In the upcoming shareholder meeting at Disney, Vanguard, State Street, and BlackRock have emerged as crucial players, holding significant sway as the largest investors in the company. These three influential funds together control 16% of Disney shares, while other institutional holders command an additional 51%. As Trian Partners' Nelson Peltz mounts a proxy campaign against the board and CEO Bob Iger, the support or opposition from these institutional investors could prove vital.

The proxy fight against Disney's board led by Nelson Peltz is not Peltz's first foray into activism. In 2015, his Trian Partners failed in its campaign against chemical firm DuPont, largely due to the votes of the top three institutional shareholders. Now, nearly a decade later, these same institutional investors—Vanguard, State Street, and BlackRock—hold the largest shares in Disney and have the potential to make or break Peltz's campaign against the support for CEO Bob Iger.

Reports indicate that BlackRock, a 4.2% shareholder in Disney, is standing behind the current management led by Iger. T. Rowe Price and Norway's sovereign wealth fund have also confirmed their support for the existing management. However, it remains unclear whether Vanguard and State Street have already cast their votes or which side they will ultimately back.

Peltz has garnered some support in his fight against the board. Former Marvel chairman Ike Perlmutter has entrusted him with his 33 million Disney shares, forming a considerable portion of Peltz's 1.8% activist stake. Furthermore, the New York City retirement fund, Neuberger Berman, and the California pension plan CalPERS have expressed their support for the activist. Peltz has also gained the backing of proxy advisory firms ISS and Egan-Jones.

The clash between Trian Partners and Disney highlights complex issues confronting executives, such as CEO succession and the role of corporations in addressing social issues. The succession failure at Disney, with Iger's departure in 2020 and subsequent replacement Bob Chapek's ousting in 2022, has been a topic of contention flagged by proxy advisory firms and Trian itself. While Disney argues that Peltz's efforts are a distraction from Iger's turnaround efforts, Trian contends that Peltz's expertise could assist in finding a suitable successor to Iger and improving the underperforming stock.

Both sides have actively presented their cases to investors through media appearances, conferences, dinners, and meetings with top stakeholders. However, the institutional vote remains crucial in the outcome of the proxy fight at Disney. While retail investors constitute a significant portion of shareholders, accounting for 33%, they are less likely to vote compared to institutional investors.

With Vanguard holding the largest stake in Disney with 8% of outstanding shares, their decision could have a considerable impact. Like in a political election, where not every eligible voter participates, the turnout at Disney's shareholder meeting is expected to be influenced by proxy solicitors canvassing shareholders. The implementation of the universal proxy card is expected to improve turnout, according to experts.

Disney has enlisted the services of Innisfree M&A for shareholder solicitation, while Trian has divided its efforts between Okapi Partners and D.F. King. Retail investors have received targeted advertising and mailers, urging them to vote either for Disney (the white proxy card) or Trian (the blue proxy card). As of Monday, over half of the votes have already been counted, reflecting the participation of individual shareholders.

While the proxy solicitors strive to win the support of retail shareholders, securing the backing of institutional investors remains a top priority. If CEO Bob Iger were to gain the support of undecided investors like Vanguard or State Street, it would present a vote of confidence for his stewardship of Disney. Alternatively, if Peltz manages to secure the support of these influential investors, it would signal to Wall Street that the activist's concerns hold merit.

The potential influence of Peltz's arguments received a boost when proxy advisor ISS partially endorsed his campaign in March. Proxy advisors like ISS play a significant role in influencing shareholders' votes by analyzing the company's financials and holding meetings with their advisors. The other major proxy advisory firm, Glass Lewis, has announced its support for Iger and the existing board. ISS recommends shareholders vote for Peltz but withhold support from Maria Elena Lagomasino, one of the two current Disney directors Trian is seeking to replace. ISS did not endorse the other Trian nominee, former Disney CFO Jay Rasulo.

The outcome of the proxy fight at Disney is eagerly anticipated, with the institutional investors' verdict potentially shaping the future direction of the company and its leadership.