The news that former Walt Disney CEO Robert Iger would return to the helm of the company took Wall Street, Disney employees, and ousted CEO Bob Chbeck by surprise alike. The company, which employs 190,000 people, has seen its share price drop sharply over the past year — down about 40 percent.
It is true that the Fed’s rapid adoption of contractionary policy measures led to a sharp decline in equity valuations across the board. But the share price is down about twice as much compared to general indices, and a good deal of it results from hurting Disney’s reputation and earnings. The main factor is growing contributors’ disgust with management’s support for ideological charging and acceptance of prioritizing diversity, equity, and inclusion (DEI) content that runs counter to consumer desires.
S&P 500 vs. Disney Comparable Return (YTD 2022)
March 2022 was a later month for Disney. With Russia’s invasion of Ukraine, oil prices have skyrocketed, threatening attendees’ expectations due to high transportation costs. Later that month, Florida Governor Ron DeSantis introduced House Bill 1557, the Parents’ Rights in Education Act (PREA). The legislation sought to create a series of new laws related to public education, including a ban on classroom teaching about gender identity or sexuality in grades Kindergarten through the third grade “in a manner that is inappropriate for the age or developmentally appropriate for students according to state standards.” It also prohibits Public schools explicitly prohibit parents from accessing their children’s health and education records.
Activists quickly (oddly given the bill’s actual content) began referring to the legislation as the “Don’t Say Like Me” bill. While Disney had previously donated to the campaigns of several PREA-sponsored officials, Chapek’s initial reaction was to avoid public comment. The staff objected, 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 company agreed to further opposition.
Disney share price (2002-present)
Also in March, videos emerged of an all-hands Disney meeting that confirmed what many observers, parents included, had suspected for some time: that the company was in the midst of a purposeful and unapologetic goal of “weirdening” kids. Programming. Referring to their efforts as a “totally not-so-secret gay agenda”, the company shortly thereafter indicated its intention to drop words from park signs including ladies and gentlemen, girls and boys.
In April 2022, Governor DeSantis signed another bill into law, stripping Disney of Home Rule status within Florida. Florida legislator Randy Fine, noting the company’s profound lack of candor in spreading misinformation about the legislation while remaining silent about human rights in other countries, commented, “Disney is a guest in Florida. Today, we remind them.”
Second-quarter earnings missed estimates, and third-quarter revenue slumped, sending the stock down 5 percent, its biggest drop in seven years. Two weeks ago, upon the release of fourth-quarter/fiscal year-end results, Disney’s financial prospects had grown even bleaker.
Rising prices and growing uncertainty about the macroeconomic environment affect Disney at least as much as any other company, perhaps 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 opinion piece following activist investor Dan Loeb’s late summer acquisition of a stake of more than $1 billion in Disney:
[c]Cord-cutting power feeds into Disney’s linear businesses, including the lucrative sports cable network ESPN. The Disney+ streaming service is growing, but it’s still losing money… Then there are the unspoken reasons Disney is getting into trouble, the reason industry executives, investors and competitors will tell you when they’re not named: Woke not to sell, especially when it comes to a company Trying to sell kid-oriented programming and theme park experiences to Central America.
This is more than just wrong speculation. A poll shortly after internal videos of the meetings were leaked showed that less than 70 percent of voters (better understood as “Disney customers”) were less likely to sponsor Disney after learning of its deliberate efforts to incorporate sexual politics into programming. Disney employees (anonymous) also express feelings of alienation and fear in the face of internal pressures. It should also be noted that being sucked into the face of consumers who provide revenue could crush the resilience of already declining prices for theme park tickets and the like. This is especially true during an inflationary period, such as the present time. One customer writes what many other people think:
My family and I have been loyal customers of Disney for decades. We go on vacation to Disney World every year. We take a Disney cruise every year or two. Thus, we are spending a lot of money in Orlando… Disney World is going to lose us as customers if it continues down this road. I don’t want Disney World taken away from us because Disney cares more about politics than happy guests… The parks are less fun because indulgence and therefore joy takes a backseat to politics. Disney, please return to Walt’s values and vision. Customer experience should be at the core of your business model. Indulgence should not be sacrificed at the altar of political correctness and mob appeasement on Twitter.
By caving in to employee demands using shareholder property (the company itself) as a stick, and signaling on behalf of “progressive” interests, CEO Tangle ultimately sealed his fate. Disney executives’ embrace of stakeholder-centered management (insistence in putting the political interests of employees and local activists ahead of those of shareholders by alienating revenue-providing customers) is the source of much of its destruction of value over the past year. Chapek’s firing represents the biggest casualty of the shareholder backlash against years of wasteful wake management so far. One hopes this episode is symbolic, however, it is the first of many battles between political corporation directors and shareholders to come.