UPDATE: The shareholder proposals went down at the April 3, 2023 annual meeting.
Feb. 23, 2023—Coming soon on a proxy vote near you: Disney shareholders will have a say in whether the company should disclose details about its operations in China.
The Walt Disney company, DIS, faces several shareholder proxy votes when it holds its annual meeting on April 3. They include votes about its charitable contributions, its political contributions, and its business in China. The National Legal and Policy Center, NLPC, a Disney shareholder, is proposing the latter. Specifically, the public-interest nonprofit group is asking Disney to do the following:
“Report annually to shareholders on the nature and extent to which corporate operations depend on, and are vulnerable to, Communist China, which is a serial human rights violator, a geopolitical threat, and an adversary to the United States. The report should exclude confidential business information but provide shareholders with a sense of the Company’s reliance on activities conducted within, and under control of, the Communist Chinese government.”
The NLPC asserts that China violates human rights and is a “hostile adversary” to the United States. In a separate move, the group also proposes a proxy vote on Apple‘s involvement and dependency on China at that company’s annual shareholder meeting on March 10, 2023.
The annual report is of no help, however, in identifying Disney’s China-based sales, sourcing, and joint contracts. And perhaps that’s the point of the call for an audit.
2022 Votes at Disney And Apple
Last year, NLPC proposed similar proxy votes. Roughly 32 percent of Disney shareholders supported it, Forbes magazine reported in 2022.
In 2022, Apple’s CEO Tim Cook spent some time at the meeting discussing the company’s decision to pull back from Russia. The company reported that it “reached resolutions with shareholders on many of the rejected proposals,” such as it reports on its supply chain vulnerability to China’s forced labor policies, Bloomberg News wrote.
Disney: ‘No Value’
Disney said it already complies with reporting requirements on its international operations suggests additional reporting would offer “no value” to shareholders. (See pgs 79-80 in the 2023 proxy materials.)
“In addition, the Company is deeply committed to operating in an ethical manner that respects human rights and such considerations are included in its business decisions, and the Company has established policies and reporting structures to support this goal.”
Disney publishes several annual reports, including one on human rights, a Corporate Social Responsibility Report, a Supply Chain Code of Conduct, and its stockholder annual report. The first three first reports mentioned were not readily available on the company’s investor relations website.
Meetings With Hedge Fund Investors
Furthermore, the company says it prides itself on shareholder engagement. However, it is not clear if the company is reaching out to individual retail investors or only shareholders with large portfolios. The company did not respond to an email to its press office at the time of this publication.
Certainly, Disney executives have shown an interest in investors with large holdings of its stock. According to the company proxy materials, Disney met with a select group of shareholders last year to form its corporate governance.
“The feedback gathered during these conversations helped inform the Board’s thinking, in particular, about compensation, governance and disclosure,” the proxy statement said.
For example, Disney met with Third Point LLC, a hedge fund and so-called activist investor group run by Daniel Loeb. According to its fourth-quarter statement, Third Point seeks investment gains by looking for “event-driven” gains, such as share repurchases or potential spin-offs. In August, Third Point announced a $1 billion stake in Disney, according to Reuters reporting.
One outcome of the investment and meetings was that Disney agreed to add a new member, Carolyn Everson, to its board. In exchange, the hedge fund agreed to keep its share ownership of Disney under 2 percent, the Financial Times reported in September.
So-called “activist investors” push an agenda by trying to win board seats or pushing a board decision. But what about ordinary investors concerned about investing their money humanely? In a world where big finance appears to rule, do small, retail investors have a say too? And what about the impact of business on human rights?
Human Rights in China
Many U.S. businesses working in China are carefully reevaluating their positions in light of geopolitical tensions. While Chinese Communist Party leaders publically rail against the “decoupling” movement, they too are pushing to cut business ties with the West. For instance, today Bloomberg news reported that China’s Ministry of Finance called upon state-owned to let contracts expire with four biggest international and U.S. accounting firms.
Tensions are indeed rising.
Meanwhile, U..S businesses operating in or near the Xinjiang Province where the government runs eerie “reeducation camps” now must ensure their goods are not made with forced labor. Last year, the U.S. banned products from that region, and government regulators are at work putting that law into effect.
But even companies that operate nowhere near Xinjiang face questions about their China policies, particularly in light of China’s close ties with Russia.
Disney in China
It is unclear how much business the Walt Disney Company does in China. According to its annual report, the company runs one store in mainland China and theme parks in Shanghai and Hong Kong. However, the annual report is of no help in identifying Disney’s China-based sales, sourcing, and joint contracts. And perhaps that’s the point of the call for an audit.
Last year shareholders voted down the proposal requesting a diligence report evaluating human rights impacts with a vote of 697 million shares against it to 405 million shares for it. How many people do those shares represent? It’s hard to say.
This year, NLPC is betting on more support for a similar proxy vote. And shareholders have over a month to decide.
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