Investors sense a disturbance in the force. The good name that Walt Disney (NYSE:DIS) has tried to cultivate over the years came under fire last week.
A widely shared New York Times article detailed how the family entertainment giant turned to controversial work visas to replace 250 members of its Information-technology team at Disney World with cheaper foreign immigrants. Disney reportedly told the displaced employees late last year that they would be terminated. According to the article, it asked some of them to train their replacements for the jobs they had lost.
Disney is another company to take advantage of H-1B visas to attract foreigners with advanced tech skills that are in short supply closer to home. The visas are perfectly legal, but it's easy to see folks pointing the finger at the House of Mouse for using the visas to merely hire cheaper replacements. After all, the spirit of these tech visas is to fill positions that are hard to fill with domestic talent. That obviously isn't the case here if we're talking about foreigners replacing domestic hires.
At the very least it just looks bad for Disney. Free market advocates might argue that it's in Disney's best interest to use cheap labor as long as it doesn't disrupt the customer experience, but you can't run a consumer-facing company by drawing political lines. It's just too dangerous when a story can easily catch fire in today's social media landscape.
It's a small world after all
This shouldn't have been a big story. Letting go of 250 employees isn't such a big deal when you consider the 74,000 total jobs that Disney is providing in Central Florida. It's also ancient news. The layoff notices went out in October of last year, paying those sticking around until January 10% of their annual salary as severance.
However, given Disney's annual ticket price hikes at its theme parks, it's going to come under fire for every move made to save money as it pushes admissions higher. The story becomes unsettling if told in a biased narrative, and that's where things can get dangerous.
Disney rival SeaWorld Entertainment (NYSE:SEAS) found itself on the wrong side of the one-sided Blackfish documentary, and it's been reeling with back-to-back years of falling attendance as it tries to tell its own story. SeaWorld took too long to respond to the critics, perhaps hoping the problem would go away if it didn't draw attention to it. Let's hope Disney isn't thinking along the same lines here.
Disney has too much to lose. It is expected to top $50 billion in revenue for the first time this fiscal year, and everything from theme park attendance to consumer products sales to box office receipts are dictated on the iconic media titan's reputation. If it no longer becomes cool to back Disney, it will be easy to see how the company bit off more than it could chew with this incident. It can happen. Just ask SeaWorld.
Rick Munarriz owns shares of SeaWorld Entertainment and Walt Disney. The Motley Fool recommends Apple and Walt Disney. The Motley Fool owns shares of Apple and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.