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Disney may be in the business of storytelling, but it’s time for the company to get straight with its shareholders — at least when it comes to Disney’s entanglements with China.
On Monday, April 3, Disney will hold its shareholder meeting — an annual event where the company invites shareholders to hear from Disney’s leadership and make recommendations of their own. At the meeting, shareholders will vote on whether the company should issue a "China Risk Report," — the formal name for a document that would shine light on the companies’ operations in and dependence on communist China.
The proposal should be a no-brainer. Disney’s entanglement with the Chinese Communist Party (CCP) is nearly unrivaled. Disney depends on the CCP for access to the multi-billion dollar Chinese movie and streaming market, to manufacture Disney products and for permission to run its Hong Kong and Shanghai resorts. The CCP dictates the terms on which American companies are allowed to operate there. And dictate it does.
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Take Disney’s movies. In 1996, the company was blocked from the Chinese film market after "Kundun" portrayed the CCP’s brutal treatment of the Dalai Lama in Tibet. Then Disney CEO Michael Eisner was forced to apologize, calling it a "stupid mistake" and "a form of insult to our friends." More recently, Disney faced backlash in the US for censoring TV shows and movies to avoid antagonizing the CCP, and for thanking the genocidal Xinjiang government in its 2020 Mulan credits.
LAKE BUENA VISTA, FLORIDA - MARCH 03: Mickey Mouse waves to fans during a parade at Walt Disney World Resort on March 03, 2022 in Lake Buena Vista, Florida. (Photo by Julio Aguilar/Getty Images for Disney Dreamers Academy) (Photo by Julio Aguilar/Getty Images for Disney Dreamers Academy)
Or its theme parks. Disney’s Shanghai resort isn’t actually owned by Disney. It’s a joint venture with a "state-owned enterprise" — i.e., the CCP. The split? The CCP owns 57%, Disney just 43%. Do most Disney shareholders even know that fact?
Given the CCP’s control, it’s perhaps unsurprising that the Shanghai Disney employees "attend [CCP] party lectures during business hours," "display hammer-and-sickle insignia at their desks," and even participate in "singing contests" organized by party officials. Sometimes, the CCP’s control of the park is more literal: Last October, over 20,000 Disney Shanghai park goers were literally locked inside the gates, unable to leave until they produced a negative COVID-19 test.
The CCP’s stranglehold on Disney is unquestionably risky for the company’s bottom line. If President Xi decides Disney hasn’t been obedient enough, Disney’s $5.5 billion investment in its Shanghai resort could go poof.
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And censoring Disney’s content to keep the CCP happy has drawn criticism and boycotts at home. The ping-ponging reopening-reclosing of Disney’s Hong Kong and Shanghai parks cost the company $350 million in the first quarter of 2022 alone; permanent closure would cost far more, to say nothing of the cost of losing access to China’s streaming markets, movie markets, and manufacturing capabilities.
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What risks does Disney think shareholders care about? In its most recent 10-k filing — the form on which it is legally required to disclose its material risks — the company noted: "consumers’ perceptions of our position on matters of public interest, including our efforts to achieve certain of our environmental and social goals," were the real risks to Disney’s brand and bottom line.
Yet Disney has stayed largely mum on all risks related to China. Its 120-page annual report mentions China just five times: Three times in a footnote to a balance sheet, once in saying Disney has a retail store there, and once on a list of country-themed Epcot rides.
American investors deserve more. Millions of Americans invest their hard-earned dollars in Disney to save for their first home, their children’s education and retirement. If their savings are dependent on the whims of a communist dictator, they have a right to know.
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If Disney is afraid that issuing a China Risk Report will itself draw the CCP’s ire, that itself is something shareholders ought to know. The CCP may be able to keep its own people in the dark, but it shouldn’t be able to keep American shareholders in the dark too.
If Disney won’t set the record straight, then its shareholders should: Disney’s board of directors reports to Disney’s shareholders, not the CCP. It’s time to free the Mouse, and Americans’ investments, from President Xi’s hold.
Justin Danhof is the head of Corporate Governance at Strive Asset Management.
