Disney, 21st Century Fox, Bob Iger, and the Search For His Successor

CGLytics uses its Executive Pay and Pay for Performance Modelling Tools to look at the recent merger with 21st Century Fox, the value Disney’s CEO has bought to the company’s shareholders and how he has been compensated, and some of the challenges potential successors face.

CGLytics uses its Executive Pay and Pay for Performance Modelling Tools to look at the recent merger with 21st Century Fox, the value Disney’s CEO has bought to the company’s shareholders and how he has been compensated, and some of the challenges facing a potential successor.

In an age where on-demand, direct-to-customer streaming services such as Netflix, Amazon Prime and Hulu are increasingly replacing traditional media such as TV and cinemas, film producers such as Disney have been exploring ways to tap into the same on-demand content delivery channels in order to remain competitive. In this vein, in August 2017 Disney announced that it would pull all of Disney’s content out of Netflix and launch its own streaming service, Disney+, starting in late 2019. Following this announcement, Disney made its next big bet: acquiring 21st Century Fox, the owner of one of the “Big Five” film studios.

In June 2018 Disney announced that it was going to acquire 21st Century Fox (21CF)’s businesses including but not limited to Twentieth Century Fox, Fox Searchlight Pictures, Fox 2000 Pictures and Fox’s interests in Hulu, Sky plc, and Tata Sky. The USD 73 billion acquisition has recently closed, and with it, Disney has brought to the company more than just a portfolio of film production businesses and delivery channels. Clearly, the acquisition of the film and TV production businesses from 21CF was a strategic move, as it will expand Disney’s already impressive library with even more content. Moreover, the 60% controlling stake in the TV streaming service Hulu will further strengthenDisney’s strategy to provide general streaming services, although Hulu will be kept separate from the all-ages friendly Disney+.

In order to support Disney’s direct-to-customer focused strategy and to guarantee the success of the Disney-21CF marriage, Disney has brought with its acquisition a group of important executives from 21CF.

Instrumental to the success of this merger was Bob Iger, CEO/Chair of The Walt Disney Company. Mr. Iger, who has previously planned to retire from Disney at least four times, has recently again extended his contract with the company until 2021. Ostensibly the extension of his contract was implemented so that Mr. Iger could aid in the oversight of the integration of 21CF into Disney, as well as oversee the company’s transition toward a direct-to-consumer business model. In his 14-year tenure at Disney, Mr. Iger has made three very successful purchases: Pixar (2006), Marvel (2009), and Lucasfilm (2012) – which have all paid off handsomely, particularly for Mr. Iger.

Utilising CGLytics’ proprietary corporate governance global dataset and analytics tools, we are able to see exactly to what extent these acquisitions have paid off for Mr. Iger. During the period that the above-mentioned acquisitions were made by Disney, we see a steep increase in TSR, corresponding to a reciprocal increase in total granted compensation to Mr. Iger. However in late 2013/early 2014 we begin to see a decline in TSR.

Figure 1: CEO Bob Iger’s total granted compensation versus TSR over five years following the acquisition of Pixar, Marvel and Lucasfilm

Year CEO Total
granted
remuneration ($)
TSR (5-year)
2008 51.229.341 4,6%
2009 23.921.614 25,1%
2010 29.617.964 68,9%
2011 33.434.398 19%
2012 40.227.848 65,3%
2013 34.321.055 259,9%
2014 46.497.018 212,5%

Source: CGLytics

Utilising CGLytics’ proprietary corporate governance global dataset and analytics tools, we are able to see exactly to what extent these acquisitions have paid off for Mr. Iger. During the period that the above-mentioned acquisitions were made by Disney, we see a steep increase in TSR, corresponding to a reciprocal increase in total granted compensation to Mr. Iger. However in late 2013/early 2014 we begin to see a decline in TSR.

Figure 2: CEO Bob Iger’s total granted compensation versus average five-year TSR

Year CEO Total
granted remuneration ($)
TSR (5-year)
2014 46.497.018 212,5%
2015 44.913.614 200,1%
2016 43.882.396 197,3%
2017 36.283.680 131%
2018 65.645.214 54,1%

Source: CGLytics

Utilising CGLytics’ proprietary corporate governance global dataset and analytics tools, we are able to see exactly to what extent these acquisitions have paid off for Mr. Iger. During the period that the above-mentioned acquisitions were made by Disney, we see a steep increase in TSR, corresponding to a reciprocal increase in total granted compensation to Mr. Iger. However in late 2013/early 2014 we begin to see a decline in TSR.

