Picking a Fight

Picking a Fight

In the introduction to The Dictatorship of Woke Capital, I note that the effort to politicize capital markets and to undermine shareholders in favor of “stakeholders” reminds me of Carl Sandberg’s onion, “every time you peel off a layer, you discover another layer underneath, and another underneath that, and then another still.”

In the two years since, I feel like I – in conjunction with many of you and many others who stand in opposition to the ESG/stakeholder model – have seen most of the layers peeled back.  I believe that I have seen the worst of what the “woke capitalists” can throw at free and fair markets and understand, for the most part, the vast expanse of this operation.  Or to put it more succinctly: it takes a lot to shock me these days.

And yet…

Regular readers undoubtedly know that I have serious problems with The Walt Disney Company and, specifically, its past and present CEO, Bob Iger.  Stealing an old line from my friend Justin Danhof, I always say that pressure on corporations to get political comes from three directions: the bottom-up (employees), the top-down (the C-suites), and the outside-in (activists, including activist shareholders and asset managers).  Bob Iger has long been the quintessential example of the “top-down” pressure on corporations.  It might be unfair to say that he alone is responsible for the politicization of Disney, but then, we’d be hard-pressed to prove otherwise.  Politics is his fixation, and Disney is the means by which he gets his fix.

None of this is surprising, of course.  Disney features prominently in The Dictatorship, and I have written about it and Iger n these pages several times, including last week.  I know who Bob Iger is and what he is up to.  As I said, I’ve seen all the layers of the onion.  Or at least I thought I had.  And then, I read the following in Monday’s Washington Post:

It was late February 2022, and Iger was only a few weeks into his retirement after a storied career running the Walt Disney Co. He’d orchestrated deals to bring Pixar, Marvel and Star Wars to Disney. Disney’s share price more than quintupled under him. And he’d rarely shied away from fights on social issues he felt were important. In 2016, he was credited with helping persuade Georgia’s governor to veto an anti-LGBTQ bill when Disney threatened to stop filming in the state. A year later, he cited his concerns about climate change when he quit President Donald Trump’s business advisory council.

Now, Iger was sitting on the sidelines watching Florida lawmakers consider a new piece of legislation called the Parental Rights in Education bill. Critics had already labeled it “don’t say gay,” because the bill would prohibit classroom discussions involving sexual orientation and gender identity in early grades. The bill seemed to have little to do with Disney’s theme parks in Orlando. Still, Disney’s army of lobbyists in Florida kept an eye on the legislation.

The risk to Disney appeared so remote that top executives at Disney’s headquarters in Burbank, Calif., were still in the dark about the issue, according to a person familiar with the company’s thinking who spoke on the condition of anonymity to disclose corporate discussions.

“It was on no one’s radar,” said this person.

Then, on Feb. 24, 2022, Iger tweeted.

“If passed, this bill will put vulnerable, young LGBTQ people in jeopardy,” Iger wrote.

Iger’s tweet caught many in the Florida government and Disney’s headquarters by surprise. It suddenly set in motion an epic clash between two Florida powerhouses — Gov. Ron DeSantis (R) and Disney World, an economic engine that employs 75,000 people and attracts 50 million visitors per year. This dispute began with a contentious education bill, but, like a Magic Kingdom roller coaster, has taken numerous twists and turns in the past 15 months, picking up speed and intensity along the way.

And what started as DeSantis vs. Disney is now seen by many as DeSantis vs. Iger.

So, here’s the thing: I knew that Iger was handling this poorly.  I knew that he saw this as an important fight on a personal level, a chance to cast himself as a hero and to save the day for his company while also saving billions and billions of LGBTQ kids from the incipient fascism of Ron DeSantis.  I knew that he was subordinating the interests of the owners of the company (its shareholders) to his political interests.  I knew all of this.  You knew all of this.  Everyone knew all of this.  But I didn’t know until this day, that it was Iger all along.

Bob Iger – and Bob Iger alone – picked this fight.  As the Post makes clear, this story is, in truth, far different from the one we’ve heretofore been told.  This wasn’t a case of bottom-up pressure influencing Bob Chapek.  It wasn’t a case of Bob Chapek’s top-down pressure changing the direction of the company.  It was, rather, a case unlike anything else in the ESG/stakeholder narrative.  It was a quasi-top-down, quasi-outside-in effort made by one man who couldn’t let go of the company he’d quit and of whom the company he’d quit couldn’t let go.  It was something amazing – and amazingly stupid, a new and entirely destructive form of pressure on a corporation.

Last June, when the acrimony over the Parental Rights bill was at its height and Bob Chapek was making an utter fool of himself, we noted the following:

Disney shareholders should be angry – very, very angry.  A few weeks ago, you may recall, the company’s board gave a vote of confidence to CEO Bob Chapek, the guy who engineered the company’s precipitous decline.  That was a betrayal.  The board should have canned him on the spot, WITH PREJUDICE….

These people have no idea what they’re doing.  And they’re destroying both shareholder value and whatever cohesiveness remains in this country as they fumble about stupidly.

Five months later, the Disney board did, finally, fire Chapek.  The problem is that it replaced him with the guy who started the fight that was killing the company in the first place.  This is nothing less than shocking, an utterly incomprehensible display of arrogance and negligence.

To be clear, we’re not lawyers.  Still, we think that there’s a pretty clear case that everyone involved here – Iger AND the Disney Board of Directors – violated their fiduciary duties to Disney shareholders by bringing about the now long and disastrous fight with the State of Florida and its governor, Ron DeSantis.  Iger picked this fight.  He dragged his former company into this fight.  He allowed his hand-picked successor to be destroyed by this fight.  The Disney board knew all of this and still brought him back to run the company, at which point he escalated this fight.

NONE of this was necessary.  NONE of it was inevitable.  NONE of it has been to the benefit of shareholders.  And the blame for ALL of it rests squarely on Bob Iger’s shoulders.

The Disney board should do the right thing to protect shareholders and end Bob Iger’s ability to play politics with Disney’s name and influence.  And if it doesn’t, then shareholders must do the hard but necessary thing to protect themselves and replace the directors.  End this fight before it ends you.

Stephen Soukup
Stephen Soukup
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Steve Soukup is the Vice President and Publisher of The Political Forum, an “independent research provider” that delivers research and consulting services to the institutional investment community, with an emphasis on economic, social, political, and geopolitical events that are likely to have an impact on the financial markets in the United States and abroad.