The Crisis At Disney: Part 1, Bob Chapek's Blunder Road

Zinger Key Points
  • Bob Chapek restored Disney's executive pay during the COVID-19 pandemic while the workforce remained on furlough.
  • Fourteen nations including China banned "Lightyear" over a same-sex kiss scene, diluting the film's global box office results.

This is part one of a four-part series, "The Crisis at Disney."

Few corporations have generated a more profound impact on the public than the Walt Disney Co DIS. Successive generations have responded with positive emotions to the company’s entertainment, retail merchandise and travel and hospitality offerings. Indeed, the Disney brand has been less of a corporate entity and more a beloved family member to millions around the world.

But for roughly the past two years, Disney’s goodwill has slowly frayed through a skein of questionable decisions from its leadership, which has created friction and sour relationships both within the company and through sections of the general public. Instead of uniting people through jollity and innovations, it has created controversy and skepticism where none previously existed.

View From The Top: Disney has a lengthy history of leadership struggles and stumbles. Following the death of co-founders Walt Disney in 1967 and Roy Disney in 1971, the company had trouble focusing on its priorities — theme parks took on a greater emphasis while its cinematic output waned to crummy-silly B-grade live-action films and an occasional animated feature. By 1984, the company’s lack of vigorous leadership resulted in a frayed financial state that invited an attempted hostile takeover by financier Saul Steinberg.

During the 1990s, a leadership power struggle between Michael Eisner, Roy E. Disney and Jeffrey Katzenberg created an internecine battle within the company’s C-suite, to the astonishment of a film industry that rarely witnessed such internal difficulties dribble into public view. Katzenberg was forced out by the other two, but by 2005 Roy E. Disney took aim against Eisner with the so-called “Save Disney” campaign that resulted in the executive being forced into retirement and replaced at the helm by Bob Iger as the company’s chief executive.

Iger turned out to be the most popular and respected company leaders since the passing of the co-founders. Under his direction, the company expanded with the acquisitions of Pixar, Marvel Entertainment, Lucasfilm and 21st Century Fox. Disney also opened a theme park in Shanghai after years of careful negotiations with China’s government and moved into the streaming sector.

In February 2020, Iger surprised many people by naming Bob Chapek, the chairman of Disney Parks, Experiences and Products, to be his successor as CEO; Iger remained as the company’s chairman of the board until the end of 2021. But Chapek quickly got stuck in an unprecedented crisis — the COVID-19 pandemic paralyzed the company as movie theaters, theme parks, hotels and cruise ships were forced to close.

Chapek approved the layoffs of approximately 28,000 cast members at Disney theme parks while enacting pay cuts for the company’s senior executives — Chapek volunteered to shed 50% of his income, although Iger one-upped him by foregoing 100%. But Chapek created poor feelings across his workforce in August 2020 when he fully restored the executives’ pay while the theme parks and hospitality venues were still shuttered and the employees were still furloughed.

See Also: Disney World Visitors Complain Some Attractions Lack Air Conditioning

Wrong Foot Forward: Chapek’s handling of the workforce furloughs led to an online petition demanding his removal. The source of the petition was not publicly identified, but one could easily assume it was either a Disney employee or someone close to those impacted by Chapek’s decision.

Disney employees were involved as the anonymous sources for an October 2021 Hollywood Reporter critique of the unhappiness that many within the company expressed about Chapek’s management skills. This critique encompassed the displeasure felt within Pixar at having its films “Soul” and “Luca” sent directly to Disney+ streaming rather than going into theatrical release, as well as Chapek’s bungled handling of Scarlett Johansson’s breach of contract lawsuit over her “Black Widow” compensation — reportedly, Iger was furious over what occurred, which resulted in the company receiving harsh rebukes from film industry leaders.

Outside of the film industry, Chapek’s late 2021 decision to replace the FastPass+ system at the Disney theme parks with the Genie and Lightning Lane systems left many die-hard Disney fans angry. One theme park visitor shared unhappy observations on the switch in a Reddit forum that generated more than 530 comments, mostly negative to Disney.

Rebekah Barton, senior entertainment editor for the Inside the Magic blog that focuses on all things Disney, observed that consumer disappointment at the theme park level was difficult to ignore.

“I've been to the parks many times since Chapek took over, both during the pandemic and more recently, and I can speak to the change and experience as far as Genie+ being a somewhat glitchy system and Lightning Lane not necessarily working the way perhaps the company wanted — as well to food portion sizes being reduced, things of that nature,” she said.

“I haven't personally experienced a decline in merchandise quality, but I know there have been numerous social media complaints. I think there's always room for improvement, and I think there have been numerous challenges during his tenure, both in regards to the pandemic and in regard to the company trying to rebound from that and making some changes to be more profitable that aren't necessarily giving people the experience that they had pre-pandemic at Disney parks.”

