Yesterday, CalSTRS issued the following statement regarding its votes at the Walt Disney Company Annual Shareholder Meeting in Phoenix, Ariz. This statement is attributable to CalSTRS Director of Corporate Governance, Anne Sheehan.
CalSTRS, holder of more than five million shares of The Walt Disney Company stock, congratulates Disney on its most recent stock performance under the leadership of CEO Bob Iger. Disney has been an economic engine for California for decades and the legacy continues. As a shareholder, CalSTRS has benefitted from this performance. However, we see troubling governance structures emerging at Disney, which fail to protect the investment of our beneficiaries and ensure the company’s continued long-term success.
The old saying says, ‘Those who forget history are doomed to repeat it.’ We as shareholders do not want to see a repeat of the events that sparked a shareholder revolt in 2004-2005. Yet we fear the Disney Board seems to be slipping back into its old ways. We were extremely disappointed when the Disney Board recombined the CEO and Chairman positions, especially without shareholder input. In addition, we have been watching support for the compensation program decline from 77 percent in 2011, to consecutive years of a barely-passing 57 percent in 2012 and today.
On the other hand, we are encouraged by the backing the shareholder proposals received, which CalSTRS supported. At today’s meeting, the proposal seeking access to the proxy ballot received 39.8 percent support and the proposal to separate the CEO and Chairman positions received 35.3 percent shareholder support. These are solid numbers for newly introduced proposals.
For the majority of Mr. Iger’s tenure, Disney maintained separate CEO and Chairman positions. CalSTRS believes these two roles should be separate because they serve different and conflicting interests. A chairman is there to lead the board and represent shareholders. The CEO runs the company and leads the management team. The separation of these two roles provides an important safeguard, which was lost with the recombination of the two.
CalSTRS believes a compensation program that is properly structured is essential to ensure that executive interests align with those of shareholders. Disney has seen the support for its compensation plan continue to decline. However, the board simply continues to support the pay program that shareholders continue to express concerns about. Compensation is about pay for performance. Although the performance at Disney, especially last year, has been outstanding, there are elements of the pay program that are fundamentally flawed. Among them are:
- Emphasis on short-term performance with large cash payments. Over the past three years, including salary and bonus, Mr. Iger has received more than $15 million annually in cash.
- Guarantees for long-term awards of $15.5 million each year through 2015.
- The inconsistent use of peer groups in setting and measuring compensation levels.
- Cementing this structure into Mr. Iger’s employment agreement.
Unfortunately, the board’s response to this low level of support has been inadequate.
Finally, CalSTRS believes every company should institute a mechanism that allows long-term shareholders to nominate directors, which provides the balance necessary to ensure shareholders can make use of their fundamental right.
CalSTRS believes that Disney is an iconic company. We want it, and our investment, to have continued and sustainable success. CalSTRS believes a properly structured compensation plan, a leadership structure that ensures accountability and a governance standard like proxy access should be in place at all companies, including The Walt Disney Company. As long as there are teachers in California, CalSTRS will be there to provide them a secure retirement. As a long-term investor, we will continue to be a voice for good corporate governance practices.
CalSTRS, with a portfolio valued at $161.4 billion as of January 31, 2013, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans, as well as disability and survivor benefits. For 100 years, CalSTRS has served California’s public school educators and their families, who today number 862,000 from the state’s 1,600 school districts, county offices of education and community college districts.
I previously reported on how CalSTRS voted when I announced my own votes (Walt Disney (DIS): How I Voted – Proxy Score 17). It is great to see high votes against the compensation plan and in favor of proxy access and splitting the roles of CEO and Chairman. I’m especially heartened to see Sheehan statement, “CalSTRS believes every company should institute a mechanism that allows long-term shareholders to nominate directors.” Let’s hope the Disney Board sees these votes as a wakeup call requiring immediate attention.