Walt Disney 2019

Walt Disney 2019: Proxy Vote Recommendations

Walt Disney 2019 annual meeting is March 7, 2019. To enhance long-term shareholder value, vote AGAINST directors Barra, Lagomasino, Iger, as well as pay and the auditor. Vote FOR shareholder proposals to report on lobbying and cyber security.   

The Walt Disney Company (DIS), together with its subsidiaries, operates as an entertainment company worldwide. Most shareholders do not vote.  Reading through 74+ pages of the proxy takes too much time. Your vote will make only a small difference but could be crucial. Below, how I voted and why.

If you have read these posts related to my portfolio and proxy proposals for the last 22 years and trust my judgment, skip the 8 minute read. See how I voted my ballot. Voting will take you only a minute or two. Again, every vote counts.

I voted with the Board’s recommendations 54% 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.

Walt Disney 2019: ISS Rating

Walt Disney 2019 Yahoo Finance profile: The Walt Disney Company’s ISS Governance QualityScore as of February 1, 2019 is 9. The pillar scores are Audit: 1; Board: 5; Shareholder Rights: 3; Compensation: 10.

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. We need to pay close attention to Compensation.

Walt Disney 2019 Proxy Voting Guide: Board Proposals

1. Walt Disney 2019: Directors

Egan-Jones Proxy Services recommends FOR, WITH EXCEPTION of Mary T. Barra, Maria Elena Lagomasino, Rober Iger. Regarding Barra and Lagomasino: “Egan-Jones’ Proxy Guidelines state 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.”

Re Iger: “Egan-Jones’ Proxy Guidelines state that the Chairman of the Board should be held accountable in cases when the Company obtains the score of Needs Attention on the Cyber Security Risk Rating. We believe that cyber security should be critical for all organizations given the rise of the cyber threats and data breaches in the corporate scene, which could affect any organization’s reputation and lead to declined investor confidence. As such, Egan-Jones believes that in order to avoid risks of data breaches any cybersecurity weaknesses should be addressed aggressively in the board room, combined with the proper approach to cyber risk management, implementation of systems and controls against cybersecurity incidents and the leadership of the Chairman of the Board.”

I agree with their assessment. Vote AGAINST Barra, Lagomasino and Iger.

2. Walt Disney 2019: Ratify Auditors

I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. Egan-Jones recommends voting against the auditor if they served for seven years. Independence becomes compromised by that time. Agreed. No other issues appear significant.

Vote AGAINST.

3. Walt Disney 2019: Executive Compensation

Disney’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO Robert A. Iger at $65.6M. I’m using Yahoo! Finance to determine market cap ($171.8B) and I define 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. Disney shares outperformed the S&P 500 over the most recent one year time period, but underperformed during the most recent two and five year time periods. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 852:1.

Egan-Jones Proxy Services uses a proprietary rating compensation system to measures wealth creation in comparison to other companies. “Needs Attention” is their compensation rating for Disney. They recommend a vote of AGAINST for the say-on-pay item.Egan-Jones

Given compensation policies and procedures are not strongly aligned with the long-term interest of shareholders, above median pay and my concern for growing wealth inequality:

Vote AGAINST.

Walt Disney 2019: Shareholder Proposals

4. Shareholder Proposal: Lobbying Disclosure

This proposal is from Zevin Asset Management on behalf of Emma Creighton Irrevocable Trust, the Congregation of Sisters of Saint Agnes, the Congregation of Saint Joseph, and Walden Asset Management. It simply requests full disclosure of direct and indirect lobbying activities and expenditures to assess whether Disney’s lobbying is consistent with Disney’s expressed goals and in the best interests of shareholders.

I have filed many similar proposals. Egan-Jones recommends against the proposal because “it is in the best interests of the Company and the stockholders to belong to industry associations and coalitions” and  “would require expenditures and the use of Company resources without providing any meaningful benefit to the shareholders.” I disagree. This proposal does not seek shareholder approval before Disney can belong to various industry associations. It only seeks disclosure. It is important to see, for example, that while Disney takes steps to fight climate change, it is a member of the US Chamber Commerce, which undermine acts to the Paris climate accord. We cannot hold Disney accountable for lobbying expenditures unless we can see where they are spent. This is an inexpensive accounting report of transactions already being tracked by Disney.

Vote: FOR

5. Shareholder Proposal: Report on Cyber Security and Data Privacy

This proposal from me (James McRitchie) is new, so most proxy advisors and have not incorporated recommendations into their formal proxy voting policies. The proposal simply asks for a report assessing the feasibility of integrating additional cyber security and data privacy metrics into the performance measures of senior executives under Disney’s compensation incentive plans.

Egan-Jones rates Disney’s cyber security as “Needs Attention” and recommends a vote FOR. See also Cyber Security at Disney: Vote FOR Report. From planned presentation at the annual meeting:

Disney links SENIOR executive compensation to various performance metrics.  Cyber security and data privacy are vitally important issues for Disney.  They should be integrated, as appropriate, into SENIOR executive compensation to incentivize leadership to reduce needless risk, enhance financial performance, and increase accountability.

In its opposition statement, Disney argues their current program “ALLOWS the Compensation Committee to incentivize those executives with DIRECT responsibility for data security and data privacy on an individual basis.”

Although SENIOR executives may not have DIRECT responsibility for data security and privacy, they ARE responsible for managing the work of those who do.  Let me give you an analogy: Legally, parents might be charged with child endangerment if they do not properly vet the babysitter or go over what to do in an emergency.  If parents do not ask the babysitter the right questions or discuss likely contingencies, they ARE liable.

High profile cyberattacks and allegations have given the entertainment industry an IMAGE PROBLEM.   (pause to let this sink in)  Disney has adopted systems to address these issues.  HOWEVER, we have seen at companies like Equifax, Facebook, Target, and many others, even the ‘best’ plans can be improved.

Disney’s opposition statement evidences a Board that is too willing to assign blame, rather than accept responsibility, for a critically important risk. Shareholders prefer NOT to hear about costly breaches in data security and privacy in the media.  Please vote FOR Proposal 5 to protect children and Better Ensure Cyber Security and Data Privacy.

Vote FOR.

Walt Disney 2019 CorpGov RecommendationsProxy Insight

Proxy Democracy is still down. I seek contributions to bring it back to life. Proxy Democracy provided information on votes cast in advance of annual meetings by institutional investors at thousands of companies. If you think that is worthy of financial support, please contact me.

Proxy Insight reported on Australia’s Local Government Superannuation Scheme, Trillium and Domini. Australia’s Scheme vote for all items except auditor and pay. Domini voted for all but Barra, Iger, and pay. Trillium vote against all items except the auditor and both shareholder proposals. Interested readers can also look up funds on our Shareowner Action Handbook.

CorpGov Votes:

  1. Directors: AGAINST Mary T. Barra, Maria Elena Lagomasino, Rober Iger
  2. Auditor: AGAINST.
  3. Executive Pay: AGAINST.
  4. Lobbying Disclosure: FOR
  5. Report on Cyber Security and Data Privacy: FOR

Walt Disney 2019: Issues for Future Proposals

SharkRepellentLooking at SharkRepellent.net for anti-shareholder provisions:

  • No action can be taken without a meeting by written consent.
  • Shareholders cannot call special meetings.
  • Proxy access is lite.

Walt Disney 2019: Mark Your Calendar

To be eligible for inclusion in the proxy statement for our 2020 Annual Meeting, shareholder proposals must be received by the Company’s Secretary no later than the close of business on September 13, 2019. 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,” chosen by aspiration. 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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