Clouds Over The Sunshine State: Chapek’s handling of Florida’s Parental Rights in Education legislation — known as “Don’t Say Gay” by its detractors — created uncommon friction that continues to impact the company’s image with consumers and the business community.

The legislation prohibits Florida’s schools from providing instruction on sexual orientation and gender identity issues to students in kindergarten through the third grade. Disney is Florida’s largest private-sector employer, and when the controversy over the legislation began to percolate earlier in the year, Iger came out publicly against it while Chapek maintained an official corporate silence, claiming within an internal memo that he did not want to wade “into issues he deems irrelevant to the company and its businesses.”

Geoff Morrell, a Defense Department official in the George W. Bush administration who had recently come on board as Chapek’s chief of staff, insisted Chapek would not speak out against the legislation because he abhorred public political statements.

“Whatever Bob’s personal politics are, he’s not an activist and does not bring any partisan agenda to work,” Morrell said. “He sees himself first and foremost as the custodian of a unifying brand that for nearly a century has been bringing people together, and he is determined that Disney remain a place where everyone is treated with dignity and respect.”

This created a backlash within Disney’s LGBTQ employees, who took to social media to harshly berate their chief executive and threatened a walkout. Chapek abruptly shifted gears and criticized the controversial legislation, and then proposed making a $5 million corporate donation to the Human Rights Campaign, an LGBTQ-focused advocacy group. Disney would later issue an unattributed press statement vowing to fight to have the new legislation voided.

Yet Chapek wound up aggravating both sides of the issue. The Human Rights Campaign rejected the donation by questioning Disney’s sincerity in supporting LGBTQ issues.

Perhaps more damaging was Florida Gov. Ron DeSantis’ response. DeSantis, who backed the legislation, denounced Disney as “woke” and accused it of trying to inject “California values” into his state — but he then moved beyond tough talk into coordinating new legislation that revoked the special tax district status that Disney enjoyed in Florida since 1967.

This sparked a domino effect within the Republican Party, with nearly two dozen members of the U.S. House of Representatives’ Republican Study Commission voicing opposition to allowing Disney to renew its copyright on Mickey Mouse in 2024 based on what they called the company’s "political and sexual agenda." Sen. Josh Hawley (R-Missouri) went further by putting forth the Copyright Clause Restoration Act, a bill to reverse copyright protections for major corporations, particularly Disney.

“Thanks to special copyright protections from Congress, woke corporations like Disney have earned billions while increasingly pandering to woke activists,” Hawley said when announcing his bill. “It’s time to take away Disney’s special privileges and open up a new era of creativity and innovation.”

Disney Vs. DeSantis: Inside the Magic’s Rebekah Barton pointed out that there was no public clue of conflict between Disney and DeSantis prior to the pandemic, but the first hints of difficulty arose during the health crisis.

“It definitely came to a head during the pandemic because DeSantis was very anti-mask and Disney was very pro-mask,” she said. “It started there with the parks having various restrictions and vaccination requirements for employees and things of that nature, which the DeSantis administration didn't agree with.”

To some political observers, Chapek erred badly by injecting himself and his company into the so-called “Don’t Say Gay” fight.

“Disney is weighing in on political legislation that they shouldn’t be engaging in,” said Matt Tito, a Newsmax commentator and former Republican candidate for the Florida House of Representatives. “Gov. DeSantis doesn’t back down from anyone and he took away Disney’s special tax exemptions they had and made it known that they will no longer be receiving special treatment in the state.”

“You don't put a finger in the eye of the guy who's given you a benefit — it's more or less a challenge to them,” said Dr. Peter Morici, professor emeritus of the Robert H. Smith Business School at the University of Maryland and former director of the Office of Economics at the U.S. International Trade Commission, who noted DeSantis’ popularity within his party resulted in “the other Republicans piling on.”

Morici noted that while Hawley’s bill lacks the backing on Capitol Hill to gain passage, it nonetheless fuels what he described as “this angst among conservatives” while forcing other companies to think twice before becoming vocal activists within contentious political debates.

“They make themselves convenient targets, and on issues that don't relate to their business,” he said.

Grant Stern, executive editor at Occupy Democrats, pointed out that DeSantis’ actions against Disney were not unique — Brian Kemp and Greg Abbott, the Republican governors of Georgia and Texas, have also jousted with locally-headquartered corporations that openly criticized their policies — but he highlighted how DeSantis’ response went further than anyone anticipated.

“I've lived in Florida for most of my life and I've never seen anything like this,” Stern said. “It's not just the retaliation, but the speed of the retaliation. Florida has a part-time legislature that only meets for 60 days a year by schedule, plus a few weeks of committee hearings in the fall — we don't have a year-round legislature like most states. So, for them to whip up a special session and throw this whole thing down without a hearing in just a couple of days’ time is extraordinary for Florida governance.”

