In Blow To Disney, Leading Proxy Advisory Firm Backs Nelson Peltz For Board, Cites “Critically Flawed Succession Process”

Influential proxy advisory service ISS has recommended shareholders vote to put Trian’s Nelson Peltz on Disney’s board, saying the activist investor, “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.”

“The events leading up to the CEO transition in 2020 and the strategic missteps taken over the past several years appear to indicate that the board is not functioning in the most optimal way. With that in mind, a shareholder representative who is well versed in the imperative to hold management to account would be well positioned to provide the catalyst that this board apparently needs to improve its effectiveness,” added the firm, which advises shareholders how to vote, including for directors, at annual meetings.

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Disney’s is coming up April 3. ISS recommends shareholders withhold their votes for current Disney director Maria Elena Lagomasino, one of the two directors Peltz is also targeting.

ISS did not recommend a vote for Trian’s other nominee, former Disney executive Jay Rasulo, or any of the three nominees put forward by another activist investor Blackwells Capital. It diverged from Glass Lewis, another influential advisory firm that last week recommended shareholders support only Disney board nominees.

“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. He could also help evaluate future capital allocation decisions. Moreover, multi-year concerns surrounding Lagomasino’s role as a compensation committee member strengthen the case that Peltz’s addition, on balance, would appear a net positive,” ISS said.

The firm’s decision seems largely driven by poor succession planning, citing “the failed succession in 2020, for which the board admittedly did not follow the process it has outlined for the current succession strategy. How the board became comfortable with [Bob] Chapek, who by all accounts lacked the creative vision that seems so integral to success at DIS, is puzzling; ultimately, the obvious conclusion is that the board simply trusted Iger’s judgment without conducting more rigorous due diligence.”

“By definition, the decision to ask a former CEO (especially one who indicated it was time for him to retire) to return to the company to replace a successor whom the board did not adequately vet is evidence of a critically flawed succession process. In DIS’ case, shareholders paid a steep price. The board may argue that Iger was the only logical choice to lead the turnaround; this is a valid point, but one has to wonder where the company would be had Iger not been available, or willing, to return.”

ISS agreed that Individually, all members of the Disney board are highly accomplished but said that collectively the board fell short on two key matters, cultivating a successor to Iger, and preventing Chapek from veering off course after he was appointed.”

It agreed that Iger is the right CEO for Disney now. But said there are “lingering questions about the board’s ability to properly oversee the next CEO transition, whether it happens in 2026 or in later years, and the significant strategic changes the company is undertaking, particularly given the ongoing challenging industry environment. The importance of executing a successful succession plan, particularly for a company of this complexity, and the board’s prior failure to properly oversee this process, suggests that some level of change at the board level is warranted.”

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