Walt Disney Company

Disney Proxy Vote Recommendations

The Walt Disney Company (DIS), operates as an entertainment company worldwide. Most shareholders don’t vote because reading through 74 pages of the proxy AND many more pages of appendices is not worth the time for the small difference your vote will make. Below, I tell you how I am voting and why. If you have read these posts related to my portfolio for the last 22 years and trust my judgment (or you don’t want to take the time to read it), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.

The annual meeting is coming up on March 8, 2018. I voted with the Board’s recommendations 47% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).

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 the Yahoo Finance profile: The Walt Disney Company’s ISS Governance QualityScore as of February 1, 2018 is 5. The pillar scores are Audit: 1; Board: 9; Shareholder Rights: 3; Compensation: 6.

Corporate governance scores courtesy of Institutional Shareholder Services (ISS). Scores indicate decile rank relative to index or region. A decile score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. Therefore, we need to pay closer attention to the board and executive compensation.

Disney: Board Proposals

1. Disney Proxy Voting Guide: Directors

Egan-Jones Proxy Services recommends against Mary T. Barra, Robert A. Iger, Maria Elena Lagomasino, Fred H. Langhammer, and Aylwin B. Lewis. Although concerned about Fred Lagomasino’s questionable independence due to long tenure and about Iger holding both CEO and Chairman positions, I only voted against the directors serving on the Compensation Committee, since they recommended what I believe is out sized pay.

2. Disney: Ratify Auditors

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 notes PwC has been serving as the Company’s auditor for more than seven years and their independence is compromised. PIRC notes PwC has served for over 10 years and recommends against. I also believe that the companies should consider the rotation of their audit firm to ensure auditor objectivity, professionalism and independence. I have not set a specific number of years but in this case agree, so voted AGAINST.

3. Disney: Amend Executive Bonus Plan

Egan-Jones recommends FOR but PIRC notes, “as performance conditions may be attached to awards at the Compensation Committee’s discretion, there are concerns that awards under the Plan will not necessarily be subject to sufficiently robust performance targets (if any). As a result, shareholders cannot assess whether the Plan will operate to align participants’ incentives with shareholders’ interests. In addition, maximum award limits are considered excessive. An Oppose Vote is recommended.” I voted AGAINST.

4. Disney: Executive Compensation

Disney’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman/CEO Robert A. Iger at $36.3M. I’m using Yahoo! Finance to determine market cap ($165B) 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 2014, so pay was well over that amount. Disney shares underperformed the S&P500 over the most recent one, two, and five year time periods. Disney is also #12 on As You Sow‘s list of the 100 Most Overpaid CEOs. Prior reports have shown that being on the list is correlated with lower returns in subsequent years.

Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures wealth creation in comparison to other widely held issuers. “Needs Attention” is their rating given on compensation issues for Disney. Egan-Jones concludes:
Egan-Jones

We believe that shareholders cannot support the current compensation policies put in place by the Company’s directors. Furthermore, we believe that the Company’s compensation policies and procedures are not effective or strongly aligned with the long-term interest of its shareholders. Therefore, we recommend a vote AGAINST this Proposal.

PIRC notes, “the CEO is entitled to a cash bonus of $5 million if he is employed by the Company until 2 July 2019.” No performance considerations are attached. They went on to elaborate several other issues as well. Given continued underperformance, above median pay, the recommendations Egan Jones and PIRC, and rank of #12 on As You Sow’s list of overpaid CEOs, I voted “AGAINST” the say-on-pay item.

Disney: Shareholder Proposals

5. Report on Lobbying Payments and Policy

This proposal by Zevin Asset Management on behalf of several people and organizations is very similar to proposals I have submitted this year.  Being open about lobbying activities is necessary to ensure shareholders’ funds in an inappropriate way to gain undue influence.

Justice Kennedy’s majority opinion justifies the Supreme Court’s decision in Citizens United by pointing to the Internet.

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.

He also said that disclosure,

permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.

However, there is no automatic shareholder right to such information. It must be won through votes at each company. I voted FOR.

6. Proxy Access Bylaw Amendment

This is my proposal (James McRitchie), so of course I voted FOR. Disney has adopted a ‘lite’ version of proxy access. Our proposal seeks a more robust version based on the SEC’s vacated Rule 14a-11 and CII’s Best Practices. Vote FOR. Egan-Jones and PIRC also recommended FOR.

CorpGov Recommendations: Votes Against Board Position in Bold Proxy Insight

In addition to Calvert and Trillium votes reported by Proxy DemocracyProxy Insight reported on Canada Pension Plan (CPPIB) and Australian Local Government Superannuation Scheme (LGSS), which I pasted below. I expect they will report out a few more votes before the meeting.  My recommended votes that differ from what the Board recommends are noted in bold.

# PROPOSAL TEXT Corpgov CALVERT  CPPIB/LGSS TRILLIUM
1a Elect Director Susan E. Arnold For For For Against
1b Elect Director Mary T. Barra Against For For Against
1c Elect Director Safra A. Catz For For For Against
1d Elect Director John S. Chen For For For/Against Against
1e Elect Director Francis A. deSouza For For For Against
1f Elect Director Robert A. Iger For For For Against
1g Elect Director Maria Elena Lagomasino Against For For Against
1h Elect Director Fred H. Langhammer For For For Against
1i Elect Director Aylwin B. Lewis Against For For Against
1j Elect Director Mark G. Parker For For For Against
2 Ratify PricewaterhouseCoopers LLP as Auditors Against For For For
3 Amend Executive Incentive Bonus Plan Against For For For
4 Advisory Vote to Ratify Named Executive Officers’ Compensation Against Against For Against
5 Report on Lobbying Payments and Policy For For For For
6 Proxy Access Bylaw Amendment For For For For

Disney: Issues for Future Proposals

SharkRepellentLooking at SharkRepellent.net for other provisions unfriendly to shareowners:

  • Special meetings can only be called by shareholders representing 25% of the voting power.
  • Proxy access provisions are Lite.  A shareholder or group of no more than 20 shareholders holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate directors, so long as the number of directors elected via proxy access does not exceed 20% of the board. Nominees who receive less than 20% of the votes would be ineligible for nomination under the proxy access provision for the next two (2) annual meetings. Voting FOR proposal #6 could lead the Board to move on these issues.

Disney: Mark Your Calendar

Shareholder Proposals for Inclusion in 2019 Proxy Statement. To be eligible for inclusion in the proxy statement for our 2019 Annual Meeting, shareholder proposals must be received by the Company’s Secretary no later than the close of business on September 14, 2018. 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. For more on the subject, see CEO Pay Machine Destroying America.

   

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