This Disney war has already paid off

The fight over who exactly sits on the entertainment giant’s board is in its final stages, with the company’s annual meeting slated for Wednesday. Shareholders are choosing between three options promulgated by Disney and two activist investors. The result wouldn’t necessarily be a major shake-up—one activist proposal calls for replacing two members of the 12-person board, while the other would basically add three more members.

But it has been rancorous nonetheless, particularly because both campaigns have been sharply critical of the company’s performance under the management of board member and Chief Executive Bob Iger. A new wrinkle was added last week when one of the activists, Blackwells Capital, sued Disney over its deal with another activist, ValueAct, that was announced earlier this year.

That performance is complicated by the fact that Disney’s stock has been on a tear of late. The share price has jumped 35% since the start of the year—more than triple the S&P 500’s performance, and even exceeding that of streaming star Netflix. Meanwhile, Warner Bros. Discovery and Paramount Global—Disney’s two closest peers in the traditional media space—have seen their shares sink by more than a fifth each over that time.

The two main sides in the proxy battle, Disney and activist Trian Partners, could each plausibly claim some credit for those gains. Disney’s past two quarterly reports have been particularly well received by investors given its focus on curbing streaming losses, improving theme-park performance and charting a new path for its sports business. Its most recent report in early February came with a raised dividend and an investment in Epic Games, helping spark the biggest single-day jump the stock has experienced in more than three years.

But many of the moves Disney has made have come as the company has faced the specter of a bruising proxy fight. Trian’s Nelson Peltz first raised the prospect in January 2023—just weeks after Iger returned to the CEO role after the ouster of his successor, Bob Chapek. A strong quarterly report the following month that included the announcement of a significant cost-cutting program persuaded Peltz to stand down.

But subsequent struggles that include the continued shrinking of the company’s cable-television business and disappointments at the box office persuaded Peltz to try again. He launched his latest proxy challenge in late November, about a month after Disney’s stock touched its lowest point in nearly a decade.

A clear victor isn’t yet in sight. Disney has garnered important endorsements from major, high-profile shareholders such as Star Wars creator George Lucas and Laurene Powell Jobs, as well as descendants of the Disney family along with shareholder-advisory firm Glass Lewis. But two other proxy advisers—Institutional Shareholder Services and Egan-Jones—support adding Peltz to the board. Just 22% of shares had been cast as of Tuesday, March 26, according to reporting by The Wall Street Journal.

Shuffling a few seats on the board won’t change Disney’s most pressing challenges. They include a declining cable-TV empire as consumers cut the cord at a growing rate and a theatrical-movie industry still coming to grips with the pandemic’s aftermath. Adding rancor to the board could also complicate the remaining hurdle of finding a successor to Iger after the botched leadership transition the last time around. Disney hasn’t been sitting still on this matter either, having recently added James Gorman to the board after the former Morgan Stanley CEO executed what has been regarded as a smooth leadership transition at the investment-banking giant.

Gorman sits on the Disney board’s planning committee with former Nike CEO Mark Parker. In its recommendation report, Glass Lewis said “a formal board committee composed of otherwise well-respected senior executives represents a strong step in the right direction by fostering direct accountability to Disney shareholders."

The deal with ValueAct is also notable. The activist has previously targeted companies such as Microsoft, Salesforce and the New York Times. It ended up scoring a board seat at Microsoft as the company was seeking a successor to outgoing CEO Steve Ballmer—a move that paved the way for the appointment of Satya Nadella and the company’s highly successful pivot to cloud computing and artificial intelligence.

Disney’s Life-After-Iger will likewise be a key turning point. The fact that the company’s board has already seen what happens when this goes wrong will be extra motivation to get it right this time.

Write to Dan Gallagher at dan.gallagher@wsj.com