Figure 3: Bob Iger’s total granted compensation and TSR versus the S&P 500 average

Year Total
granted
remuneration –

The
Walt Disney

Company
($)

Total
granted
remuneration (average)
[S&P 500] ($)
TSR
(5-year)

The
Walt Disney
Company]
TSR
(5-year (average)
for S&P 500]
2014 46.497.01 13.044.754 212,5% 162,3%
2015 44.913.614 12.332.918 200,1% 118,4%
2016 43.882.396 14.024.662 197,3% 134,6%
2017 36.283.680 15.059.437 131% 144,4%
2018 65.645.214 16.890.131 54,1% 62,6%

Source: CGLytics

Even though Disney’s performance may not be on balance with Mr. Iger’s paycheck in recent years, it appears that Disney is struggling to find someone to succeed him. This struggle is evidenced by the recent extension of his contract. Finding a successor with as outstanding a track record and strategic vision for the company’s future like Bob Iger must be a daunting feat. Nevertheless, the company announced that its board of directors actively discusses his succession plan at every board meeting, with the goal to find potential internal candidates qualified to succeed him. Perhaps with the addition of executives from Fox, including Peter Rice, the new Chairman of Walt Disney Television, Disney will have a larger “internal pool” of candidates to fill Mr. Iger’s shoes at the end of his contract in 2021.

Even with the closing date of its acquisition of 21st Century Fox behind, Disney is still not yet close to making this integration complete. Bob Iger now has three more years to prove his final megabet at Disney a win. During this same time, Disney will finally have to seek for a fitting successor to reign in the “Magical Kingdom”.

While the search for a successor to Mr. Iger will undoubtedly prove difficult, there are tools available to companies and their nomination committees to ease the burden of such search. In addition to the comprehensive global remuneration data and analytics that CGLytics offers, our executive and director network tool can help you find that next ingenue to lead your company to the next level.

Visit the CGlytics website for more information regarding the proprietary Pay for Performance Modelling Tools and Executive and Director Network, or reach out to: getintouch@cglytics.com

Aniel Mahabier

CGLytics

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Swedbank CFO Back At the Wheel

A Case Study in the Need for Active Succession Planning. CGLytics looks at how the impact of scandal and the departure of the CEO has caused turmoil at Swedbank

A Case Study in the Need for Active Succession Planning

In the beginning of February 2019, following statements from Swedbank to U.S.-based regulators, the financial authorities in Sweden and Estonia announced the opening of an investigation into suspicions of money laundering concerning Swedbank. These investigations began following revelations that Danske Bank had been channeling money through its Estonian subsidiary. In all, Swedbank may have channeled up to EUR 20 billion in questionable funds through its Estonian unit each year between 2010 and 2016, according to the Swedish public television channel (SVT). However, most damningly, SVT revealed that many of these transactions actually passed between Swedbank and Danske Bank.

In the beginning of February 2019, following statements from Swedbank to U.S.-based regulators, the financial authorities in Sweden and Estonia announced the opening of an investigation into suspicions of money laundering concerning Swedbank. These investigations began following revelations that Danske Bank had been channeling money through its Estonian subsidiary. In all, Swedbank may have channeled up to EUR 20 billion in questionable funds through its Estonian unit each year between 2010 and 2016, according to the Swedish public television channel (SVT).  However, most damningly, SVT revealed that many of these transactions actually passed between Swedbank and Danske Bank.

On Wednesday, March 27, 2019, Swedbank stock plunged by 11.9% following a raid at Swedbank’s headquarters by Swedish authorities, with Swedbank losing more than a fifth of its value since the revelation of the connections between Swedbank and Danske Bank.

Subsequently, three of Swedbank’s top five shareholders, including AP1 and Alecta, announced their decision to vote against the resolution granting the CEO discharge at the company’s upcoming AGM. However, the decision of the Swedish Authority Against Economic Crime to extend its investigation of money laundering allegations and to also address allegations of fraud by the bank proved to be the coup de grace. Following these announcements, CEO Birgitte Bonnesen faced the shareholders of Swedbank on March 28, 2019 in a pre-AGM meeting in which at least three of them made it clear they have lost total confidence in her due to this scandal. As a result, Swedbank dismissed Ms. Bonnesen just one hour before its AGM of March 28, 2019.

While many companies have seen a revolving door of CEOs following a series of scandals and controversies, the linkages between the two banks, as well as the regulatory agencies in charge of their oversight, begs the question of who is really monitoring the executives at the largest banks in Scandinavia? This decision also brings echoes of ex-CEO Michael Wolf being asked to step down from his position in 2016, after a Swedish newspaper exposed the involvement of two senior members of its management team in a conflict-of-interest case surrounding property dealings. Most strikingly, however, may be that, as most of the transactions took place during the tenure of Michael Wolf, Ms. Bonnesen has paid the price for a lack of oversight more rightly attributed to Mr. Wolf.

