Inside Disney’s Star CEO Wars

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

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*

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.

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