Walt Disney Company

Walt Disney Company: Proxy Score 25

Walt Disney Company

Walt Disney Company: before you vote your proxy

The Walt Disney Company (NYSE:DIS), together with its subsidiaries, operates as an entertainment company worldwide.

The Walt Disney Company is one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of three fund families when I checked and voted. Their annual meeting is coming up on March 8, 2017.

I voted FOR Proxy Access Amendments. See how and why I voted other items below. I voted with the Board’s recommendations only 25% of the time. View Proxy Statement via iiWisdom.

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

Walt Disney Company: ISS Rating

From the Yahoo Finance profile: The Walt Disney Company’s ISS Governance QualityScore as of ‎February‎ ‎25‎, ‎2017 is 2. The pillar scores are Audit: 1; Board: 6; Shareholder Rights: 2; Compensation: 6. 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: Board and Compensation.

Walt Disney Company: Compensation

Disney’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO Robert A. Iger at $43.9M in 2016. I am using Yahoo! Finance to determine market cap ($174.44B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. 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 $10.3M in 2015, so pay was well above that amount. Disney shares outperformed the S&P 500 over the most recent five and ten year time periods, but underperformed in the most recent one and two year time periods.ipreo

I recently obtained access to a wonderful database maintained by Ipero. The part I am using is mostly focused on corporate clients, especially investor relations and corporate secretaries, but I find it very useful. I constructed the table below using Ipreo’s database comparing total compensation among top NEOs, which Disney identified as peers in their proxy.  I could have included a much more extensive breakdown of pay components but this is good enough for my purpose. As you can see, Robert Iger’s total compensation is well above the median pay of his counterparts using Disney’s self-identified peers.

Walt Disney Company & Peers – Total Compensation
Company Name Full Name C-Suite Function Year Total Summary, $
The Walt Disney Company Robert Iger Chairman, Director, Chief Executive Officer 2016 43,882,396
CBS Corporation Leslie Moonves Chief Executive Officer, Director, President, Chairman 2015 56,773,822
Oracle Corporation Mark Hurd Chief Executive Officer, Director, President 2016 41,121,896
Oracle Corporation Safra Catz Chief Financial Officer, Chief Executive Officer, President, Director 2016 40,943,812
Comcast Corporation Brian Roberts Chairman, President, Chief Executive Officer, Director 2015 36,248,269
Time Warner, Inc. Jeffrey Bewkes Chief Executive Officer, Chairman, Director 2015 31,493,211
HP Inc. Dion Weisler President, Chief Executive Officer, Director 2016 28,696,267
PepsiCo, Inc. Indra Nooyi Chairman, Chief Executive Officer, Director 2015 26,444,990
Twenty-First Century Fox, Inc. James Murdoch Chief Executive Officer, Director 2016 26,379,673
AT&T, Inc. Randall Stephenson Chairman, Chief Executive Officer, Director, President 2015 25,145,914
Johnson and Johnson Alex Gorsky Chairman, Director, Chief Executive Officer 2015 23,795,866
International Business Machines Corporation Virginia Rometty Chief Executive Officer, President, Chairman, Director 2015 19,821,950
Accenture plc Pierre Nanterme Chairman, Chief Executive Officer, Director 2016 18,499,843
Verizon Communications, Inc. Lowell McAdam Chairman, Chief Executive Officer, Director 2015 18,343,660
Microsoft Corporation Satya Nadella Chief Executive Officer, Director 2016 17,692,031
Cisco Systems, Inc. Charles Robbins Chief Executive Officer, Director 2016 16,034,571
Intel Corporation Brian Krzanich Chief Executive Officer, Director 2015 14,633,500
The Coca-Cola Company Muhtar Kent Chief Executive Officer, Chairman, Director 2015 14,590,571
The Procter & Gamble Company David Taylor Director, Chief Executive Officer, Chairman 2016 14,404,653
Amazon.com, Inc. Jeffrey Bezos President, Director, Chief Executive Officer, Chairman 2015 1,681,840
Alphabet Inc. Lawrence Page Chief Executive Officer, Director 2015 1
Median total Compensation 23,795,866

Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measure wealth creation in comparison to other widely held issuers.

Walt Disney Company earns a compensation score of “Needs Attention”, and as such, we recommend that clients “WITHHOLD” votes from the members of the Compensation Committee, namely Affiliated outside directors Susan E. Arnold and Aylwin B. Lewis, and Independent outside directors Maria Elena Lagomasino and Orin C. Smith. Egan-Jones believes that the Compensation Committee should be held accountable for such a poor rating and should ensure that the Company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, strongly aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and the enhancement of shareholder value.

I voted “AGAINST” the say-on-pay item. The “Lake Woebegone effect” has to be ended. We cannot just keep voting in favor of higher and higher pay packages. I could understand paying more than median, since Disney is so big but not double or quadruple. I also voted against all the compensation committee members.

Walt Disney Company: 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. However, Egan-Jones recommends voting against, favoring auditor rotation after seven years. I am not quite ready to set that as the bar but PIRC points out PwC has been Disney’s auditor for 79 years! I’m not sure how long an auditor should be able to serve but 79 years is definitely too long to insure independence. I voted AGAINST.