Stern added the concept of “having a part-time legislature is that it's supposed to avoid politicizing business in the state in the way that we just witnessed. The idea is that a part-time legislature is supposed to be smaller government, and the legislators aren't career legislators — they have to have some outside job. So, having that part-time legislature is supposedly one of these checks on big government — and, boy, did they blow through the checks.”

See Also: Disney Unveils $110K Luxury Tour Package: What You Need To Know

What Happens Next: If one overlooked the corporate and political hiccups and only focused on the financial standpoint, Chapek’s leadership is a mixed bag: in the second-quarter earnings report, Disney’s revenues were up by 23% but its net income fell by 48% and its diluted earnings per share from continuing operations were also down by 48%.

Disney’s shares opened for trading this morning at $94.34, closer to the $93.10 bottom level of its 52-week range and far removed from its 52-week high of $187.58.

Chapek is using Disney’s financial muscle to push back against DeSantis. Last week Disney halted plans to move approximately 2,000 workers at its Parks, Experience, and Product division from California to a new campus in the Orlando community of Lake Nona. The move was expected to conclude by the end of 2022 or early 2023 but has since been pushed back to 2026. That new date was intentionally chosen because it marks the final year of a DeSantis administration if he wins re-election this November for a second and final term as governor.

Regarding the status of its special tax district, officially known as the Reedy Creek Improvement District, Disney has yet to file any legal attempt to force the abrogation of DeSantis’ action — and for his part, the governor has yet to offer a proposal on how the district’s financial responsibilities shouldered by Disney will be transferred.

Nonetheless, Stern warned this has created a new wave of apprehension.

“The bottom line to all this is that it's terrifying political theater,” he said. “People that I've spoken with in the commercial real estate space are telling me that there's a panic in the market — people are reassessing everything, and that's bad. Disney is the economic engine of the center of the state and if you pull them out of the equation, billions of dollars are going elsewhere.”

And money is being lost outside of the U.S. due to Disney’s new public advocacy of the LGBTQ community. The company’s new Pixar release “Lightyear” includes a same-sex kiss between two female characters — the kiss was initially cut from the film but was restored after the Florida controversy erupted. However, 14 foreign markets including China, Indonesia, Saudi Arabia and the United Arab Emirates blocked the film’s release when Disney refused to remove the kiss scene. “Lightyear” opened this past weekend and its global grosses were lower than anticipated due to its absence from the 14 markets.

Yet Disney offered no apologies, and “Lightyear” star Chris Evans dismissed those objecting to the same-sex kiss as “idiots.” But that response also brought unhappiness from those trying to make their concerns known in a meaningful manner. Rev. Caleb Evans, minister at Holy Trinity Anglican Church in Plainville, Connecticut, took umbrage with Evans’ name-calling, stating, “I'm surprised that someone associated with Disney was quite so blunt about what they really think of those of us who hold to a traditional view of human sexuality, but at least we don't have to wonder what they think about us.”

As for Chapek, more recent embarrassments have continued to frame his leadership: Geoff Morrell took the fall for the DeSantis pushback and resigned after three months on the job, while earlier this month Chapek abruptly fired Peter Rice, the chairman of Disney General Entertainment Content — some industry insiders pegged Rice as a potential Chapek replacement. Chapek’s decision to cede the India-based streaming rights to Indian Premier League cricket to a consortium that included rival Paramount Global PARAAPARA was widely criticized as a blunder within the media industry, even though Chapek insisted he was more focused on creating new locally-based content.

Chapek’s contract as chief executive expires in March, and there is already grumbling about Chapek's performance. Earlier today, TheWrap cited unnamed sources to report that Abigail Disney, daughter of Roy E. Disney, was courting investors to mount a shareholders' challenge to claw back some of the $32.5 million that Chapek received as compensation in 2021.

Whether the Disney board will seek new leadership or stay the course with Chapek remains to be seen.

“I honestly have no idea,” said Barton about how the board will vote. “I kind of look for it to be renewed, just from the standpoint that I don't think the board is going to want to say, ‘Yes, we agree with public opinion, he's not doing a good job,’ because to date the company has stood behind him. And I honestly think that unless Bob Iger wanted to come back, which seems like a pipe dream, I don't know that they're going to jump ship yet.”

Photo: Courtesy Walt Disney Co.

Part 2 in the series will examine how original IP from Disney has become an elusive commodity.

Posted In: Bob ChapekBob IgercontroversyDon't Say GayGrant SternLightyearMatt TitoPeter MoriciRon DeSantisThe Crisis At DisneyWalt Disney Co.Analyst ColorEntertainmentNewsTop StoriesExclusivesAnalyst RatingsGeneral

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