Bob Iger, Chairman and CEO of The Walt Disney Company, pauses as he speaks during an Economic Club of New York event in midtown Manhattan on October 24, 2019 in New York City.
Drew Angerer | Getty Images
Activist investor Nelson Peltz spent about 30 minutes Thursday morning talking with CNBC’s Jim Cramer and David Faber in a wide-ranging interview about why he wanted to acquire Disney Board seat.
But his argument barely touched on what must be his strongest point — Disney’s continued failure to plan for CEO succession.
Related investment news
Peltz referenced his box office slideshow about Disney’s failures under former CEOs Bob Iger and Bob Chapek. He said if he had to boil the presentation down to its core, it would center around Disney’s poor share performance and Trian’s record on value creation. Trian noted that Disney’s share price peaked in 2021 but is currently trading near an eight-year low. The stock rose about 3% on Thursday.
But Disney’s poor performance in 2022 reflected an industry-led recession Netflixstunted growth. Disney’s stock price rally in 2021 resulted from the same phenomenon – investors charging for streaming services with huge subscriber growth. Disney and Netflix are both down about 38% over the past 12 months. Other media stocks fell more. Paramount Global Shares fell 45%. Warner Bros. Discovery Shares are down nearly 50% since AT&T merged WarnerMedia with Discovery on April 8.
Peltz blamed Disney CEO Bob Iger and its board for overpaying 21st Century Fox in 2019 for the company’s decision to shed its dividend during the pandemic. But asking for a seat on the board based on Iger’s track record in making acquisition decisions won’t win over many investors. Iger’s string of deals during his tenure as CEO — acquiring Pixar, LucasFilm and Marvel — ahead of Fox were some of the best acquisitions in the history of the media industry.
Trian also noted Disney’s “flawed direct-to-consumer strategy” in the dossier “despite generating similar revenues as Netflix and having a significant IP advantage”. Netflix launched its streaming business years before Disney+ debuted in 2019. Naturally, Netflix is ahead of Disney (and every other streaming service) in terms of profitability and free cash flow generation.
Peltz plans a proxy battle and it shouldn’t be a stronger argument for shareholders about Iger’s performance as CEO. Instead, it has to do with the Board’s continued failure to plan for a post-Iger world. Iger developed a history during his initial 15-year tenure as CEO of chasing down potential successors, including Jay Rasullo, Tom Staggs and Kevin Mayer. When he quit his job as CEO in 2020, he failed to leave the company outright, setting up an 18-month period where his chosen successor, Chapek, felt undermined by his presence.
Iger is now back, and the Disney board has tasked him with finding a successor in the next two years. Egger’s track record indicates that succession planning is the one area where he really struggles.
“Historically Iger has dominated the succession process, but it shouldn’t be Iger’s choice, it’s the board’s choice,” said Charles Elson, founding director of the Weinberg Center for Corporate Governance. “Disney has left itself open to activist interference because it has had governance issues with succession for nearly 25 years.”
Part of Trian’s presentation to investors is the succession issue, but it doesn’t come up until slide 27 of the 35-slide presentation. Most of Peltz’s argument rests on Disney’s underwhelming stock performance, the decision to cancel the dividend, how the Fox deal didn’t work out, how a hypothetical deal for Sky (one that never happened in reality) wouldn’t have worked, and Trian’s history of boosting share value. He also told CNBC that Disney either needed to take over Comcast’s 33% stake in Hulu or “get out of the streaming business.”
Disney is addressing last year’s stock slump by bringing back Iger, a CEO who is well respected by employees and investors alike. Disney will also have a new CEO soon. Peltz’s argument that Egger needs Trian’s strategic decision-making help after only a few months of returning to the job can prove challenging.
It’s much easier to explain that Disney’s board of directors and Iger consistently got it wrong with succession planning. In his presentation, Trian said that Disney’s shareholder engagement process was “among the worst (if not the worst) of all the companies we’ve dealt with.”
Disney likely wouldn’t want Peltz on the board because it would force the issue of succession, limiting Iger’s ability to remain CEO for longer than two years. As Trian noted in his presentation (on slide 28), the Disney board extended Iger’s retirement date five different times between October 2011 and December 2017.
Perhaps Peltz needs to hone his message to focus on that.
Watch: Disney is more than just a media company, says Trian’s Nelson Peltz