Bob Chapek, Patient Zero in the Shareholder Backlash Against Wokentainment?

News that The Walt Disney Corporation’s former CEO, Robert Iger, would return to the helm of the firm surprised Wall Street, Disney employees, and ousted CEO Bob Chapek alike. The company, which employs 190,000 people, has seen a precipitous decline in its stock price over the last year – down roughly 40 percent. 

True, the Fed’s rapid adoption of contractionary policy measures have resulted in a sharp drop in equity valuations across the board. But the stock price has declined twice as much as broad indices, a substantial amount of which derives from damage to Disney’s reputation and earnings. A major factor is growing shareholder disgust over management’s support for ideological freighting and acceptance of the prioritization of diversity, equity, and inclusion (DEI)-centric content at odds with consumer desires.

S&P 500 vs. Disney comparative return (YTD 2022)

(Source: Bloomberg Finance, LP)

March of 2022 was a consequential month for Disney. As Russia invaded Ukraine, oil prices skyrocketed, threatening park attendance projections due to rising transportation costs. Later that month, Florida Governor Ron DeSantis introduced House Bill 1557, the “Parental Rights in Education Act” (PREA). The legislation sought to create a series of new statutes pertaining to public education, including a ban on classroom instruction on sexual or gender identity in grades kindergarten through grade three “in a manner that is not age appropriate or developmentally appropriate for students in accordance with state standards.” It also expressly prohibited public schools from barring parents’ access to their children’s health and education records. 

Activists quickly (and strangely, in light of the actual content of the bill) began referring to the legislation as the “Don’t Say Gay” bill. While previously Disney had donated to campaigns of several officials who sponsored the PREA, Chapek’s initial reaction was to avoid public comment. Employees dissented, and shortly thereafter Chapek publicly condemned the bill, offering $5 million to the Human Rights Campaign (HRC) advocacy group. In turn, the group refused to accept the donation until the corporation agreed to further opposition. 

Disney stock price (2002 – present)

(Source: Bloomberg Finance, LP)

Also in March, videos surfaced of a Disney all-hands meeting which confirmed what many observers, prominent among them parents, had suspected for some time: that the firm was in the midst of a purposeful, unapologetic goal of “adding queerness” to children’s programming. Referring to their efforts as a “not-at-all-secret gay agenda,” the firm shortly thereafter indicated its intention to drop words from park signs including ladies, gentlemen, girls, and boys. 

In April 2022, Governor DeSantis signed another bill into law, stripping Disney of its self-governing status within Florida. Citing the company’s profound lack of candor in drumming up misinformation about the legislation while remaining silent about human rights in other countries, Florida lawmaker Randy Fine commented “Disney is a guest in Florida. Today, we remind them.” 

Second-quarter earnings missed estimates, and third-quarter revenue fell short, leading the stock to fall 5 percent, its biggest drop in seven years. Two weeks ago, upon the release of the 4th-quarter/end-of-fiscal-year results, Disney’s financial prospects grew even dimmer

Rising prices and growing uncertainty about the macroeconomic environment weigh on Disney  at least as much as any other firm, and possibly more, since its goods and services are discretionary in nature. But the recent arrival of at least one activist investor points to the identification of the elephant in the room. As Charles Gasparino commented in an op-ed following activist investor Dan Loeb’s late summer acquisition of an over $1B stake in Disney:

[c]able cord cutting is eating into Disney’s linear businesses, including its still-profitable sports cable network ESPN. The Disney+ streaming service is growing, but still losing money …Then there are the unstated reasons Disney is in trouble, the one that industry executives, investors, and rivals will tell you when they’re not being quoted by name: Woke don’t sell, especially when it comes to a company trying to sell kid-oriented programming and theme park experiences to Middle America. 

And this is more than errant speculation. A poll shortly after the leaked internal meeting videos revealed that just under 70 percent of voters (better understood as ‘Disney customers’) were less likely to patronize Disney after learning of its intentional effort to incorporate sexual politics into programming. Disney employees, as well, are (anonymously) expressing feelings of alienation and fear in the face of internal pressures. It also bears mentioning that hurling wokeness in the face of revenue-providing consumers may crush already-falling price elasticities for park admission tickets and the like. That is especially true during an inflationary period, such as the present. One customer writes what many others are thinking: 

My family and I have been loyal Disney customers for decades. We vacation at Disney World every year. We take a Disney cruise every year or two. Consequently, we spend way too much money in Orlando… Disney World is going to lose us as customers if it continues down this path. I do not want to have Disney World taken away from us because Disney cares more about politics than happy guests…The parks are less fun because immersion and thus the joy is taking a back seat to politics. Disney, please return to the values and vision of Walt. The customer experience should be the core of your business model. Immersion should not be sacrificed on the altar of political correctness and appeasing the Twitter mob.

By caving in to employee demands to use shareholder property (the firm itself) as a cudgel, and signaling on behalf of “progressive” interests, CEO Chapek ultimately sealed his fate. Disney executives’ adoption of stakeholder-focused management (insisting upon putting the political interests of employees and local activists over those of shareholders by alienating revenue-providing customers) is the source of a great portion of its destruction of value over the last year. Chapek’s ejection represents the highest-profile casualty of shareholder backlash against years of wasteful woke management yet. One hopes this episode proves emblematic, only the first of many more such battles between political corporate managers and shareholders to come. 

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