The Walt Disney Company $DIS will hold their annual meeting tomorrow (3/12/2014). Today is the last day to vote unless you attend the meeting. My voting recommendations are at The Walt Disney Company (DIS): Proxy Score 79.
Since that post a few additional funds have voted and there has been further debate:
- OTPP (Ontario Teachers Pension Plan) voted in favor of my proposal for an independent chair when Mr. Iger vacates that position. They voted against William Steiner’s proposal to Limit Accelerated Executive Pay through pro-rata vesting.
- CalSTRS voted in favor of both proposals.
- Florida SBA voted in favor of both proposals.
Additionally, Proxy Mosaic held an informative webinar that is now available for replay. To Split or Not to Split? Independent Chair Proposals at Disney & Starbucks — Replay Here.
Regarding My Proposal for an Independent Chair at Disney
I want to point out that an important provision of the proposal is to have the Disney Board adopt a policy of having an independent board chair STARTING with the next CEO. I’m not looking to take anything away from Mr. Iger. Such action would likely be viewed by the markets as disruptive, causing share price to reduce and also tarnishing the reputation of Mr. Iger who is doing a fantastic job as CEO.
That being said, I will say being the CEO of Disney should be considered a full time job, as should being Chairman of the Board. Mr. Iger is paid handsomely for those services. $46.5M last year according to the Summary Compensation Table in the current proxy. As Chairman of the Board, Mr. Iger presided over 7 full board meetings and was also at least briefed on 10 meetings of Disney’s Compensation Committee, 8 meetings of the Audit Committee and 5 meetings of the Corporate Governance and Nominating Committee.
However, Mr. Iger is also on the Board of Apple, which held 6 full Board meetings and 4 nonexecutive director meetings. Mr. Iger chaired 5 meetings of Apple’s Governance and Nominating Committee and attended 10 meetings of Apple’s Audit committee. For those services, which many might consider another full-time job, he was paid another $317,757.00.
While I am not advocating any change for Mr. Iger, I hope his successor does not also serve as the board’s chair. I can see benefits in serving on another board, such as Apple, because that brings cross-fertilization of ideas.
However, serving as Disney’s CEO and as Disney’s board chair is too much of a conflict of interest. When our CEO is also our board chairman, this arrangement can hinder our board’s ability to monitor our CEO’s performance and of shareholders to speak candidly.
Succession planning is one of a Board’s most important functions. As the Disney Board works on those plans, they should think of their CEO and Chair positions as full-time jobs. Disney can well afford to hire two people for those jobs and, as a 2012 report by GMIRatings found, companies that split those positions generally showed 5-year shareholder returns that were 28% higher.
In the supporting language for my proposal I cite a couple of surveys, one by NACD that found 73% of directors serving with an independent chair said their companies greatly benefit from that arrangement. 7% disagreed. In a Spencer Stewart survey, 64% of directors agreed or strongly agreed that splitting the positions led to more independent thought by directors… that’s what we want. 60% said it leads to more effective CEO evaluations.
A key provision in their current policy says the ‘lead directors’ will preside at all meetings of the Board of Directors at which the Chairman is not present, including executive sessions. I recently attended a forum where directors were advised to meet in executive session prior to each board meeting to review the CEO’s meeting agenda to ensure it reflects THEIR priorities. Board meetings are their meetings but CEOs often focus the board on what they want them to know in order to get the decisions the CEO wants. They were also advised to hold executive sessions in the middle and at the end of each full board meeting, to ensure they are on track and to evaluate and issues they have with management. All that work to ensure the CEO/Chair doesn’t set the board agenda. Wouldn’t it be simpler just to have an independent chair?
Please vote in favor of having the next Chair of the Walt Disney Company be an Independent Chair. Vote in favor of proxy item #4 “TO APPROVE THE SHAREHOLDER PROPOSAL RELATING TO INDEPENDENT BOARD CHAIRMAN.”