Walt Disney Company: Board Proposals

As mentioned above, I voted “Against” the pay package and auditor. As is my habit, when I vote against the pay package, I also vote against/withhold on the compensation committee. I also took the advice of Egan-Jones and voted against Robert Iger, since I share their belief that the CEO and Chair positions should be separated.

Egan-Jones also recommended

clients “WITHHOLD” votes from Affiliated outside directors John S. Chen, Fred H. Langhammer, current members of the Audit Committee; Affiliated outside director Susan E. Arnold, current member of the Compensation Committee; Affiliated outside director Robert W. Matschullat, current member of the Audit and Nominating committees; Affiliated outside director Aylwin B. Lewis, current member of the Audit and Compensation committees of the Board. We believe that key Board committees namely Audit, Compensation and Nominating committees should be comprised solely of Independent outside directors for sound corporate governance practice.

That seems like excellent advice to me, so I did the same.

Walt Disney Company: Shareholder Proposals

#5 Report on Lobbying Payments and Policy

This proposal is from Zevin Asset Management on behalf of David Fenton, the Sisters of Saint Francis of Philadelphia, the Congregation of Sisters of St. Agnes, the Center for Community Change, and Daniel AltschulerJustice Kennedy appears to have thought all this information was already reported to shareholders on a routine basis when he wrote the Citizens United decision.

With the advent of the Internet… Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.

Such information is not already reported to shareholders. Here is our opportunity to get that right at the Walt Disney Company. Vote #5 ‘FOR.’

#6 Proxy Access Bylaw Amendments

James McRitchie

James McRitchie

James McRitchie (that’s me) is the proponent. I voted ‘FOR.’ While Disney amended their proxy access bylaws after last year’s vote on my previous proposal, two significant changes are still needed.

Current bylaws allow shareholders to nominate only two, easily isolated, directors. My proposal would up that to 25%, yielding 3 nominees.

Current bylaws limit nominating groups to 20 members. The Council of Institutional Investors studied such provisions and found their members, who hold in excess of $3 trillion in assets, would not be able to meet the requirement of 3% held for 3 years with a 20-member limit. The proposal seeks removal of the cap on the number of members that can form a group.

One thing few take into account is that shares are not consistently held. Funds frequently buy or sell shares. For example, during the last reporting period (quarter), the top 50 institutional shareholders at Disney bought or sold an average of 9% of their shares. That drastically reduces the likelihood that 20 shareholders can get to 3% since many will have held only a small fraction, if any, of the shares they hold today for the entire three year period. According to PoliticFact, the average holding time for all stocks has fallen to four months. Disney and other companies have provided no evidence their restrictive proxy access bylaws are anything but an illusion.

Like all the shareholder proposals on Disney’s proxy, proposal #6 is advisory. The Board has flexibility in implementing (or not implement) any proposal. For example, the Board could lift the cap on nominating groups from 20 members to 50 members. That certainly would go a long way in giving shareholders genuine proxy access. Vote FOR #6.

Walt Disney Company: Votes Against Board Position in Bold Proxy Insight

As mentioned above, ProxyDemocracy.org had collected the votes of four funds when I voted.  Proxy Insight reported additional votes from Canada Pension (CPPIB), Teacher Retirement System of Texas (TRS), and several others. All voted FOR #7 amendments to Disney’s proxy access bylaws.

1a Elect Director Susan E. Arnold Against For For For Against
1b Elect Director John S. Chen Against For For For Against
1c Elect Director Jack Dorsey For For For For Against
1d Elect Director Robert A. Iger Against For For Against Against
1e Elect Director Maria Elena Lagomasino Against For For For Against
1f Elect Director Fred H. Langhammer Against For For For Against
1g Elect Director Aylwin B. Lewis Against For For Against Against
1h Elect Director Robert W. Matschullat Against For For For Against
1i Elect Director Mark G. Parker For For For For Against
1j Elect Director Sheryl K. Sandberg For For For For Against
1k Elect Director Orin C. Smith Against For For For Against
2 Ratify PricewaterhouseCoopers LLP as Auditors Against For For For For
3 Ratify Named Executive Officers’ Compensation Against Against For Against Against
4 Advisory Vote on Say on Pay Frequency One Year One Year One Year One Year One Year
5 Report on Lobbying Payments and Policy For For For For For
6 Proxy Access Bylaw Amendment

Included in FocusLists Included in 1 FocusList: Proxy Access
For For For For For

Walt Disney Company: Issue for Future Proposals

SharkRepellentLooking at SharkRepellent.net for other provisions unfriendly to shareowners. The main outstanding issue is proxy access:

  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.
  • Proxy access lite. Proxy access provision whereby a stockholder, or group of no more than 20 stockholders, holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate directors, constituting up to the greater of two individuals, or 20% of the Board. 

Walt Disney Company: Mark Your Calendar

To be eligible for inclusion in the proxy statement for our 2018 Annual Meeting, shareholder proposals must be received by the Company’s Secretary no later than the close of business on September 15, 2017. 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.


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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