile makes it an attractive target for activists looking to make a splash, but its many great brands and its longer-term track record of generating strong shareholder returns help fend off attacks. For other companies facing shareholder activists, or even the potential for activists, the recent contest provides some key takeaways:
- Get ready for the sequel – Winning a battle doesn’t mean the war is over. Third Point and Trian both agitated for change the previous year before winding down those campaigns. However, a subsequent drop in Disney’s share price re-energized Trian. Just because an activist campaign went away does not mean that it or others will not be back soon.
- Be wary of the dark side – How “celebrity” CEOs like Iger are viewed personally can play a significant role in proxy contests such as this. For Iger, his likability and persuasiveness were substantial advantages. However, other high-profile CEOs may be perceived less favorably, leading shareholders to be more receptive to an activist.
- Build alliances – Disney was able to convince other shareholders, including a well-known activist, to publicly back it. This can be helpful in convincing proxy advisors and undecided shareholders to support the company. Winning a battle doesn’t have to be all-or-nothing.
Footnotes:
1: Alex Weprin, “Bob Iger’s Invincible Era Is Over”, The Hollywood Reporter (March 27, 2024).
2: Reuters, “Here’s when Bob Iger plans to step down as Disney CEO,” The New York Post (November 29, 2023).
3: “Complete List of Walt Disney Movies,” imdb.com (Last accessed July 31, 2024).
4: John Taylor, Storming the Magic Kingdom, New York: Knopf (1987).
5: Thomas C. Hayes, “Disney’s Chief is Forced Out”, The New York Times (September 8, 1984).
6: John Taylor, Storming the Magic Kingdom, New York: Knopf (1987).
7: Thomas C. Hayes, “New Disney Team’s Strategy”, The New York Times (September 24, 1984).
8: Chris Pallant, Demystifying Disney: A History of Disney Feature Animation, page 89, New York: Continuum Publishing (Last accessed August 1, 2024).
9: Meriah Doty, “Disney Becomes First Studio to Top $3 Billion at Domestic Box Office,” The Wrap (January 3, 2017).
10: Associated Press, “Roy Disney, ally quit Disney board”, NBC News (December. 1, 2003).
11: Bruce Orwall and Nick Wingfield, “The End: Pixar Breaks Up With Distribution Partner Disney”, The Wall Street Journal (January 30, 2004).
12: Ibid 10.
13: Roy E. Disney and Stanley P. Gold, “An Open Letter To Our Fellow Disney Shareholders”, (Jan. 27, 2004).
14: Ibid.
15: Roger Lowenstein, “The rise and fall of Disney’s Michael Eisner”, The Ledger (February 14, 2004).
16: Michael McCarthy, “Disney strips chairmanship from Eisner”, USA Today (March 3, 2004).
17: “Eisner out as Disney chair”, CNN/Money (March 3, 2004).
18: Gary Gentile, “2nd Proxy Firm Says Vote ‘No’ On Eisner”, The Ledger (February 26, 2004).
19: David Teather, “Disney shareholders force Eisner out of chairman’s role”, The Guardian (March 4, 2004).
20: Frank Ahrens, “Disney Chooses Successor to Chief Executive Eisner”, Washington Post (March 13, 2005).
21: Ibid.
22: Kimberly Leonard, “The Disney-DeSantis détente is here”, Politico (March 27, 2024).
23: Lucia Moses and Madeline Berg, “Bob Iger says ‘woke’ Disney is not over, but it may not silence his critics”, Business Insider (April 24, 2024).
24: Jill Goldsmith, “Bob Iger On Succession, Nelson Peltz, Elon Musk & “Woke” Content Day After Disney Wins Proxy Battle”, Deadline (April 4, 2024).
25: Ben Fritz, “Disney’s Iger Isn’t About to Let Go as CEO”, The Wall Street Journal (May 16, 2017).
26: Ben Fritz, “Disney Extends CEO Bob Iger’s Contract Until 2018”, The Wall Street Journal (October 2, 2014).
27: Joe Flint, Robbie Whelan, Erich Schwartzel, Emily Glazer and Jessica Toonkel, “Bob Iger vs. Bob Chapek: Inside the Disney coup”, The Wall Street Journal (December 17, 2022).
28: Lillian Rizzo, “Disney reaches deal with activist investor Third Point, will add former Meta executive to its board,” CNBC.com (September 30, 2022).
29: Lillian Rizzo, “Activist investor Nelson Peltz declares Disney proxy fight is over after Iger unveils restructuring,” CNBC.com (February 9, 2023).
30: Source: FactSet.
31: Lauren Thomas, “Nelson Peltz boosts Disney Stake, Seeks Board Seats”, The Wall Street Journal (October 8, 2023).
32: “Disney wins ValueAct, Blackwells backing in boardroom fight with Trian”, CNBC (January 3, 2024).
33: The Walt Disney Company, “The Walt Disney Company Comments on ISS Recommendation” (March 21, 2024).
34: The Walt Disney Company, Form 8-K (April 9, 2024).
35: The Walt Disney Company, “Restore the Magic at the Walt Disney Company” (March 2024), .
36: Eileen AJ Connelly, “Disney Slams Activist Investor Nelson Peltz Nominee’s ‘Track Record of Value Destruction’”, TheWrap (February 27, 2024).
37: Meg James, “Disney slams proxy fight rival Nelson Peltz in political-style ad”, Los Angeles Times (March 11, 2024).
38: Ashley Carter, “Disney CEO Bob Iger says he will ‘definitely’ step down at the end of 2026”, Spectrum News 13 (November 29, 2023).
39: Toni Ferrigno, “Reports Indicate Four Disney Executives Are Top Picks to Succeed Bob Iger as CEO”, World News Today (March 14, 2024).
40: “Bob Iger v. Nelson Peltz: The Rematch”, The Economist (November 9, 2023).
41: Jeffrey Sonnenfeld and Steven Tian, “‘The wizard vs. the illusionist’: Bob Iger faces another challenge as ex-Disney employees join activist investor Nelson Peltz in a personal vendetta against the iconic CEO”, Fortune (November 7, 2023).
42: Thomas Buckley, “Has Bob Iger Lost the Magic?”, Bloomberg (October 10, 2023).
43: Therese Poletti, “Opinion: Disney CEO Bob Iger is getting his hands dirty as he focuses on studio woes — will be it enough?”, MarketWatch, (November 11, 2023).
44: Robbie Whelan, “Disney Family Rebukes Nelson Peltz, Praises Bob Iger in Shareholder Letter”, The Wall Street Journal”, (February 29, 2024).
45: Sarah Krouse, Robbie Whelan, and Lauren Thomas, “Disney, Trian Blitz Shareholders for Votes in Last Stretch of Proxy Fight”, The Wall Street Journal”, (March 28, 2024).
46: Alana Pipe and Stephanie Stamm, “The Battle Lines in the War Over Disney’s Board”, The Wall Street Journal, (April 1, 2024).
47: Ibid.
48: Ibid.
49: David Lieberman, “Eisner at Center of ‘Disney War’”, USA Today, (February 24, 2005).
50: Alex Weprin, “Bob Iger’s Invincible Era is Over”, The Hollywood Reporter, (March 27, 2024).
51: The Walt Disney Company, Form 8-K, (April 9, 2024).
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September 16, 2024
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