Disney vs. DeSantis: Chapek's 'Don't Say Gay' fumble a warning to CEOs, says Harvard professor
Disney (DIS) versus DeSantis.
As the media conglomerate continues to grapple with the aftermath of Florida Governor Ron DeSantis revoking the company's special tax district, business leaders around the globe are contemplating their own company values as political issues take center stage.
"I don't think [Disney CEO Bob Chapek] did his homework," Bill George, a Harvard Business School professor and former chairman and CEO of medical device company, Medtronic, told Yahoo Finance.
"We're in a different world today — he was acting like he was back in the 1990s. In this world of 2022, you have all kinds of stakeholders who expect you to take a position, especially your employees," the professor continued, adding that workers today have found their voice "particularly in this post-COVID world."
"They want to be respected and heard, and they want their CEOs to speak on their behalf," he said, saying that Bob Chapek's silence on the Parental Rights in Education Act, or what critics have dubbed the "Don't Say Gay" bill, created the "uproar" that eventually led to the political crossfire with DeSantis.
"Disney is right in the thick of it, and it's struggling to get out of this mess."
CEOs today need to know how to lead through a crisis...Bill George, Harvard Business School professor and former chairman and CEO of Medtronic
The controversial bill, which will go into effect on July 1, states, "Classroom instruction by school personnel or third parties on sexual orientation or gender identity may not occur in kindergarten through grade 3 or in a manner that is not age appropriate or developmentally appropriate for students in accordance with state standards." Parents will be able to sue districts over violations.
Chapek initially decided not to speak publicly on the matter, opting instead to work behind the scenes in an attempt to soften the legislation. It didn't work.
The executive eventually reversed course following intense backlash. He publicly denounced the act during the company's annual shareholder meeting on March 9, in addition to directly apologizing to employees in a company memo.
But many believe it was just too little, too late.
"When this legislation started in Florida, [Disney] should have had a position ready to go...a position that was true to the mission and values of what Disney is — a place that accepts everyone for who they are," George noted.
Chapek's fumble now serves as a cautionary tale to other business leaders who are "very concerned" about future political battles, according to the professor.
Executives "don't want to get caught in the crossfire, either, but they are all going back and really thinking, 'What do I stand for?' 'What issues should I get involved in?' 'When should I get involved?' and 'How do I avoid getting caught in the crosshairs of some politician?' George explained.
"CEOs today need to know how to lead through a crisis because we go from one crisis to the next — from COVID to George Floyd to Russia and Ukraine, and probably another one just around the corner," he continued.
"They need to be prepared to deal with these crises and have a position that's true to their company."
'Vatican with mouse ears'
Currently, Walt Disney World Resort sits on a 40-square mile area known as Reedy Creek, the special tax district that has allowed Disney to operate as a self-governing entity since its inception.
Disney, in addition to paying property taxes to Orange and Osceola counties, pays taxes directly to Reedy Creek. In turn, the district uses that money to fund Disney's various theme park projects and operations, including infrastructure upkeep.
As a result, Disney controls all of its utilities, sets building codes, operates its own police and fire departments, and can expand and grow whenever it wishes — all without local or state government interference.
The arrangement also comes with certain tax advantages as Reedy Creek can issue tax-free municipal bonds to finance certain projects.
"I call it a Vatican with mouse ears, because it's essentially the same kind of authority that the Vatican has in Rome in the state of Italy," said Richard Foglesong, Disney historian and author of the book "Married to the Mouse: Walt Disney World and Orlando."
Consequently, the new ruling will strip Disney of that immense control and flexibility, in addition to throwing Reedy Creek's $997 million worth of bond debt, and some $163 million in annual tax payments into question. Those payments could fall on the citizens of the surrounding counties, who would be forced to bear the cost of the various services Disney previously paid for through Reedy Creek.
It is currently unclear what the long-term financial fallout would be for the "happiest place on earth."
DeSantis revealed in a town hall last week that there will be "additional legislative action" to address potential tax fallout and any issues regarding the legality of dissolving the district.
"We've contemplated that. We know what we're going to do, so stay tuned. That'll all be apparent," the governor stated.
Still, who or what will pay off Disney's bond debt is "the billion dollar question."
"There are many unintended consequences, frankly, that have not been thought through that will give Disney more ammunition," George said.
'Florida needs Disney'
Consequently, due to the many uncertainties surrounding the bill, some experts say the dissolution might not even happen.
"I don't think it's very likely — frankly, the consequences are too dire," Foglesong surmised.
Still, the bill was signed into law by Governor DeSantis last month and, barring any major backpedaling on the part of lawmakers, will go into effect in June 2023. Disney could also sue Florida for retaliation in an attempt to thwart the legislation, although experts say it is more likely that the media giant will enter into negotiations to alter the terms of the district.
"Florida needs Disney — it's a huge revenue producer and has changed everything around [Orlando,]" George stated bluntly, saying the battle has turned into a question of "who needs who more."
"Florida can't do without Disney World, I can tell you that."
Editor's Note: This article has bene updated to clarify Disney's current tax payment structure
Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 or email her at alexandra.canal@yahoofinance.com
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