Disney Forced To Face Activist Shareholder Inquiring About China

Disney tried to kill it, but the Securities and Exchange Commission didn’t let them.

The National Legal and Policy Center (NLPC), a Disney shareholder, presented a resolution at The Walt Disney DIS Company’s annual shareholder meeting on Wednesday, March 9 asking for an annual report on the company’s efforts to determine human rights protections in foreign countries, namely China.

The resolution was put up for a proxy vote, which Disney’s board rejected, citing the shareholder sought to micromanage the company.

The SEC disagreed and told Disney on January 19 that NLPC had a right to put the proxy vote before the company’s shareholders.

While the resolution did ultimately lose, 34% of shareholders voted in favor of Disney producing evidence that it was not sourcing materials from companies sanctioned by the U.S., or regions sanctioned by the U.S. for human rights violations.

During the shareholder meeting, NPLC noted that Disney supports documents like the “United Nations’ Universal Declaration on Human Rights” but questioned what they were doing about it as a company. And why China was getting a pass.

The China human rights problem for companies begins with Xinjiang supply chains.

Numerous companies were sanctioned in the far east province of Xinjiang due to forced labor allegations believed to be true by the U.S. Department of Homeland Security. Xinjiang is home to hundreds of thousands of Uyghur and other Muslim minorities imprisoned as part of China’s version of the war on terrorism. For Beijing, Uyghur Muslim detention centers are re-education facilities. Prison labor is common.

Last year, Customs and Border Protection banned cotton from Xinjiang in American supply chains. This means any articles of clothing made from cotton sourced from Xinjiang would be held up in port containers until a company could prove its product was not made by forced labor.

NLPC was asking Disney to conduct due diligence on its China supply chains and share that with investors. But the corporate board did not want to go the extra mile on this issue and brought its biggest shareholders along with them to vote against the resolution.

Disney’s biggest shareholders are Blackrock, Vanguard, and State Street Bank. These three tend to vote in favor of a corporate board’s decision and are not considered activist shareholders. Blackrock is a big proponent of Environmental, Social and Governance investing, or ESG, but it is unclear if they hold sway over corporate boards to push them along this glide path. ESG is a question Blackrock gets hounded for regularly in relation to China.

For NLPC, not sourcing materials made from forced labor is as ESG as it comes.

Disney was asked to comment on the vote result on Thursday in an email to their corporate press, and a phone call. The company was given until Friday noon to comment.

China’s Leverage Over Corporate America

Disney is not the only company quiet about China, America’s biggest strategic rival since the fall of the Soviet Union.

Whether the subject is Taiwan, Hong Kong, or Xinjiang, China’s view is that these are domestic matters. Foreigners have no place meddling in their household affairs, the ruling Communist Party (CCP) has said.

Although China is not storming the beaches of Taiwan with tanks and dropping bombs from fighter planes, Russia also considers Ukraine a domestic matter. That did not stop Disney from suspending all business in Russia, or Goldman Sachs from closing its offices in Moscow in less than 10 days after fighting began in Ukraine.

It is hard to imagine they would do the same if China attempted to finally turn Taiwan into a CCP island. Even if the threat of bigger sanctions were there, companies would be much slower to act, if at all.

When the Trump administration imposed tariffs on over $300 billion worth of imports from China, companies mostly stayed put, regardless of actual threats Washington would make it harder to do business there.

China has leverage over U.S. companies.

In 2019, Houston Rockets General Manager Daryl Morey Tweeted “Fight for freedom; stand with Hong Kong.” The Rockets were instantly banned from Chinese television.

Shortly after, CCTV, China’s biggest state-run broadcaster, banned NBA games from mainland China. Golden State Warriors, then the number one selling team jerseys in China, were silent on the issue. Which is why it was so flippantly easy for the team’s minority owner and Silicon Valley star, Chamath Palipahitiya, to say “no one cares about the Uyghurs” in a podcast earlier this year. Some might break out in a moral panic over it in the U.S., but it does no harm to the Warriors, or the NBA, in one of their most important markets.