Source: CGLytics’ Data and Analytics

Most concerningly, however, is that the ramifications of this scandal and the resignation of Ms. Bonnesen leads to another blow in the efforts to seek greater gender equality not just in the boardroom, but also in the C-suite. Utilising CGLytics’ proprietary database and analytics of executives and directors for the largest-cap companies in the Scandinavian region, we find that Ms. Bonnesen’s departure leads to a drop of almost an entire percentage point among Scandinavian female CEOs, a number that was already low to begin with (five female CEOs in 2018 versus 110 male CEOs) in 2018.

Having a pro-active succession plan in place, with a queue of candidates with the necessary qualifications and skills required of such a high-level position, is already a daunting task. At Swedbank, in both recent scandals where the CEO stepped down, this position was taken by the CFO on an interim basis because the board seemingly had no other candidates at hand. Companies seeking to increase their gender diversity at the board and C-suite level, as well as to assure stability during executive leadership transitions, require the tools to find highly-qualified candidates. This proves particularly true when unforeseen circumstances like the Swedbank scandal knock one of the already few such candidates out of their position.

For more information about how CGLytics’ is empowering companies to instantly review their board’s composition and build a diverse board with access to 125,000+ executive profiles (including 20,000+ women) and their relational paths, contact us at getintouch@cglytics.com.

Jonathan Nelson

CGLytics

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While the exact role of AI in the boardroom in up for debate, the question remains: has the Robo Director come of age?

Artificial intelligence (AI) is everywhere even as a member of the board of a private equity firm based in Hong Kong. While the exact role of AI in the boardroom is up for debate, the question remains: has the Robo Director come of age?

Enter the Robo Director

On the face of it, the case for an AI-based director is powerful: machines can pull together vast amounts of information and make decisions based on complex algorithms. Moreover, certain technological advancements have given certain algorithms the ability to learn: cognitive technologies – such as machine learning and deep learning – are becoming more reliable and accessible day by day.

However, even the smartest machines are only as clever as the data they have at their disposal. Although this may also be said of humans, in practice people have unique intuition that operates and combines old and new variables at a different level than machines are currently capable of. This capacity enables the human director, or an entire board of directors, to change direction more quickly than a machine can when faced with new, unforeseen situations. Machine learning is based on repeated behaviours to extract data and then create an output based on that data extraction. Regular corrections to the algorithm are made based on human interpretations of the output, increasing the algorithm’s output accuracy over time. Machine-learning however does not currently provide the capacity to solve new problems when externalities comes into play. Often we hear of great business decisions made on the fly based on instinct or business nous, which are uniquely human traits…so far.

AI as the Assistant

AI works best in situations where large volumes of data must be processed and the logic that drives predictions and decisions can be easily expressed. Just as doctors and other medical professionals harness the power of AI to make better diagnoses, AI can support boards to make better decisions. However, the quality of the data plays a critical role in the algorithm’s capacity to identify trends, as it is reliant on “five-star data” for optimal recommendations.

Corporate Governance

AI can now improve problem-solving by assessing governance risks on a macro-level, and subsequently analyse structural deficiencies in a company’s governance policies and practices when compared to its peers faster than previously possible. Parameters can be set and certain aspects of governance can become data-driven rather than model-driven. This means better decisions and, more importantly, fewer wrong decisions that could lead to reputational and financial risk.

Competitive Landscape

With access to large volumes of data, AI can be harnessed to position a company in its competitive landscape. Models and methods can be developed to pinpoint a company’s competitiveness against competitors and to assess its performance trajectory.

Decision-Support Tools

AI can facilitate better strategic decisions based on real-time data and advanced analytics. Customer marketing journeys can be mapped more accurately, generating more positive outcomes. With better information at their disposal the board can focus on strategy rather than operations.

Unalterable Past, Perfidious Future

In business, many decisions are made using a combination of historical data, modelling and conjecture. But the truth is that the business environment is inherently uncertain: there are no control experiments or reruns. What worked in the past might not necessarily work in future, as evidenced in the classic case of the failure of the firm Long Term Capital Management. However, AI programs and technologies, when supplemented by governance data of the highest quality, can augment a board’s decision-making.

Getting ready for the boardroom of the future

Boards need to be fully prepared with the latest information and insights to make the right decisions, which support their long-term strategy. CGLytics has the deepest global governance data set in the market to date, and if combined with AI, the potential opportunities for boardroom intelligence really are endless.

