In a year dominated by elections worldwide, it is fitting that The Walt Disney Company took the crown for the most expensive corporate proxy fight ever.
The bruising battle ended with Disney’s management claiming a resounding victory over activist investor, Trian Fund Management, L.P.
The results of the voting process confirmed a long-held belief among financial market participants: asset mgmt titans Vanguard (V), BlackRock (B) and State Street (SS) wield enormous influence over the outcomes of the proxy voting process.
Despite the Asset Managers’ roll out of reforms like ‘voting choices’ and ‘pass-through voting’, the results of the vote indicate that millions of investors aren’t yet fully immersed in the voting process (Between them, V and B, on behalf of retail and inst. investors, ‘own’ 14% of Disney’s shares)
The results may have come as a surprise to long-term Disney shareholders simply because the points made by Trian appeared to be strongly in their interest.
Here is a summary of them:
1. A broken CEO succession process
2. Disney’s abrupt elimination of dividends in 2020, after 57 straight years.
3. While the Fox acq. moved the needle on revenues (from $59 bio in 2018 to $88 bio in 2023), costs escalated as well. Operating margins have plummeted from ~ 25 % in 2016 ~ 6% in 2023.
4. There is also a damning comparison with streaming leader Netflix that shows up Disney’s execution gaps.
These are compelling arguments from an activist pitching for a board seat, yet the results were one-sided in favour of the incumbent mgmt and board.
Is there any other explanation for this?
Something that sits outside the realm of balance sheet objectivity?
To answer that question, you must look closely at how events panned out at another proxy vote.
Recall that 3 years ago, ExxonMobil (XOM) was defeated by Engine No. 1, in a climate-charged activist battle.
Know what was unusual then?
B, V and SS voted against the XOM management and backed the activist hedge fund.
In an odd twist in that tale, last year, Engine No 1 unanimously backed Exxon in its $60 billion bid for Pioneer.
Know what that means?
It means XOM made a $60 billion fossil fuel bet that had the support of an activist who won its board seats on the back of a climate change campaign.
XOM, which is up 20% YTD, has executed well on its shareholder outcomes this year (with the Pioneer acquisition meaningfully lowering extraction costs)
And therein lies a possible explanation.
Exxon was up against ‘woke’. Lost the vote. But won the war eventually.
Disney has possibly won this on a ‘woke’ plank (Trian’s ‘Restore the Magic’ deck makes all the right points and, on the deck, when I did a CTRL+F on ‘Woke’ nothing came up, yet their [Trian’s] narrative got sidetracked in that direction thanks to a barrage of interviews that appeared ‘Anti-Woke’).
If only Trian had stuck to balance-sheet objectivity …. and left the anti-woke battle for a different day.
