Following is the unofficial transcript of a CNBC exclusive interview with Morgan Stanley Chairman & Disney Board Member James Gorman on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Tuesday, March 26.
Morgan Stanley’s Gorman on Disney proxy fight: Focus is now on what’s right for the company
SARA EISEN: We are nearly a week away here from Disney’s annual meeting, where Nelson Peltz, Trian, is fighting for two seats on the Walt Disney Co (NYSE:DIS) board, proxy advisory firm ISS siding with Peltz, with a focus on the company’s failed succession planning, saying, in part — quote — “The question for shareholders is not whether the CEO should be replaced, but whether the board, having failed to properly oversee the last succession process, is capable of avoiding the same mistakes.” Joining us now with some perspective is Morgan Stanley executive chairman and newest Disney board member James Gorman. Welcome back, James. Good to see you.
JAMES GORMAN: Hey, Sara. I thought I had retired from this stuff.
EISEN: You’re as relevant as ever here on the Disney board. Why are you guys fighting Trian so hard against joining the board?
GORMAN: I don’t think it’s fighting Trian so hard. I think it’s just trying to lead this company, which Bob and board chair Mark Parker are doing, for the next many years as they turn around what has been obviously a more challenging period through COVID. So, the focus is on what’s right for Disney at this point in time.
EISEN: But the argument and we can get to succession in a moment, really centers around the underperformance of Disney’s stock against the S&P, against its competitors with most of the current board – I know you are the newest member, but the rest of the current board has been there.
GORMAN: Well, I think that’s pretty backward-looking. I mean, look at year to date. I think the stock is up 29, 30 percent year to date. So you got to see things through the fullness of time. Imagine taking a company that its business is bringing people into parks, putting them on cruises, having them watch movies in movie theaters, and going through a period like we went through with COVID. At the same time, there was a massive transformation going on in the linear to streaming businesses. So there was clearly a period of major disruption in this industry. And I think what Bob and the team are doing is obviously turning that around. It’s evidenced by the performance in the stock.
EISEN: Well, the stock has also jumped since last October, when it was revealed that Trian was going to force a proxy fight. It’s debatable how much of the stock performance has to do with that, James. But, to your point, against the media peers, 70 percent of the profit in this company is parks. So, why the underperformance over the last, what, five, three, one year?
GORMAN: Well, again, I’m not – obviously, I’m not going to talk about the history of Disney. What I’m focused on is the future and the plan for the future. And if you look at it, I think what Bob is doing, with the focus on the creative side, and particularly quality over volume, what he’s done for shareholders, I mean, the dividend was increased 50 percent last year, and there’s a new buyback in place. What he’s done in the transformation that’s taking place at ESPN and the multiyear, multidecade investment that’s being put forward for parks and cruises, it’s incredibly exciting, the future. So I think a lot of this fight seems to be looking backwards. I’m more interested and why I joined the board is looking forwards.
EISEN: Well, looking forward, they still have to deal with the succession issue. And that has been one of the strongest cases for change, because this board didn’t get it right. ISS says “ the importance of executing a successful succession plan, particularly for a company of this complexity, and the board’s prior failure to properly oversee this process suggests some level of change at the board level is warranted.”
GORMAN: Yes. And Glass Lewis said exactly the opposite. You know, you have got to take – these are judgment calls based on the facts. And when I joined the board, the thing I was focused on was that they had a rigorous succession process. There’s a new board chair as of last year, Mark Parker, obviously, a phenomenal executive in his own right at Nike. He’s chair of the succession committee. That committee had met, I think, 17 days after I joined the board. And it’s due to meet another eight or nine times this year. There are external advisers working with the team. Honestly, I have been – I just came through a huge succession process at Morgan Stanley. I’m impressed by the process.
EISEN: Do you…
GORMAN: Now, ultimately, it’s the judgment – when the judgments are made at the end of the process that will matter, but you won’t get there without a good process. And I’m impressed. It’s very thorough, very disciplined.
EISEN: So you did just retire and went through this process, but you’re now executive chair. And I do wonder if that’s a good model, because that was one of the things that happened with Disney last time. So, are we to assume that, this next time around, executive chair Bob Iger will take that role again and that would be a good thing?
GORMAN: I don’t think there’s one model. I’m not going to speak and prejudge what the board, the succession committee will do. And I will say, by the way, the whole board is leaning into this, again, forward-looking, forward-leaning, an incredibly disciplined process. There are many examples of companies with chair, CEO combined, which I did, executive chair and CEO, which I had for two years with my predecessor, John Mack, long-term executive chairs. There’s no single answer. You have to do what’s right for the particular needs of the company and the skill set embodied in the leadership of that company.
WILFRED FROST: James, it’s Wilf. It’s great to see you. I’m interested in the timing of you becoming a Disney board member, because, from the outside, where I was watching, I was surprised how quickly you took up another role, albeit, of course, a non-executive one. And, of course, you’re still chairman of Morgan Stanley. And I just wondered how this came about. When did they ask you? And are you a little surprised how quickly you took up this role? Were they desperate for you?
GORMAN: No, definitely not. I mean, look at the quality of people on this board. I mean, somebody described it the other day as like the Mount Rushmore of boards, executives. You have got executives like Mary Barra, I mean, world-class, Calvin McDonald. You have got people from all walks of life and industry. And Jeremy Darroch, who just joined the board from Sky, Wilf, who I’m sure you know, an extraordinarily competent executive. He joined at the same time as I did. Honestly, I wasn’t planning to go on a board. But, like a lot of us, I grew up watching Disney. At home, my dad let us watch one hour of TV a week. There were 10 of us, so we could fit in there for one hour. And my show to watch on Sunday night at 6:00 was Disney World. And whether it’s Frontierland or Tomorrowland, I still remember it very fondly. This is one of the great American companies. It’s a part of everybody in this country and around the world. We have all been to the parks, on the cruises. We have all seen the shows. And I just thought it was an incredibly exciting thing to contribute to this board. And, frankly, Bob Iger has to go down as one of the greatest media executives in history. There’s just no question about that if you look at what he’s done. And look at what he’s done in the last year, since he’s really got into stride here, coming back and turning this thing around. So, no, it’s an honor and a privilege. I didn’t expect it. I was honored they called, and I will do my best to contribute.