Disney doesn’t want to be banned from China for saying it will not source cotton from Xinjiang.

In 1997, Buena Vista Pictures (renamed Walt Disney Studios) distributed the Dalai Lama film Kundun. China hated it and banned it. Disney said they would make it and release it anyway. Then the CCP told them they were not welcome in China. The CEO at the time, Michael Eisner, bent over backwards to make sure Disney had forever access to mainland China Disney fans.

Their recently opened Shanghai Disneyland resort is in partnership with a state-owned company that has a majority stake in the first-ever mainland China Disney park.

Pretending Xinjiang is just a China province and that what the State Departments under both the Trump and Biden administrations have declared a “genocide” is just a domestic China issue will be harder to ignore.

On Thursday, over $27 million in additional funding in the FY2022 omnibus appropriations bill was given to help implement the Uyghur Forced Labor Prevention Act (UFLPA). The UFLPA was signed into law by President Biden on December 23, 2021.

“The Chinese government and businesses have profited for too long from the forced labor of Uyghurs, Kazakhs, and other Turkic Muslim ethnic minorities. Given the strong connection between forced labor, crimes against humanity and genocide in the Xinjiang Uyghur Autonomous Region, we must impose real costs for anyone profiting from atrocities. As the United States ramps up its vigilance to protect our markets from complicity in these atrocities, other countries around the world need to do the same.” — Senator Jeff Merkley (D-OR) and Representative James P. McGovern (D-MA), Co-Chairs of the bipartisan and bicameral Congressional-Executive Commission on China, March 10, 2022.

Paul Chesser, director of NLPC’s Corporate Integrity Project, was the one who addressed the shareholders on March 9.

“Forced labor and human rights is a concern for the right and the left,” he said in a phone interview on Thursday. “You still have to break through the corporate establishment perspective and it is going to take them a while to wake up. They were awakened suddenly and rapidly with Russia and Ukraine. Would they respond similarly if China invaded Taiwan? They’re going to look really bad if they don’t take a similar tack like they did with Russia,” he said. “It’s a nothing burger to shut down in Russia. To shut down in China is a different story.”

Over 100 U.S. and European companies have said they were leaving Russia permanently, or shutting down temporarily, leading to the layoff of thousands of workers. The hope is that these newly laid off Russians will pressure Vladimir Putin and the Russian military to stop war in Ukraine.

Precisely zero companies have left China, or even threatened to, due to “genocide” in Xinjiang.

In fact, Airbnb, which is no longer listing in Russia, has listings in the Xinjiang province city of Kashgar. The historic Uyghur portion of the city is being leveled and rebuilt by the Chinese government, according to the Uyghur Human Rights Project in Washington. The group wrote in a 2020 report the reconstruction of the Old City is geared towards erasing remnants of designs and traditions not part of Han Chinese culture.

The Russia war vs China genocide makes for interesting comparisons.

If China was pressured like Russia with economy-destroying sanctions, Beijing could easily retaliate by sending Disney, Apple, and Nike packing. If so, the Chinese government would have allies in Washington hounding members of Congress to reverse course. They wouldn’t need to hire a lobby firm.

For corporate America and Washington, the China balancing act is what Canadian writer Margaret Atwood would describe as “tightrope walking over Niagara Falls.”

Disney’s activist shareholders failed to persuade the company to report on its China supply chain this week. That a little over a third asked them to do so suggests there is some momentum here. Chamath is wrong. People do care about forced labor and human rights.

The NLPC is also considering a proposal as a GM shareholder to review child and forced labor at rare earth and cobalt mines in Africa.

“Disney is a multibillion-dollar company,” said Chesser. “If they don’t want shareholders asking them questions about their supply chains in China, then they should just go private.”

That won’t work.

Companies will have to answer for their Xinjiang supply chains, especially imported apparel, because of the Uyghur Forced Labor law. How this gets enforced is a question. But as of this week, Washington is giving Customs and Border Protection more money to stop imports made from sanctioned Xinjiang goods. It’s a move that garners bipartisan support from voters, politicians, and Disney fanatics alike.