Advisory firm ISS tells Disney shareholders to side with Nelson Peltz in proxy fight

Proxy advisory firm Institutional Shareholder Services on Thursday recommended that Walt Disney shareholders elect activist investor Nelson Peltz to the board in his bitter fight against CEO Bob Iger.

Peltz and his firm, Trian Fund Management, have asked investors to nominate him and former Disney Chief Financial Officer Jay Rasulo to the board at its annual general meeting on April 3. Among other things, Peltz wants to overhaul Disney’s traditional TV channels, which he claims have been a shrinking business and a drain on shareholder value.

“Dissident nominee Peltz, as a significant shareholder, could be additive to the succession process, providing assurance to other investors that the board is properly engaged this time around,” the ISS report said.

While siding with Peltz, ISS told shareholders not to back Rasulo in the fight, citing his previous positioning as a potential successor to Iger.

“Though we do not have any concerns about his ability to serve as an objective director, we recognize that Rasulo’s potential presence might create added friction on the board,” ISS said.

ISS slammed Disney’s board for repeatedly failing to find a new CEO to take over for Iger, who left his role as CEO in 2020 only to return to the position years later.

Trian heralded ISS’ backing as a significant victory, pointing to the advisors’ support for Peltz as an experienced director at other companies. The investment firm also highlighted that ISS recommended shareholders withhold their support for former JPMorgan Chase executive Maria Elena Lagomasino, a current Disney director whom Trian has targeted for replacement.

In response, Disney said that the recommendation from ISS “fails to acknowledge the diverse set of skills and experience on Disney’s Board,” and stressed that the proxy firm is endorsing 11 of its 12 nominees.

ISS also said shareholders should withhold their votes from a separate slate of nominees, from activist Blackwells.

The recommendation comes as Disney has lined up a number of high-profile endorsements, from the heirs of Walt and Roy Disney to JPMorgan Chase CEO Jamie Dimon and top Disney shareholder and filmmaker George Lucas.

Another proxy advisory firm, Glass Lewis, earlier this week endorsed Disney’s slate of board nominees. ISS was largely expected to follow suit.

Securing the support of ISS and Glass Lewis is crucial in activist fights. Large institutional shareholders will often — but not always — vote based on the recommendation of either of the two proxy advisory firms. Activists and management each make their case to the advisory firms, which in turn issue their opinions based on meetings with either side and their own analysis.

— CNBC’s Rohan Goswami contributed to this report.