Proxy-Advisory Firm ISS Recommends Disney Shareholders Elect Nelson Peltz to Board

Disney was handed a setback in its boardroom fight with activist investor Nelson Peltz after proxy-advisory firm Institutional Shareholder Services recommended that shareholders vote him onto the Mouse House’s board.

ISS, whose recommendations are influential among institutional investors, cited Disney’s “failed” succession planning in the CEO role in its report backing Peltz, whose Trian Partners. In November 2022, Bob Iger returned as chief executive of the media conglomerate after the ouster of Bob Chapek, formerly head of Disney’s parks division, whom Iger had hand-picked to succeed him in February 2020.

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“Dissident nominee Peltz, as a significant shareholder, could be additive to the succession process, providing assurance to other investors that the board is properly engaged this time around,” ISS said in the report Thursday. Peltz, with his “considerable experience on other boards and fiduciary duties owed to a large shareholding group, appears best positioned to bring a shareholder perspective to the board.”

While some investors “have likely drawn comfort from Iger’s return,” ISS said in the report, “given the major missteps and severe consequences of the failed 2020 succession, particularly for a company that already had a history of succession drama, it may be difficult for others to simply trust that the board, albeit refreshed, will get it right this time. These shareholders may be concerned about post-Iger [Disney]. Our analysis favors this latter view.”

The ISS report comes after independent proxy voting advisory firm Glass Lewis recommended Disney shareholders vote for the company’s 12 director nominees.

At Disney’s 2024 annual shareholders meeting, to be held virtually April 3, investors will vote on rival board candidate slates — Disney’s own 12-member lineup, Nelson Peltz’s Trian Partners two nominees (Peltz and ex-Disney CFO Jay Rasulo) or three from investment firm Blackwells Capital.

ISS, in its report, advised Disney shareholders to not vote for Rasulo. “Though we do not have any concerns about his ability to serve as an objective director, we recognize that Rasulo’s potential presence might create added friction on the board,” ISS said. The firm also advised against voting for three nominees put forth by investment firm Blackwells Capital.

ISS recommended shareholders vote for current Disney director Michael Froman but abstain from reelecting Maria Elena Lagomasino, CEO and managing partner of WE Family Offices and a former senior executive at JP Morgan Private Bank and Chase Manhattan Bank and a current director of the Coca-Cola Co.

In a statement, Disney chairman Mark Parker said, “[W]e strongly believe that ISS reached the wrong conclusion in its recent report when it comes to adding Nelson Peltz to the board. In contrast to Glass Lewis, ISS fails to acknowledge the breadth of perspective and expertise Ms. Lagomasino adds to the board. The strong recent performance and results overseen by the Disney board demonstrate our focus on long-term shareholder value creation and succession planning and our commitment to good governance practices.”

Disney said in its statement about the ISS report that “it’s worth noting that Trian’s silent partner, former Disney employee Ike Perlmutter, owns almost 79% of Trian’s Disney shares. In its report, ISS agrees that Perlmutter’s involvement is ‘an unfortunate distraction’ and that he ‘may cast a baleful shadow over the board’ if Peltz is elected.” The company continued, “This dynamic is relevant to assessing the Trian Group’s nominees, as Mr. Perlmutter has a fraught history and longstanding personal agenda against Disney’s CEO, Robert A. Iger, which would likely inhibit Nelson Peltz from working constructively with Disney’s Board, threatening the company’s continued turnaround.”

Amid the proxy fight, Disney and Iger have received the backing of George Lucas (Disney’s largest individual shareholder) and the grandchildren of Walt Disney and his brother Roy O. Disney. In a video produced like a political attack ad, Disney called Trian’s campaign to shake up the board “disruptive and destructive” and said Peltz’s “quest also seems more about vanity than a belief in Disney.

Separately Thursday, Trian assembled a group of 13 current and former public company directors who have worked with Peltz and Trian to send a letter to Disney’s board of directors detailing their “positive experiences” working with Trian.

Signatories include former directors at H.J. Heinz and Procter & Gamble, where Trian joined the board following a proxy contest, as well as Janus Henderson, Legg Mason, Mondelēz, Sysco, and Wendy’s.

“Some of us, like you, were skeptical about Nelson and were initially opposed to the notion of having him on our boards. Some of us worried that he might derail the successful execution of our strategy. However, after having worked with Nelson, we know that our concerns were misplaced. The companies for which we served as board members alongside Nelson were improved because of his presence on the board.” The letter concludes, “Each of us would happily serve with Nelson again on another board.”

The full text of the letter can be found at this link.

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