FROST: Well, you’re definitely not going to get me saying a bad word about Jeremy Darroch, James, whilst we’re chatting about this. I’m interested. I went back and watched the interview you gave to Leslie Picker the day you announced that you were going to be transitioning yourself. And on succession planning, you said: “I’m really into having plans, being intentional about this stuff.” You went on to say that you wanted to do it and execute it in an elegant way. And I think everyone who knows the banking industry thinks you did execute that pretty successfully. When you said that to Leslie, you said it with a wry and quite big smile on your face. And I just wonder whether you were having a little bit of a swipe at some of your banking rivals. Do you think that Jamie Dimon and Brian Moynihan are holding on to power a little too long?
GORMAN: No, I don’t — I don’t judge others. I don’t do strategy for envy and I don’t judge other executives. And I said on that show that Jamie may be the best banking executive that’s been around. So, no, everybody has to do their own thing. I honestly did not expect to stay as long as I did in the job. I wasn’t planning to, but along came this nasty little virus called COVID, which by the way, I just had for my third time the other day. And it gets better as you go on, is my experience anyway. But it’s — no, I focus on what’s right for the institutions I’m involved with. I was very focused and continue to be on what’s right for Morgan Stanley. And we had a great succession process. I will just say, Ted Pick, by the way, has been pitch-perfect since he started. He’s done a spectacular job in the first few months. And I think the whole firm has rallied. I’m very excited. I’m standing in a new office. You can’t see the rest of it. It’s full of boxes. But that’s what happens when you step out of the CEO role. So I’m thrilled for Ted. I’m thrilled for our company. And now I just want to contribute in other ways. I will be chair here probably through the end of this year, no longer, for sure. And the company’s in great shape. So I want to contribute in other ways. And, again, Disney was part of my childhood. It’s part of American culture. It deserves, it deserves the best. It doesn’t deserve acrimony. It deserves to move forward with the kinds of investments that Bob and the team have put in place.
EISEN: Well, you might not be surprised to know that Trian has a statement about your appearance today. They believe, James, that: “Mr. Gorman is a welcome addition to the board.” But Trian says this proxy contest is not about your credentials. The Disney board needs a shareholder mind-set. And they go on to talk about how candidates Nelson Peltz and Jay Rasulo would represent owners inside the boardroom and urge the board to finally do its job, overseeing the company’s strategy, capital allocation, reviewing management, execution of the plan, planning CEO succession and aligning compensation with shareholder value. Why not have a shareholder activist on that board?
GORMAN: I’m not going to get into the whys and wherefores. And, obviously, I have known the folks at Trian for a long time. The question is, what’s right for Disney at this point in time? And, clearly there’s a — there have been tensions out there. I will just put that politely. There’s enormous momentum. If you have got a capital plan to invest $60 billion over 10 years, if you’re dealing with the transformation that’s going on in the linear to streaming, you have got these extraordinary assets like ESPN that are being reformulated, repurposed, if you will, for the next decade, there is an enormous amount going on. And having a cohesive board working together, but independently — remember, we’re independent directors.
EISEN: Yes.
GORMAN: That’s very important.
EISEN: Have you engaged at all…
GORMAN: Working together, but independently, is critical.
EISEN: Have you engaged at all with either Peltz or Rasulo?
GORMAN: No, but that’s not — that’s not my job. I’m one of 12 directors. And I’m just happy to contribute. Listen, what we’re trying to do is find, what’s the best balance for shareholders at this point in time, the momentum we’re under versus other choices? And that’s for shareholders to figure out. I’m not going to tell people what they do. They have to — they’re being offered different choices, and they have to exercise what’s in the best shareholders’ interest. But independent directors is to protect the best interests of shareholders. And I joined this board for exactly that purpose.
FROST: James, a very quick final macro question, if it’s OK. And we were discussing this earlier, the sort of prospective of the U.S. debt supply coming online in the next couple of years hurting market sentiment. Do you think there is a significant risk of dislocation in the U.S. Treasury market as supply comes on?
GORMAN: I mean, Wilf, I thought I was — I thought I was out of that banking world.
FROST: You’re still chairman. You’re still chairman.
GORMAN: You know, not really. I’m more focused on what the Fed’s going to do this year. And I will give you my 2 cents, for what it’s worth. I think I would not be surprised if they don’t move in the first half of this — I would be surprised if they move in the first half of this year. I would not be totally shocked if they don’t do anything for the rest of the year. I know the market’s pricing now three rate increases versus six a couple of months ago. The Fed has to ask, what’s the benefit? And, at the moment, the economy remains robust as you’re seeing. The S&P is, what, over 5200. The jobs numbers are great. So that’s the only economic thing. I’m not going to forecast doom and gloom for America. The people who’ve done that have generally been unsuccessful, in my experience.
EISEN: Well, we always appreciate your market calls, James. I remember talking to you in the middle of the COVID crisis, when you thought the stock market had bottomed, and that turned out to be a good one. James Gorman, thank you very much for taking the time today.
FROST: Thanks, James.
GORMAN: Good luck, guys. Thank you.
EISEN: Executive chairman of Morgan Stanley and a board member of Disney, by the way, on the succession committee.
