Disney's 2017 Annual Shareholder Meeting: A Recap

Summary

• CEO Iger deftly handles political questions.
• Star Wars franchise looks positioned for more success.
• Disney counting on Beauty and the Beast and Shanghai Disneyland.

Disney (NYSE:DIS) held its annual shareholder meeting in Denver, Colorado on March 8, 2017 at the Colorado Convention Center. Shareholders were treated to coffee, tea, and bottled juices, but no food or pastries. (It's possible D23 members had a better selection after the regular shareholder meeting.)

Shareholders could also take pictures--available later at www.shareholderphotos.com--with characters Moana, Mickey Mouse, Captain America, and two Star Wars stormtroopers. The stormtroopers seemed to be the most fun, making authoritative comments like "Affirmative," "Stand there," and "Let me see your badge."

Robert "Bob" Iger, Disney's CEO, opened the meeting in a suit and no tie, reading from a teleprompter until the shareholder proposals and Q&A session. He expressed optimism about Shanghai Disneyland, which opened in 2016, the result of a "17 year journey." He then lauded Disney's successful movie franchises, listing four films topping $1 billion each in box office revenues. On the matter of Disney's corporate image and its desire to be a "stellar corporate citizen," Iger mentioned Disney had added 30,000+ jobs in the U.S. since 2005; hired 8,000 military veterans since 2006; and donated $40 million to children's hospitals.

Throughout the meeting, Iger showed several videos, including ESPN clips featuring Denver and many other sports teams; a Disney movie mashup; and extended scenes from Beauty and the Beast (it's a musical!) and Guardians of the Galaxy 2. The most anticipated clips were from Star Wars, The Last Jedi. After presenting the end of the most recent Star Wars film, The Force Awakens, shareholders saw a very short clip of Luke accepting the lightsaber from Rey and another short clip of scattered one-second scenes from The Last Jedi.

The Last Jedi will be released on December 15, 2017, with two more Star Wars films already in the works. Fans of the franchise will be interested in knowing Iger expressed sorrow over Carrie Fisher's death and mentioned two Star Wars theme parks, including one where visitors will be able to pilot the Millennium Falcon.

After his prepared remarks, Iger progressed to shareholder proposals. The main ones involved 1) greater proxy access with respect to influencing the composition of the board of directors; and 2) greater transparency in Disney's lobbying efforts and its influence over trade associations. Regarding the first item, some background: regular shareholders, even if they pool their votes together, have an extremely difficult time under existing rules putting anyone on the board. The proposal would make it easier for "regular" shareholders--as opposed to hedge funds and insiders--to put more than two directors on Disney's board. After all, it "takes more than two directors to change the corporate culture." Disney's rebuttal is that it's not a good idea to spend too much time battling outside or regular shareholder representatives who may not know much about Disney's operations or business.

Regarding the second proposal, Disney doesn't issue a comprehensive report detailing its lobbying efforts, its lobbying payments, or its work through trade associations like the Chamber of Commerce. Why not make it easier to see Disney's lobbying? Disney remarked that it complied with all disclosure laws. One person rebutted the argument for greater transparency by accusing the shareholder group making the proposal of wanting transparency only to demand conformity with its own political agenda rather than Disney's best interests.

The Q&A session was very political. Several shareholders asked Iger to resign from a presidential council. Iger patiently explained that being on the council and working with the president didn't mean he agreed with everything the president said or did, and it was better to have a "voice in the room" and be able to influence the direction of the country than be on the outside looking in: "I want to be in the room when it happens, but I respect your opinion." He further elaborated by saying Disney projected its values through storytelling, where it would have the largest impact and reach, repeatedly referring to Zootopia, a movie about tolerance.

After a question on climate change, Iger said the "changes we see in climate are real," and Disney is doing everything it can to "not contribute to the problem." He expressed concern over Disney's Hong Kong and Tokyo parks, which are on the water and which may be affected by rising sea levels.

A shareholder who claimed Disney was biased in its news reporting was met with strong resistance from Iger, who said ABC News and other channels were critical of the last president's administration, and he appreciated the "freedom to be adversarial, even to those in power."

I asked about Disney Tokyo's profit structure, where Disney lacks an equity stake in its park's management company, a different set-up from Shanghai and other international theme parks. Iger explained the Tokyo park was negotiated back in the 1970s, when Disney didn't want to put substantial cash upfront and was comfortable delegating to a local management and operating company. Basically, Disney appears locked into the original contractual terms because the Japanese management company fronted all of the money for the initial development and land.

I also reminded Iger about unpaid student-athletes, from whom ESPN makes millions of dollars. At a meeting a few years ago, I raised the same issue, and Iger referred me to the NCAA's role and Disney's documentary work through its 30 for 30 series. Having heard nothing from Disney or Iger on the issue since then, I responded that waiting for the NCAA--a nonprofit--and its lawyers to take the lead on this issue would mean waiting forever. As for documentaries, an excellent documentary was indeed made on this topic--Schooled: the Price of College Sports--but it was made by Viacom, a Disney competitor, not Disney itself.

As it stands, Iger, Disney, and ESPN look like modern-day plantation owners profiting from the blood, sweat, and tears of primarily African-American men who receive only food, shelter, and a piece of paper at the end of their service--a piece of paper that may not be worth much, if the expose of the University of North Carolina is any indication of nationwide D-I academic practices.

I said Iger might try to argue Disney had no direct control over colleges or the NCAA, but its million dollar payments to colleges gave it substantial influence as well as a "seat at the table" when it came to student-athletes' working conditions. Years ago, Gap and Nike also tried to deflect exploitative practices at international suppliers and factories but soon realized they needed to be more hands-on to prevent consumer backlash and brand devaluation. Colleges are ESPN's suppliers, and it has a responsibility to do more. As Marvel's Spiderman says, "With great power comes great responsibility."

Iger provided the kind of response you'd expect from a rich and honest businessman. He said he didn't know the current status of the 30 for 30 documentary he had mentioned years ago; it wasn't Disney's role to tell colleges how to run their programs; Disney's financial contributions helped colleges create numerous programs college athletes wouldn't otherwise have access to; and there are "two sides to this issue."

After all the talk about Disney values and corporate citizenship, I was sorely tempted to remark, "I didn't know it was a Disney value to profit indirectly from unpaid labor," but I held my tongue. Iger's response minimized ESPN's influence in American college athletic programs. It's as if the affluent cotton apparel retailer, upon being told of labor violations in the fields, responds that the fields are not his bailiwick, and the gentleman having an issue about field conditions should talk to the owner in the next city over. Such an approach deliberately ignores Disney's vast influence over its suppliers of content--the colleges--in the same way Gap and Nike earlier tried to deflect blame for exploitative worker conditions on "independent" suppliers, many of whom derived almost all their business from a few primary American retailers. If Iger is going to argue being on a presidential council allows him a voice, but paying colleges millions of dollars doesn't entitle him to help set or influence any student-athlete policies, he is either apathetic, hypocritical, or willfully blind. I hope he changes his mind, but I'm not holding my breath. Being a rich, successful businessman has its advantages, but identifying and empathizing with minority student-athletes probably isn't one of them.

Disclosure: I am/we are long DIS, NKE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.