CNBC SPECIAL: Disney's Wildest Ride Part 2

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Alex Sherman (0:32)

Hi, I'm CNBC media reporter, Alex Sherman, and this is part two of Disney's Wildest Ride, the inside story of a CEO succession plan gone awry. A cautionary tale about how good intentions collided with ego and hubris at the highest levels of corporate America.

Part eight, a fight in Florida. A little more than a month into Chapek's tenure without Iger at the company, Florida Governor Ron DeSantis, a Republican, introduced the Parental Rights and Education Act, which critics called the Don't Say Gay Bill. The legislation would prohibit classroom instruction by school personnel or third parties on sexual orientation or gender identity.

Disney is one of the largest taxpayers and employers in Florida, and Chapek and Morrell were soon fielding media inquiries about the company's stance on the matter. And employees, particularly animators at Pixar and Disney Animation, wanted to know how the company planned to react. Iger tweeted his thoughts. If passed, this bill will put vulnerable, young LGBTQ people in jeopardy, he wrote. During Iger's tenure as CEO and chairman, he had freely pontificated about an array of causes, including climate change, diversity and abortion. In a series of virtual meetings after the killing of George Floyd, Iger had told Disney employees that making their voices heard was the best way to bring about change, according to people on these calls. Chapek wanted to chart a different path. Weeks before DeSantis introduced his planned legislation, Morell had outlined a new communication strategy to the board. He wanted Disney to stay out of political skirmishes entirely and instead signal its values through the three Cs, content, culture, and community organizations supported by Disney. Chapek and Morell had assumed they'd have months to explain their strategy internally. But Iger's tweet dialed up the pressure on Chapek to say something. On March 7, 2022, Chapek and Morell put their new public relations strategy into action. They penned a memo to all staff approved by the board. It explained that the company would not take a public stance on the bill. Arnold, who was openly lesbian, signed off on the statement, but told Chapek that Disney should also sign a public letter by the Human Rights Campaign, or HRC. The letter, which had already existed for months, compiled a list of US companies generically, quote, united in opposing the wave of anti-LGBTQ Plus legislation. Chapek intended to sign the HRC letter, but didn't want to undercut the message of the initial statement. Morell and Chapek agreed that doing so would conflict with the company's new strategy of staying away from external conflicts, according to people familiar with their thinking. In the memo to staff, Chapek wrote, quote, corporate statements do very little to change outcomes or minds. Instead, they are often weaponized by one side or the other to further divide and inflame. Simply put, they can be counterproductive and undermine more effective ways to achieve change.

The blowback was swift. Employees chastised Chapek with hashtags such as Disney Do Better and Disney Say Gay. But Chapek and Morel were convinced that this was the right thing to do for the company. They didn't want Disney in a culture war with DeSantis, with whom Chapek had a solid relationship at the time. They were also thinking about China, according to people familiar with the matter. Disney's Avengers Endgame made an astounding $614 million at the Chinese box office in 2019 Disney also owns billion dollar theme parks in Shanghai and Hong Kong. Chapek and Morel believed it would be far easier to avoid conflict with the Chinese government if Disney embraced a policy of not taking stances on social and political issues.

Arnold told Chapek she'd been bombarded by furious comments from the LGBTQ community and sensed Disney's brand was at risk. Chapek would have to walk back the statement for the good of the company, she said.

Red faced with anger, Chapek laid into his communications team, telling them he regretted putting out the statement if the board refused to back him, according to people familiar with the matter. But Chapek was hardly operating from a position of strength. He didn't yet have an extension to his contract, which was set to expire in February 2023 Thumbing his nose at Arnold would hardly be wise. Chapek scrambled for a new public response. He walked back his statement at Disney's annual meeting, which happened to be just two days later. Quote, I understand our original approach, no matter how well intended, didn't quite get the job done, Chapek said. But we're committed to supporting the community going forward. Morell, who had already championed having community organizations lead the charge for Disney, suggested the company donate money to an LGBTQ cause, but he wasn't sure which one. He and Chapek landed on giving about $5 million to the HRC and signing the public letter. The HRC rejected the donation. Still unsatisfied, Arnold told Chapek he needed to formally apologize, specifically to Disney employees. Quote, you needed me to be a stronger ally in the fight for equal rights and I let you down, Chapek wrote in a March 11 statement to employees that he and Arnold penned together. I am sorry.