Why are shareholders suing Disney and Bob Iger in a new lawsuit?

Photo Illustration: Vulture. Photo: David Paul Morris/Bloomberg via Getty Images

On Aug. 23, a group of Disney shareholders filed a lawsuit against the entertainment giant, alleging executives misled investors about Disney+’s profitability while the company’s stock fell, resulting in “significant losses and damages.” The lawsuit in federal court in Delaware came just months after another shareholder group filed a lawsuit against Disney for similarly misrepresenting its streaming platform financially. The new lawsuit names Disney CEO Bob Iger as defendants, as well as former CEO Bob Chapek and a handful of other company executives.

Meanwhile, Disney is conducting legal battles in several Florida courts Republican Governor Ron DeSantiss Parental Rights in Education Act, often referred to as the Don’t Say Gay Act. After Disney spoke out against the law — which largely prohibits discussion of sexuality and gender in public schools — DeSantis attempted to strip the company of self-governing county status. In a lawsuit, Disney has accused DeSantis of penalizing the company for expressing its First Amendment right. In another lawsuit, Disney and DeSantis are fighting over the special precinct in which their theme parks are located. While Iger’s anti-legislative comments, including a tweet While he said the legislation “will put vulnerable young LGBTQ people at risk,” seemed to suggest some social justice awareness, while he’s since emerged as something of a corporate villain during the SAG and WGA negotiations. He described the writers’ and actors’ push for basic health and safety measures as “simply unrealistic” and raked in nearly $30 million in salaries and stock options in the process.

Here’s a breakdown of some of the lawsuits that took place at the Mouse House.

In its shareholder lawsuit filed last month, Stourbridge Investments LLC alleges financial shenanigans took place in connection with the company’s restructuring – and blamed most of it on former CEO Bob Chapek. The lawsuit alleges that Disney announced in October 2020 that it was changing the structure of its media and entertainment operations to increase its direct-to-consumer approach in the wake of the success of Disney+. Chapek, in an interview with CNBC cited in the lawsuit, expressed optimism about the strategy, saying, “We believe we have the opportunity to build on the success of Disney+, which has far exceeded expectations in almost every way.” and actually.” Use this to fuel our growth and increase shareholder wealth.”

Without going too far into the weeds – and there is So Plenty of weeds in shareholder lawsuits — the reorganization essentially allowed executives to cover up issues with Disney+’s revenue, the lawsuit says. According to court filings, Disney “has repeatedly misled investors about the Disney+ platform’s success by concealing the platform’s true cost, concealing the costs and difficulties of sustaining robust Disney+ subscriber growth, and claiming the platform is on track to profitability.” and to reach 230%.” -260 million paid global subscribers by the end of fiscal year 2024.” Turns out the projections were exactly that. Disney’s results for the second quarter of fiscal 2023 showed that Disney+ had lost subscribers for the second quarter in a row. In fact, the platform lost 4 million paying subscribers during this period compared to the previous quarter. And while streaming revenue rose 12 percent, it was “due in part to recent price hikes necessitated by the streaming service’s horrendous losses,” the lawsuit says. The other lawsuit, filed May 12 in California federal court, makes virtually the same allegations.

Disney has a “fiduciary duty” to do what is in the best financial interests of shareholders, but doing things like this always involves risk, even when doing the most risk-averse thing, like putting money into a retirement account through an employer. Scott Silver, a veteran securities attorney in Florida who focuses on financial wrongdoing, told Vulture, “A company cannot be held liable for making a bad business decision … just because you made a distraction from where you should have turned.” , you haven’t necessarily broken the law.” Law.”

But investors can sue when something goes wrong as a result of unlawful conduct — or when scheming executives try to sweep it under the rug in a way that violates reporting requirements. This is where shareholder lawsuits come in. According to court documents, Disney executives engaged in a “conspiracy” to hide “violations of fiduciary duty, unjust enrichment, gross mismanagement and abuse of control”; and (b) conceal and misrepresent the Company’s actual business and financial prospects. They did this by willfully, recklessly, or negligently posting objectionable content [financial] statements.” So it’s not so much Disney+’s paltry results as it’s supposedly misstatement of potential growth. Hiding data, Silver explained, “could violate the law.”

Disney won a legal victory in a shareholder lawsuit alleging rejection of DeSantis’ “Don’t Say Gay” law, which led to the governor attempting to remove the company’s special tax status. The shareholder claimed that Disney’s opposition to the bill harmed its bottom line and claimed that its public stance was negligent. per deadline. A judge ruled in late June that while the litigation raised “significant public policy issues surrounding this lawsuit,” it was “quite simple.” The judge said: “The plaintiff and his attorney may disagree with Disney’s position [the bill]. But their disagreement is not evidence of wrongdoing,” Bloomberg said reported.

Yes. “Shareholder lawsuits and class action lawsuits are rampant and hundreds, if not thousands, are filed each year, covering a fairly large number of claims against companies, primarily for misrepresenting their financial condition and other issues in the marketplace,” Silver said. “They play a very important role and can sometimes have a significant financial impact on the company. Some shareholder lawsuits can have a nominal financial impact on a company, but they can preserve the legitimacy and honesty of the company and ensure that it is likely to make statements to the public and its filings with the Security and Exchange Commission.” If itself If a company is found to have committed serious wrongdoing, these lawsuits can — and often do — result in “very large compensation for investors.”

Disney publicly opposed DeSantis’ “Don’t Say Gay” legislation after getting angry at its failure to comment on anti-LGBTQ+ legislation. DeSantis responded by taking control of Disney’s self-governing district and creating a state-governed district. Disney effectively outmaneuvered DeSantis by deposing the predecessors of that State Council, according to CBS News. The DeSantis government effectively sued Disney; The company, in turn, filed a counterclaim Associated Press. Meanwhile, Disney is suing DeSantis on First Amendment grounds for his retaliation against her opposition to his anti-LGBTQ+ policies. CBS explained. For its part, the DeSantis government maintains that Disney cannot sue him for his actions against the Disney District Board of Directors because he has “sovereign immunity” that protects him from litigation.