Shareholders of The Walt Disney Company will vote on proposals regarding two governance issues in the spotlight – lobbying activities and board composition – at the upcoming annual meeting.
Multiple co-filers intend to present a proposal, which the board opposes, requesting full disclosure of Disney’s direct and indirect lobbying activities and expenditures to assess whether this is consistent with the company’s goals and in the best interests of shareholders. The meeting will take place virtually on March 9.
Some governance professionals expect lobbying disclosures to be a theme among shareholder proposals this proxy season, including in areas such as the environment. Ceres last summer released a ‘Blueprint for responsible policy engagement on climate change’ in which it argues that direct and indirect lobbying based on climate science is key to tackling the systemic risks of climate change.
The blueprint also points to the importance of having governance systems to allow for aligning lobbying efforts across corporate structures, and calls for engaging corporate counsel and boards in these discussions.
Specifically, the Disney proposal requests that the company issue an annual report disclosing:
- ‘Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications
- ‘Payments by Disney used for: (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient
- ‘Description of management’s decision-making process and the board’s oversight for making payments.’
It defines a ‘grassroots lobbying communication’ as one directed to the general public that refers to specific legislation or regulation, reflects a view on the legislation or regulation and encourages the recipient of the communication to take action with respect to the legislation or regulation. By ‘indirect lobbying’ it means lobbying engaged in by a trade association or other organization of which Disney is a member.
The filers say in the proxy statement that ‘Disney spent $38,675,000 from 2010 to 2019 on federal lobbying. This does not include state lobbying expenditures, where Disney’s disclosure is uneven or absent.’ They add: ‘We commend Disney for now disclosing information about its trade associations, but shareholders are still unclear on how much each association receives in payments and spends on lobbying.’
The board recommends shareholders vote against the proposal, stating: ‘We believe additional disclosures in this regard would not be an efficient use of resources in light of our existing lobbying policies and disclosures.’ It notes that this is the sixth year the proposal has been presented, and it has so far failed to obtain majority support. It received 34 percent support at last year’s AGM.
‘[T]he company has been responsive to shareholder suggestions for enhanced disclosure of its policies and involvement in the political and lobbying process,’ the board writes. ‘Following extensive shareholder engagement after the 2018 annual meeting, the board enhanced the company’s lobbying disclosure by expanding its scope and disclosing the expanded policy… which can be found on our company website.’
It adds that expansions of its disclosure in the area include annual reporting of information regarding the company’s membership of US-based industry and trade associations, the annual dues paid to these associations and the percentage each trade association has indicated was used for lobbying activities.
Ahead of last year’s AGM, Disney asked the SEC for no-action relief if it excluded the proposal under Rule 14a-8(i)(10), which is intended to ‘avoid the possibility of shareholders having to consider matters which have already been favorably acted upon by management.’
The SEC did not agree with this argument.
The second shareholder proposal calls for the board to adopt a policy of ‘promoting significant representation of employee perspectives among corporate decision-makers by requiring the initial list of candidates from which new director nominees are chosen by the nominations and governance committee to include (but need not be limited to) non-management employees.’
The supporting statement says there is ‘growing consensus that employees on corporate boards can contribute to long-term corporate sustainability.’ It quotes the National Bureau of Economic Research as saying that giving workers formal control rights increases female board representation and raises capital formation. Employees are also often more diverse than boards in terms of race, gender and wealth, it adds.
Worker representation has some support in Congress. For example, Elizabeth Warren, D-Massachusetts, has introduced legislation that would enable employees to elect at least 40 percent of board members. In 2018 a group of US senators asked the SEC to consider implementing reforms that would ‘promote worker engagement, drive long-term growth and investment and give workers a greater voice in public companies by allowing[them] to be elected as company board members.’
Disney’s board recommends that shareholders vote against the proposal, stating that ‘the governance and nominating committee’s thorough process of evaluating potential director candidates already ensures a diversity of perspectives, and the addition of non-management employees would decrease the level of independence on the board.’
It adds that, in developing criteria for open board positions, the committee takes into account factors that may include: the existing composition of the board and expected retirements; the range of talents, experiences and skills that would best complement those already on the board; the balance of management and independent directors; and the need for financial or other specialized expertise.
The board states that the proposal ‘is misleadingly couched in terms of achieving greater diversity. There is no assessment of a need for a diversity proposal based on the current composition of the company’s board, let alone any proposal for how to better achieve it.’
The company requested that the SEC grant no-action relief for excluding the proposal, partly under Rule 14a-8(i)(7), which it stated permits a company to do so if a proposal ‘deals with a matter relating to the company’s ordinary business operations.’
The SEC did not agree with this argument.
A request for comment from Disney was not returned immediately.