Walt Disney Company

The Walt Disney Company (DIS): Proxy Score 62

 Disney

before you vote your proxy

Disney ($DIS), together with its subsidiaries, operates as an entertainment company worldwide. Disney is one of the stocks in my portfolio. Their annual meeting is on March 3, 2016. ProxyDemocracy.org had collected the votes of three funds when I checked. I voted against the pay proposal and compensation committee and in favor of shareholder proposal to eliminate supermajority requirements and to report on lobbying. I voted with the Board’s recommendations 62% of the time. View Proxy Statement.

Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value. 

Disney: ISS Rating

From Yahoo! FinanceThe Walt Disney Company’s ISS Governance QuickScore as of Feb 1, 2016 is 6. The pillar scores are Audit: 1; Board: 5; Shareholder Rights: 6; Compensation: 7. Brought to us by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures. That gives us a quick idea of where to focus: all but Audit.

Disney: Compensation

Walt Disney’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO Robert A. Iger at $46.5M. I’m using Yahoo! Finance to determine market cap ($159.1B) and Wikipedia’s rule of thumb regarding classification. Disney is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3 million in 2014, so pay is well above that. Disney shares outperformed the S&P 500 over the most recent one, two, five, and ten year time periods.GMIAnalyst

The MSCI GMIAnalyst report I reviewed gave $DIS an overall grade of ‘C.’ According to the report:

  • Unvested equity awards partially or fully accelerate upon the CEO’s termination. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.
  • The company has not disclosed specific, quantifiable performance target objectives for the CEO. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.

These issues are common to many but still disturbing. Although I considered the outperformance of Disney stock, I voted against the pay package as excessive. When I vote against pay, I generally vote against the compensation committee as well, since they recommend the pay package: Susan E. Arnold (Chair), Fred H. Langhammer, Aylwin B. Lewis, and Monica C. Lozano (apparently not running again)

Disney: Accounting

I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest — so voted to confirm.

Disney: Board Proposals

As mentioned above, I voted against the pay plan and members of the compensation committee. I voted in favor of proposal #4, which would amend the certificate of incorporation to remove the requirement that business combinations with “Interested Persons” be approved by two-thirds of outstanding shares. That is in line with my proposal #5 below and was probably prompted by my submission. 

Disney: Shareholder Proposals

#5 is my proposal, which requests the board amend all voting requirements so that any requirement that calls for a greater than simple majority vote be eliminated. Requiring more than a simple majority allows entrenched managers to block amendments or transactions that a majority of shareholders favor. The only such requirement I know of at Disney is the one the board seeks to eliminate in #4 above, which I believe my proposal prompted them to propose. If proposal #4 fails to get the supermajority required, passage of #5 will serve a reminder to the board to persist further in the matter.

#6, a proposal from Zevin Asset Management, requests a board report on Disney’s lobbying policies, procedures, expenditures, and oversight mechanisms. If we don’t know how and what $DIS spends our money on, how can we monitor management to ensure such expenditures are in our interest.

Proxy Insight$Disney: CorpGov Recommendations Below – Votes Against Board Position in Bold

I also checked Proxy Insight. They report the Teacher Retirement System of Texas voted for all items, including the shareholder proposals.

NUM. PROPOSAL TEXT CorpGov CBIS CALVERT  DOMINI
1a Elect Director Susan E. Arnold Against For For For
1b Elect Director John S. Chen For For For For
1c Elect Director Jack Dorsey For For For For
1d Elect Director Robert A. Iger For For For Against
1e Elect Director Maria Elena Lagomasino For For For For
1f Elect Director Fred H. Langhammer Against For For For
1g Elect Director Aylwin B. Lewis Against For For Against
1h Elect Director Robert W. Matschullat For For For For
1i Elect Director Mark G. Parker For For For For
1j Elect Director Sheryl K. Sandberg For For For For
1k Elect Director Orin C. Smith For For For For
2 Ratify PricewaterhouseCoopers LLP as Auditors For Against For For
3 Advisory Vote to Ratify Named Executive Officers’ Compensation Against For Against Against
4 Amend Restated Certificate of Incorporation Relating to Business Combinations with an Interested Person For For For For
5 Reduce Supermajority Vote Requirement For For For For
6 Report on Lobbying Payments and Policy For For For For

SharkRepellent.netDisney: Issues for Future Proposals

Looking at SharkRepellent.net for provisions unfriendly to shareowners:

  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.
  • Supermajority vote requirement (66.67%) to approve mergers not approved by the board with a stockholder holding 5% or more of the common shares.

Disney: Mark Your Calendar

Shareholder Proposals for Inclusion in 2017 Proxy Statement. To be eligible for inclusion in the proxy statement for our 2017 Annual Meeting, shareholder proposals must be received by the Company’s Secretary no later than the close of business on September 16, 2016. Proposals should be sent to the Secretary, The Walt Disney Company, 500 South Buena Vista Street, Burbank, California 91521-1030 and follow the procedures required by SEC Rule 14a-8.

Warnings

Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime).I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

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