Disney’s Victory in “Don’t Say Gay” Corporate Records Dispute a Lesson in Sound Board Governance

In a victory for the Walt Disney Company, the Delaware Court of Chancery barred a Disney stockholder from obtaining corporate records about the company’s 2022 decision to publicly oppose Florida’s so-called “Don’t Say Gay” legislation.

The Disney saga has received considerable attention in the press, but here is a brief recap. Disney employees demanded that the company take a public stand against Florida House Bill 1557, which prohibits classroom instruction about sexual orientation or gender identity in kindergarten through third grade, among other limits. Florida governor Ron DeSantis warned Disney not to do so, and when the company did issue a public statement opposing the law, DeSantis proclaimed Disney “crossed the line.”  In the ensuing weeks, the Florida legislature voted to dissolve the special tax district that encompasses Walt Disney World.

A few months later, a longtime Disney stockholder sent the company a demand under Section 220 of the Delaware General Corporation Law to inspect certain company records. The demand claimed that Disney’s directors may have mismanaged the company and breached their fiduciary duties by not considering the effect that the company’s opposition to the law would have on it and its stock price.  The stockholder further suggested that the directors “plac[ed] their own political views ahead of their duties to act in the best interests of Disney and its stockholders.”

Disney responded that the stockholder had not stated a proper purpose to inspect the requested records, as required by Delaware law. Although the company ultimately provided the stockholder with board minutes and various company policy statements, it refused to produce independence questionnaires filled out by its directors and written correspondence among the directors about HB 1557. The stockholder then filed suit.

On June 27, 2023, Vice Chancellor Lori Will ruled against the stockholder, finding that he had not provided a credible basis from which to infer wrongdoing by the company or its board. Instead, she stated, the stockholder “is critiquing a business decision.” A stockholder’s disagreement with a business decision, even one that proves to be a bad decision, is not a basis for obtaining corporate records.  Noting that the board had specifically discussed HB 1557 and Disney’s communications plan regarding Florida legislation at two meetings, the Vice Chancellor stated:

[S]tockholders invest with the understanding that the board is empowered to direct the corporation’s affairs. . . Far from suggesting wrongdoing, the evidence here indicates that the Board actively engaged in setting the tone for Disney’s response to HB 1557.  The Board did not abdicate its duties or allow management’s personal views to dictate Disney’s response to the legislation. Rather, it held the sort of deliberations that a board should undertake when the corporation’s voice is used on matters of social significance.

Corporate boards and CEOs should take note of the court’s decision given today’s politically-charged business environment. Disney’s victory in the case emphasizes the importance of maintaining sound board governance practices and a pro-active, highly engaged board of directors, especially when it comes to decisions to take a public position on social policy. The decision also reiterates that the weighing of risks and opportunities and the exercise of informed business judgment is the very essence of the board’s role. Moreover, the decision exemplifies the established corporate law principle that directors may balance the interests of various constituencies affecting the corporate enterprise, and doing so is not mismanagement. As the court stated: “A board may conclude in the exercise of its business judgment that addressing interests of corporate stakeholders—such as the workforce that drives a company’s profits—is ‘rationally related’ to building long-term value.”

The case is Simeone v. Walt Disney Co., Del. Ch., C.A. No. 2022-1120, Will, V.C. (June 27, 2023) (Mem. Op.).

Maureen Gershanik is a partner in Fishman Haygood’s Business Section. She advises clients on ESG initiatives and practices in the areas of corporate law and governance, securities law, and mergers and acquisitions. She is a New Orleans 2023 Best Lawyers “Lawyer of the Year” in both Mergers and Acquisitions Law and Securities/Capital Markets Law. Read more about her practice here.