Your View of Trian-DIS Depends on Your View of the BoD's Job

There's so much to unpack even this week in the marquee proxy contest of 2023. It's still early, and we see arguments for and against, accounts of the palace intrigue, advice for DIS about how to deal with Trian, and predictions about how it will work out.

Here, we look for deeper truths. We read carefully DIS' defense in light of Trian's thesis, and its rationale for opposing Nelson Peltz's demand for a BoD seat. At its core, the thesis and defense shows how the contest turns on the proper role of a BoD. It illustrates vividly a fundamental dilemma in corp gov: should a director serve as a trusted industry advisor to or skeptical independent monitor of the CEO?

Two Jobs

Most directors think they serve the CEO. They bring industry expertise and executive experience. As mostly retired executives, they've "been there". They act primarily as a sounding board for the CEO.

Some directors think they serve shareholders. In this capacity, they monitor the CEO and executive team. They hire and fire, design exec comp, and approve and oversee material decisions.

Awhile ago we wrote an essay that explores these roles. Directors can of course both advise and oversee, so usually the decision becomes which to emphasize. DIS shareholders confront such a decision.

DIS Wants Advice



DIS clearly thinks it needs a trusted advisor with industry chops, based on its comments about Trian and Peltz. The central page of its presentation responding to Trian states this clearly (DIS capitalization, p. 5):

NELSON PELTZ DOES NOT UNDERSTAND DISNEY’S BUSINESSES AND LACKS THE SKILLS AND EXPERIENCE TO ASSIST THE BOARD IN DELIVERING SHAREHOLDER VALUE IN A RAPIDLY SHIFTING MEDIA ECOSYSTEM

Later the presentation asserts “Peltz has no track record in large cap media or tech, [and] no solutions to offer for the evolving media landscape…” and “Peltz [has] no strategy, no operating initiatives, no new ideas, and no plan” (p. 13).

The preliminary proxy statement goes further (p. 11):

...[D]espite months of engagement, Mr. Peltz had not ... presented a single strategic idea for Disney... The Board also considered that Mr. Peltz’s experience ... was primarily in commodity consumer packaged goods businesses and not the media or technology sector nor any other industry that is driven by creative talent or creating unique customer experiences.

What Does DIS Need?

Sure, DIS must navigate a "rapidly shifting media ecosystem", just like numerous others in this wild industry. We note other needs, too.

CEO Bob Iger captivates the DIS BoD. The presentation that slams Trian is also a sloppy, wet kiss to Iger (p. 6-9 of the DIS presentation). Directors let him run the company with little evident resistance, make a number of huge, expensive, and mostly successful deals, build a very well-paid team, and pick his own successor.

Most of his decisions worked out well for DIS, until recently. As the media ecosystem really started shifting, things became harder. And when the CEO succession failed, the BoD implored him to return to do it again.

Now, DIS says it needs "new ideas". It seems DIS also needs directors that will oversee Iger perhaps a little more closely than they did before.

What Does Trian Bring?

Well, we can say what Trian doesn't bring: "new ideas" or industry experience. (Other directors don't bring them either.) But, that's not Peltz's job. We expect among the hundreds of talented, highly-paid industry executives there, DIS has more "new ideas" than it can count. If DIS relies on Peltz and other directors for new ideas, DIS shareholders have even bigger problems than they might think.

Suppose Peltz and the current directors bring genuinely new ideas to DIS executives. We have a tough time believing Iger and his team would take them seriously.

Instead, Trian and Peltz bring two critical perspectives. First, Trian will instantly become by far the biggest shareholder on the BoD. Its billion dollars' in shares is twenty times greater than all current insiders' shares combined.

Second, Peltz is truly independent and beholden to no one, least of all Bob Iger. He doesn't need the job to burnish his director credentials. We can't see anyone on the BoD or Iger himself intimidating a director like Peltz. He will easily and willingly challenge Iger on all manner of decisions, like succession planning, exec comp, or his next deal.

The Right Question to Ask

Did DIS overpay for Fox? Should DIS resume the dividend? How should DIS compensate executives? These are the wrong questions right now.

Rather, what is the best way to work with CEO Iger? Does Trian bring that capability?

Your answer to these questions depends on what you think a director should do. If you agree with DIS and want someone to advise the CEO, then you'll want one of the usual suspects. If you think Iger and the BoD are a little too cozy, and DIS could use an experienced and genuinely independent director, then Nelson Peltz has as good or better qualifications as anyone.