Jonathan Nelson

CGLytics

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What’s New for the 2019 Proxy Season?

By looking at the UK, which currently has the spotlight on corporate governance practices, we can be sure that company boards will be compelled to implement good governance practices.

During the 2018 proxy season, shareholders engaged actively in governance matters. The CGLytics FTSE 100 Proxy Review revealed shareholders to be particularly interested in director election, board effectiveness, CEO pay and Environmental Social Governance (ESG) practice.  So what’s in store for 2019?

By looking at the UK, which currently has the spotlight on corporate governance practices, we can be sure that company boards will be compelled to implement good governance practices. They should prepare for early engagement with investors, who have expanded their ESG capabilities with access to best-in-class analytics to aid engagement and voting.

CEO Pay, Board Refreshment and Gender Diversity will continue to dominate

We envisage the following themes will dominate 2019 across Europe:

Proactive shareholder engagement 

To obtain early shareholder buy-in during the proxy season. Investors will favour an ongoing positive dialogue in preference to a reaction to a negative vote.

Transparency will endure as a central theme 

Boards should be prepared to engage openly on their board composition, say-on-pay proposals and governance decisions.

Board refreshment, gender diversity and board composition 

These will be key governance matters as investors seek to favour board strategy and composition that ties to long-term company performance.

CEO Pay 

Pay will be scrutinised – compensation policies and practices must be fully transparent and reflect, and support, business strategy and promote long-term success.

CEO succession planning 

Chairs and nomination and governance committees will be required to plan for CEO succession to mitigate business continuity risk.

Environmental, Social and Governance (ESG) 

ESG will continue to gain momentum as investors continue to become more information savvy and continue to evaluate companies’ progress on their environmental, social and governance practices.

Boards must be equally, if not better, informed as shareholders in order to engage adequately and constructively

Getting ready for the coming season

Boards need to be fully prepared for the upcoming proxy season. They must be equally, if not better, informed as shareholders in order to engage adequately and constructively, to be certain to avoid any reputational risks. Having access to the same intelligence as proxy advisors and investors is fundamental to proxy season preparedness and good governance decision-making.

CGLytics provides real-time governance risk analytics and solutions that provide actionable insight for companies, shareholders and proxy advisors. We empower boards of companies and investors with data analytics that enable good governance.

In preparation for the 2019 proxy season, CGLytics released its third annual FTSE 100 Proxy Season report. This series of articles summarise some of the key findings. Access the full insights and statistics by downloading the report.

Aniel Mahabier

CGLytics

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Be prepared: Learnings from the UK 2018 proxy season

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The UK is at the forefront of shareholder concern of good corporate governance practices. In a climate of increasing proactive shareholder engagement, the CGLytics FTSE 100 2018 proxy season review evaluates underlying trends to provide unique insights for being prepared for the forthcoming season.

During the 2018 proxy season, shareholders showed increasing interest in key governance matters, including director election, board effectiveness, CEO pay and Environmental Social Governance (ESG) practices. Transparency emerged as a consistent concern.

We saw unprecedented dissent from investors on director re-elections. The number of resolutions opposing individual director re-elections rose from 38 in 2017 to 80 in 2018. The reason for the increase was due to a general concern about directors becoming ‘overboarded’ and unable to fulfil their duties. Investors were also looking closely if boards possessed the right composition including skills, diversity, and gender to support long-term growth plans.

2018 Proxy Season Highlights

Say on Pay

The GCLytics report explained that CEO pay is a real concern among investors who repeatedly voted down remuneration reports and questioned short-term remuneration plans.

Pay and performance

During the year, shareholders strongly urged companies to bring pay in line with performance and voted strongly against remuneration-related resolutions if it was seen as misaligned.

33% of companies have a pay for performance misalignment

The FTSE 100 CEO compensation landscape is evolving, with a growing emphasis on long-term incentives. However, the CGLytics study conducted on pay for performance alignment shows a material misalignment between pay and performance within many FTSE 100 companies during 2017:

  • 33% of companies have a pay for performance misalignment
  • 34% of companies display a strong alignment
  • 32% of the companies show a conservative pay practice for the performance generated, compared to other FTSE 100 companies.

 

With the 2019 proxy season fast approaching, boards need to be fully prepared to engage with shareholders. Having the same information as proxy advisors and investors is fundamental to proxy season readiness and good governance decision-making.

CGLytics provides real-time governance risk analytics and solutions that provide actionable insight for companies, shareholders and proxy advisors. We empower boards of companies and investors with data analytics that enables good governance.

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Aniel Mahabier

CGLytics

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