Capitalists need to exercise modesty and restraint or the populist backlash will get worse
The Walt Disney Company has a history of looking after its leading characters. Disney’s former boss, Michael Eisner, amassed a $1 billion fortune during his 21 years working at the entertainment company.
Eisner was able to make so much money because of an extraordinarily complex salary and bonus package, said to be one of the most convoluted ever designed in corporate America. (His lawyer sat on the Disney board.)
Eisner’s sensational pay package was also highly controversial, one of the first to prompt outrage about sky-high corporate pay in the 1990s and to move the topic from just Wall Street to Washington. It also triggered a bitter shareholder revolt and a furious row with Roy E. Disney, the son of Roy O. Disney who founded Disney with his brother, Walt Disney.
Eisner managed to cling on for years, defending himself by claiming that his decade in power had returned more than 1,600% of value to shareholders, and that his pay was justified. “That’s the American system for rewarding performance,” he said. He was not the only to have made a fortune: Michael Ovitz, who was Disney president for only two years in the 1990s, left with a severance package of $97m. Ovitz is said to be worth $400m, most of it also acquired from various Disney share schemes.
Eventually Eisner’s greed got the better of him. He was forced to quit, on a quasi-voluntary basis in 2005.
Today’s lead Disney character is Bob Iger, chairman and chief executive, who is also well-rewarded. Last year he took home a pay package of $65 million, a rise of around 80% on the previous year. Much of the increase is said to come from share grants linked to Disney’s recent takeover of 21st Century Fox.
If you include Iger’s personal $133m share stake in Disney – the largest stake held by an individual – he is said to have made a fortune of around $350m from Disney.
Like any great Disney plot, there’s a heroine riding to topple these treasure hunters. But she’s an heiress rather than Cinderella. Step forward Abigail Disney, the granddaughter of Disney’s co-founder, Roy O. Disney, who is causing a sensation following her recent scathing attack on Iger’s pay, describing it as ‘insane.’
At a conference last week held by the Fast Company Impact Council on “humane capitalism,” Abigail Disney called Iger out for earning more than 1,000 times the average Disneyland employee. She pointed out that if he had taken just half his bonus, there would still be enough to fund a 15% pay increase for all of Disneyland’s employees.
And they need a pay increase. Abigail Disney says many Disneyland workers are struggling to pay for even the most basic essentials such as medicines. She knows this because she has been talking to them directly.
An Emmy-award winning documentary and filmmaker, Abigail Disney is a member of the Patriotic Millionaires, an activist group which is pushing for higher taxes on the super-rich to help even out the inequalities in US society. The Patriotic Millionaires, set up in 2010 to fight George Bush’s tax cuts for millionaires, call themselves proud “traitors to their class”. The lobbying group, chaired by an ex-Blackrock boss, Morris Pearl, now has hundreds of super-rich members, all of whom are said to be united in their fear that the concentration of wealth and power in the US is also destabilising the country.
Destabilising society is another reason that Disney gives for her objections to Iger’s huge pay package. As she puts it, these levels of pay are having a “corrosive effect” on wider society. And she says the sums are unnecessary for those that are given them.
This is what she said: “What difference would it make in the quality of life for those that gave up half their bonus? None. Zero. Maybe they can’t afford a third home. Or another boat. I’m not being facetious here. That’s the kind of sacrifice we’d be talking about for high-level execs.”
Disney also makes clear she thinks Iger is doing a great job, and deserves a bonus. But not a $67m one. “I like Bob Iger. Let me be very clear: I think he’s a good man. But I think he’s allowing himself to go down a road that is the road everyone is going down.” That’s the Wall Street road.
The Disney story is symptomatic of a wider problem in US society: the widening wealth gap. It’s a problem many capitalists fear is feeding the growing unease that capitalism is in crisis, that capitalism is facing an existential threat unless there are serious reforms to how that wealth can be distributed.
By far the most fascinating analysis of this crisis of distribution can be found in a recent essay written by Ray Dalio, one of America’s most successful investors, a philanthropist and a best-selling author. He sums up the crisis brilliantly: “The problem is that capitalists typically don’t know how to divide the pie well and socialists typically don’t know how to grow it well.”
Dalio, who comes from modest beginnings and made his billions from founding an investment firm, Bridgewater Associates, published his 5,000 word essay on Linkedin because he wanted his warnings to be broadcast as widely as possible. As he sees it, capitalism is still by far the best economic system yet devised by man because it increases living standards for all and is the best allocator of resources.
Yet Dalio warns that capitalism is no longer working for most Americans. The public’s health is worsening, social mobility is flatlining or going backwards, education is no longer helping enough people improve their lives, productivity is failing, and so on.
Thus, if capitalism is to survive, Dalio warns the process needs to change, adapt and be reformed to produce better outcomes for more of society. If not, he predicts the rise of more radical populism, internal and external conflict.
And the numbers he quotes are startling. The wealth of the top 1% of the population is more than that of the bottom 90% of the population combined. Those in the top 40% now have on average more than 10 times as much wealth as those in the bottom 60% – up from six times in 1980.
He adds: “In addition to social and economic bad consequences, the income/wealth/opportunity gap is leading to dangerous social and political divisions that threaten our cohesive fabric and capitalism itself… I believe that, as a principle, if there is a very big gap in the economic conditions of people who share a budget and there is an economic downturn, there is a high risk of bad conflict.”
“Disparity in wealth, especially when accompanied by disparity in values, leads to increasing conflict and, in the government, that manifests itself in the form of populism of the left and populism of the right and often in revolutions of one sort or another. For that reason, I am worried what the next economic downturn will be like, especially as central banks have limited ability to reverse it and we have so much political polarity and populism.”
What’s so refreshing about Dalio’s approach is that he pinpoints the reasons why and shows there are solutions. As an inveterate trader since the age of 12, Dalio has also amassed his own fortune: he’s ranked the world’s 79th richest man with a personal treasure trove of $18bn, much of which the 69-year-old gives away to local schools and charities.
He predicted the crash that began in 2007, and he has been banging on for years about the dangers of the growth in global disparities of wealth.
Like all the best Disney stories, there is a simple moral here which politicians and capitalists across the world need to listen to and learn from if there is to be a happy ending. The message is: Wake up, before it’s too late.
If you want to read the background to the plot, I recommend reading the Dalio essay in full.
Have a good evening.
Maggie Pagano,
Executive Editor,
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