A mouse trap for the awakened: Activists go after Disney.
A CEO of a big US company told me, "I really like Dan Loeb," as we talked about Loeb's latest activist move, which was to buy a $1 billion stake in Disney with demands to cut costs, sell off assets, and improve management. "But Dan nosing around my business is the last thing I want. The fox who lives with the chickens never acts nice."
Activist investors like Loeb don't do business to be nice, of course. And Loeb is very good at his job. Just look at how much trouble he caused at Yahoo a few years ago on his way to making a lot of money. With his move at Disney, he wants to force change and bring back shareholder value, which has been missing from the company for a while. The stock is down more than 23% so far this year and more than 30% in the last 52 weeks.
Disney's linear businesses, like its still-profitable sports cable network ESPN, are being hurt by people cutting their cable cords. The number of people who use Disney+ is growing, but the service is still losing money. The company did well in the third quarter because ESPN and theme park attendance were good. Disney is putting a lot of money on streaming, but it may not be the silver bullet that many people in the industry were hoping for. If it were, Netflix wouldn't be missing its performance goals.
Then there are the unspoken reasons why Disney is in trouble, which executives, investors, and competitors will tell you when they are not being named: Woke doesn't sell, especially when a company is trying to sell Middle America kid-friendly TV shows and theme park trips.
Loeb didn't say any of this in his letter to Disney CEO Bob Chapek. (He also turned down the chance to talk for this column.) In his letter, he made it clear that he wants to sell ESPN outright to pay off debt, help ESPN make up for people cutting the cord, and let ESPN do well in the sports betting business. This doesn't fit with Disney's image as a family-friendly company. He wants to stop the dividend completely and buy from rival Comcast the 33% of the streaming service Hulu that it doesn't already own.
A bird that eats algae
But I think Loeb did more than just hint that being "woke" could be a growth albatross for the "House of Mouse." He wants more experienced board members to fill "gaps in talent and experience," which he defined as "strengths in technology, advertising, and consumer engagement, as well as proven track records of leading large, complex organizations and creating shareholder value."
So I looked into the company's 2022 proxy statement, which is a type of annual report that investors, including presumably Loeb, read to learn about management's priorities, strategic direction, shareholder votes, and what it looks for in its board members, the people to whom management must report.
You'd be surprised that Disney, which is known for things like Mickey Mouse and movies that are meant to appeal to the so-called "silent majority," brags to investors about how it follows "every woke trend you can think of."
On almost every page, you'll see the words "diversity" and "ESG," which stands for Environmental, Social, and Governance. Diversity in management is a good thing to strive for, but real academic research on diversity and shareholder value has found no link between the two.
The proxy says that management has made a number of plans to make Disney's programming more diverse, or "woke." Where is the research that these shows are supposed to sell? I wasn't able to find any.
Now, let's talk about the board members of the company, the people Loeb wants to get rid of because he doesn't think they're doing a good job. Disney has a list of what it thinks are important qualities for board members in the proxy.
Members are graded on executive management, marketing, brand enhancement, and risk, but also on diversity and "ESG experience," neither of which is on Loeb's list. Chapek got good grades on most of these, which will make you happy. However, he only got a passing grade for ESG (maybe he uses his gas-guzzling corporate jet too often) and he failed "diversity" because, you guessed it, he's a white guy.
In "Woke House of Mouse," that seems to be a bad thing.
If this stuff sold, Loeb wouldn't be after Chapek right now. The stock would be higher and the latest "Buzz Lightyear" animated movie would have been a smashing success instead of a near-flop, but some woke dweeb put back into the movie's final cut a scene of same-sex kissing, which turned off many US parents and led some countries to ban the movie outright.
Chapek had a good quarter, but since taking over as CEO from Bob Iger two and a half years ago, things have not gone well for him. (A spokesman didn't want to say anything about any of this.) He had to fix Disney after the COVID shutdowns, but remember his mistake with the "don't say gay" law in Florida? It was called that because it stopped public schools from teaching 6-year-olds about sex education. His smart employees scared him into going against the law in public. This made Florida Gov. Ron DeSantis pass a law that ended decades of tax breaks for Disney in a state that the company calls its "second home."
It was an easy win for DeSantis and an embarrassment for Chapek, who should just go back to making movies for kids that don't make people uncomfortable or more Dan Loebs will keep coming.