Disney’s Victory in the Books and Records Case: Implications for ESG Practitioners
Reporting: Xinying Xu
Introduction: Disney opposes bill that limits LGBTQ+ education
In March 2023, Florida’s House of Representatives passed the controversial “Don’t Say Gay” bill, which restricted discussions of sexual orientation and gender identity in classrooms and required parental consent for LGBTQ+-related extracurricular activities. The bill triggered widespread criticism, and one of the prominent opponents was The Walt Disney Company (Disney), operating the Walt Disney World Resort in Florida. After facing pressure from its employees, customers, and shareholders, Disney publicly condemned the bill and pledged support to LGBTQ+ advocacy groups, prompting a legal challenge from conservative shareholders.[i]
The Stockholder’s Demand and the Court’s Decision
Longtime Disney shareholder Kenneth T. Simeone served a books and records demand on Disney, alleging that the company’s directors and officers breached their fiduciary duties by opposing the “Don’t Say Gay” bill. Simeone’s concern was that the opposition could jeopardize Disney’s privileges under the Reedy Creek Improvement District, a special tax district granting Disney significant powers over its land.
Disney rejected the demand, arguing no evidence of mismanagement, but provided certain documents in good faith. Unsatisfied, Simeone filed a lawsuit in the Delaware Court of Chancery to compel Disney to produce more documents. On June 27, 2023, the court dismissed the case, ruling that Simeone failed to demonstrate a proper purpose for inspection and that Disney’s directors had the authority to make decisions on social and political issues, weighing the risks and opportunities involved. The court found no evidence of conflicts or bad faith in Disney’s decision to oppose the bill and rejected the argument that the company faced a material threat under the special district.[ii]
Conclusion: Implications for ESG Practitioners
The court’s decision in Simeone v. The Walt Disney Company marks a significant win for ESG (Environmental, Social, and Governance) practitioners advocating for corporate social responsibility and stakeholder engagement. The ruling reaffirms the broad authority directors hold to determine the best approach in addressing ESG issues in the interest of their corporation and stockholders. It also sets a high standard for challenging directors’ ESG decisions through books and records requests or derivative lawsuits, requiring evidence of mismanagement or bad faith.
However, this victory doesn’t imply that ESG practitioners can overlook stockholder or stakeholder views when making ESG decisions. The ruling acknowledges that such decisions involve complex legal issues requiring careful analysis. ESG practitioners must strike a balance between risks and opportunities, making decisions in good faith and without conflicts of interest. To enhance credibility and legitimacy, ESG practitioners should maintain open communication with stockholders and stakeholders, explaining the rationale behind their decisions and the benefits they bring. Monitoring legal and regulatory developments is also crucial to ensure compliance and manage potential risks.
In conclusion, the court’s decision provides guidance for ESG practitioners navigating complex social and political issues. It upholds the importance of directors’ discretion while emphasizing the need for responsible and informed decision-making in the interest of the corporation and its stakeholders. ESG practitioners can learn from this case, engaging stakeholders and implementing ESG practices with due diligence and transparency. By doing so, they can foster a positive impact while safeguarding the company’s reputation and mitigating legal risks.
[i] Andrew R. Brownstein et al., “Stockholder Barred from Inspecting Books and Records Related to Board’s ESG-Related Decision,” Harvard Law School Forum on Corporate Governance, July 31, 2023..https://corpgov.law.harvard.edu/2023/07/31/stockholder-barred-from-inspecting-books-and-records-related-to-boards-esg-related-decision/
[ii] Delaware Court of Chancery, Simeone v. The Walt Disney Company, C.A. No. 2020-1052-JTL, June 27, 2023. https://courts.delaware.gov/Opinions/Download.aspx?id=349140