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This week we started with an intro to financial management and learned that the goal of firm (and its managers) is to maximize shareholder wealth. This is a long-term goal, achieved by maximizing the long-term share price. Financial maneuvering to maximize quarterly profits or buying back stock simply to increase the firm’s earnings per share are not long-term strategies. The point is that by maximizing shareholder wealth (long-term share price), the firm’s customers, suppliers, and employees should also benefit. Bottom line, all “stakeholders” should benefit from shareholder wealth maximization.The attached WSJ article discusses labor/employee issues at Starbuck’s and how this can relate to board of director issues as well. A key quote from the article: “The Starbucks board and executive leadership team regularly engage with all stakeholders, and we are committed to constructive dialogue that furthers our collective goal of creating long-term value for all stakeholders”For this week’s discussion, find a company that is having board of director issues or “proxy fights” and how this may relate to shareholder wealth and/or activist investors. Your chosen supporting article(s) may or may not specifically mention shareholder or stakeholder wealth and that’s OK.Please note that there is at least a 30 minute delay after you submit your initial post before you can see the other students’ posts and make a reply.PLEASE NOTE THAT THIS ASSIGMENT IS TO ONLY REPLY TO THE POST OF TWO STUDENTS. I AM ATTACHING THEIR DISCUSSION POST. 150 WORDS FOR EACH
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Post by Mathew Austin ( 86)
22 hours ago
Disney’s Recent Proxy Fight
A November 2023 Financial Times article by Aliaj et al. states that Walt Disney is
currently in a proxy fight with an activist investor, Nelson Peltz. The authors explain that this
is the second time within a year that Peltz has launched a proxy fight because of poor profit
margins and limited growth in its share prices. According to a CNBC news article, in the
fourth quarter of the fiscal year, Disney had an income loss of 149 million for that quarter.
This was a continuation of losses without positive growth since the beginning of 2022
(Sherman, 2023). The overall poor financial performance of Walt Disney helps to explain the
tension between shareholders such as Peltz and company management.
This conflict between Disney and Peltz demonstrates frustrations between the two
regarding short-term profits and long-term shareholder wealth maximization. Aliaj et al.,
explain in the 2023 article that Bob Igor, the current CEO of Walt Disney, is looking to take a
cost-cutting approach which will enable greater free cash flow for the corporation. Initially
announced at the end of 2022, Igor launched a plan to cut costs by 5 billion dollars over the
fiscal year 2023. In November 2023, after losing millions in every quarter of the year, the
company decided to significantly reduce the amount of content it was producing while
simultaneously cutting an additional 2 billion dollars from its expenses (Sherman, 2023).
Despite the implementation of the cost-cutting strategy, Peltz launched his second proxy
fight. Addressed in the (2023) article by Aliaj et al., this was likely done because of a lack of
progress with the current cost-cutting strategy that had been in place since the end of the
previous year. Though there are likely additional motivations for this action, this does
demonstrate the importance of managers prioritizing wealth maximization in their financial
strategies. In the case of Walt Disney, their previous strategy proved to be ineffective,
leading to losses for the company and frustration from the shareholders; however, it is still
to be determined if the current cost-cutting strategy for the fiscal year 2024 will be effective
in reassuring shareholders and maximizing shareholder wealth.
References
Aliaj, O., Nicolaou, A., & Agnew, H. (2023, November 30). “Disney clashes with Nelson Peltz
as activist launches new proxy battle”. Financial Times.
https://www.ft.com/content/e28bb3ee-3c7d-4e50-9330-128b92df0750
Sherman, A. (2023, November 17). “Disney’s box office problems ramp up pressure on CEO
Bob Iger and Studio chief Alan Bergman”. CNBC Media.
https://www.cnbc.com/2023/11/17/disney-box-office-flops-put-pressure-on-igerbergman.html
New Post by Ryan Gardner (88)
22 hours ago
M1 Discussion Post
Disney is one of the major companies facing a “proxy fight” from one of its largest activist
investors, Nelson Peltz, who is no stranger in attacking its board leadership. Peltz, who is not
only unhappy with Bob Iger being renamed as CEO, has said that Disney has cost its
shareholders billions and has “underperformed the S&P 500 by every measure” (Sherman &
Neelakandan, 2024). Peltz argues that Disney has lost its way in the creative and box office
space, mentioning that ESPN is the ‘crown jewel’ of the companies future success. Peltz also
argues that Disney needs to align its pay structure with performance, stating that the pay of
management does not align with the performance of the company. Disney, in its response,
has held nothing back in saying that Peltz candidacy for the board holds no true value as
the investor has no experience in the media space (Sherman & Neelakandan, 2023). Peltz
fired back in response by saying the media giant didn’t have much media experience either.
The activist investor has claimed the company has lost shareholders nearly $70B since last
February and that he can no longer sit back and watch it happen (Whelan, 2023). Peltz plans
to fight this proxy battle with Jay Rasulo, Disney’s former CFO, who he believes should have
been named CEO instead of Bob Iger (Sherman & Neelakandan, 2023). The duo has shared
several ideas for profit growth and a new board structure that holds management
accountable to incentivize the company’s performance. This fight continues to be ongoing,
and as of now, no date has been set for the board of directors meeting of 2024, but Peltz
has made it clear that it’s time for some changes at Disney. Peltz closes his interview with
CNBC by mentioning a recent trip he took to the magical kingdom and how all the
employees were so happy and made a great experience for him. He said the reason for their
happiness is because they “probably don’t own any Disney stock” (Sherman & Neelakandan,
2023).
Resources
Sherman, A., & Neelakandan, L. (2024, January 18). Nelson Peltz states his case for joining the
Disney Board. CNBC. https://www.cnbc.com/2024/01/18/disney-proxy-fight-nelsonpeltz-states-case-for-board-seats.html
Whelan, R. (2023, November 30). Nelson Peltz launches fresh proxy fight against Disney WSJ. Wall Street Journal. https://www.wsj.com/business/media/nelson-peltzannounces-fresh-proxy-fight-against-disney-50699679
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