Why Was CEO Bob Chapek's Contract Extended at Disney?

Why Was CEO Bob Chapek's Contract Extended at Disney?

Many Disney fans were stunned last week when Disney’s Board of Directors announced CEO Bob Chapek’s contract had been extended. While insiders expected this, many are still puzzled as to why when they see prices going up in the parks, quality going down at the movies, and politics whirling everything around in between.

I wasn’t in “the room where it happened” but we can look at a number of factors that occurred when the board of directors met at Walt Disney World last week. We’ll look at events during a critical ten day period and how they supported Bob Chapek’s role. We’ll consider how Walt Disney World was the stage for making a case in favor of Bob Chapek. We’ll look at five very tough questions about Bob’s performance, and how they have probably been countered. And finally, we’ll look at the number one concern the board had–and it wasn’t around politics, box office performance, or even Genie+

Join us in this podcast while we look at the crazy events of June and try to answer why CEO Bob Chapek’s contract was extended at Disney.

Below is an outline along with quotes and links. But the podcast goes into details you won’t want to miss. The podcast is available on PodbeaniTunesSpotify,  and ListenNotes. Please subscribe to the podcast and to this website so you can be notified of upcoming posts and podcasts! 

The Announcement as of July 5th

A new announcement was made the day after the holiday weekend, and it summarizes where Bob Chapek is currently sitting with Disney’s board of directors.

On June 28, 2022, the Board of Directors of The Walt Disney Company (the “Company”) and Robert A. Chapek, the Company’s Chief Executive Officer, agreed to extend the term of Mr. Chapek’s employment agreement with the Company to three years, beginning from July 1, 2022.

The employment agreement will be amended to provide that Mr. Chapek will be granted a long-term incentive award having a target value of not less than $20 million annually. The proportion of his long-term incentive award comprised of performance-based restricted stock units will be increased to 60%. These awards do not guarantee Mr. Chapek any minimum amount of compensation.

The actual amounts payable to Mr. Chapek in respect of such opportunities will be determined based on the extent to which any performance conditions and/or service conditions applicable to such awards are satisfied and on the value of the Company’s stock. Accordingly, Mr. Chapek may receive compensation in respect of any such award that is greater or less than the stated target value, depending on whether, and to what extent, the applicable performance and other conditions are satisfied, and on the value of the Company’s stock. No agreement has been made to amend any other terms of Mr. Chapek’s existing employment agreement, including his base salary.

Remember: The purpose of the board of directors is to protect the investment of shareholders and to make certain the company is on the right track financially in the short term and in the long term.

Time Table For Contract Renewal

  • June 20th Pre-sales for Adventures by Disney $110,000 around the world trip made available
  • June 21st: Harmonious Live–In the Walt Disney tradition of promoting the parks on TV. Indina Menzel hosts.
  • June 22nd: Doctor Strange in the Multiverse of Madness Premieres on Disney+
  • June 23rd: New DVC villas for Disney’s Grand Floridian open
  • June 24th: Disney along with other major corporations note they are covering travel for Cast Members needing access to an abortion
  • June 25th: Adventures by Disney $110,000 around the world trip sold out
  • June 26th: Obi-Wan Kenobi ends last show of season with strong crowds watching
  • June 27th: Board of Directors Meet at Walt Disney World
  • June 28th: Announcement of Contract Being Extended by the Board
  • June 29th: Inaugural Ceremony of the Disney Wish
  • June 30th: Shanghai Disney Resort Reopens to a Very Masked Crowd

What They Should Have Toured:

While they were here, Bob Chapek had an opportunity to make a case for why he’s their man for running this business. I don’t know what their itinerary was, but if I was him, I would have focused on showcasing the following:

  • Space 220
  • Guardians of the Galaxy Cosmic Rerun
  • Other New Additions at Epcot
  • Construction at Epcot
  • Star Wars Galactic Starcruiser
  • Tron Lightcycle Run
  • The Disney Wish

With Chapek showing off these assets, no wonder Susan Arnold, chairman of the board said in a prior statement:

“Disney was dealt a tough hand by the pandemic, yet with Bob at the helm, our businesses — from parks to streaming — not only weathered the storm, but emerged in a position of strength. In this important time of growth and transformation, the Board is committed to keeping Disney on the successful path it is on today, and Bob’s leadership is key to achieving that goal. Bob is the right leader at the right time for The Walt Disney Company, and the Board has full confidence in him and his leadership team.”

The Counter Argument

Issue #1: Box Office & Disney+ Performance

Issue #2: Bob Chapek & LGBTQ+ Community

Issue #3: Bob & Hollywood

Issue 4# : Disney Stock is Declining

The Board’s Biggest Concern

If the board should be concerned, it should be most pre-occupied by this: Acquisitions and mergers. Disney has been in a fragile place before when the board of directors lost confidence in their CEO. Most notably is Ron Miller, which resulted in the company fending off hostile investors seeking to buy up the company, split it into pieces, and re-sell it. The result was Michael Eisner being brought on board.

When Eisner was on the hot seat after 20 years, Comcast made a bid to take over the company. This ultimately ended up with Eisner being ousted and Bob Iger being brought in. In both instances, Roy E. Disney was vocal in making sure that the company was not taken over by outsiders.

Final Notes on Bob Chapek’s Contract Renewal

  • Chapek wasn’t offered additional compensation. He was offered an incentive based on performance.
  • Chapek’s tenure was extended another three years. Jim Hill notes that Michael Eisner’s first extension was four years and Bob Iger’s first extension was five years.
  • Chapek has not been offered the privilege of being Chairman of the company. Nor should he, as that should always be independent.

In short, Bob Chapek has laid out a case to the board of directors that he’s their best hope moving forward and that they should re-extend his contract.

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