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Naming of Mitchell Draws Criticism

EISNER UNDER FIRE

Independence of new chairman, who had sided with Eisner, is called into question.

March 04, 2004|Jeff Leeds | Times Staff Writer

Until Wednesday's confrontation with rebellious shareholders, Walt Disney Co. insiders viewed George J. Mitchell as an easy answer to the company's management and governance woes.

To some observers, he now looks like part of the problem.

Just hours after a contentious annual meeting in Philadelphia wrapped up, the Disney board moved to split the chairman and chief executive posts held by Michael Eisner, and handed the top board spot to Mitchell, who has been on the board since 1995.

The move -- which Mitchell had begun pushing at a board session Tuesday night -- came after Eisner was stunned by a 43% no-confidence vote by shareholders. And Mitchell, Eisner's vocal supporter, was stung by a 24% vote against his own reelection.

That tally led some shareholders to reject the split-title solution even before it was announced.

"It seems to me it won't fly," said Steven Cohen, chief investment officer at money manager Kellner DiLeo Cohen & Co. in New York. Interviewed shortly before the appointment, Cohen said he considered the magnitude of the vote against Mitchell to be "even more startling" than the vote against Eisner.

In a long political career, the bespectacled Mitchell, a former Senate majority leader, was known as a partisan slugger who nonetheless knew when to quit a fight. "He's the best battlefield commander I've ever seen," said Leon E. Panetta, a Democratic ally while White House chief of staff during the Clinton administration. But Mitchell, Panetta said, was never one to follow a cause "off a cliff."

Some observers now say the 70-year-old lawyer from Maine has damaged himself by standing by Eisner even as droves of investors have questioned the Disney chief's effectiveness and management style in recent weeks.

"Given his public statements, I think he's in a tough spot," said Charles M. Elson, director of the Center for Corporate Governance at the University of Delaware. "He's been so supportive down the line, it will be difficult for him to distance himself from management."

A particular surprise was the extent to which Mitchell, known for his shrewdness in managing campaigns and building alliances, appeared to misjudge shareholder sentiment.

"If he was serving his role as independent chair, well, he should have and would have understood" the depth of feeling against Eisner, said Gregory Taxin, head of shareholder advisory firm Glass Lewis & Co., which had advised clients not to vote for Mitchell and Eisner. "The fact that he couldn't read those tea leaves suggests he's out of touch with the shareholder base."

Mitchell drew heavy fire from dissidents, including former board members Roy E. Disney and Stanley P. Gold, who were disappointed that he didn't take a stronger hand in reforming the board.

Glass Lewis issued a report shortly before the Philadelphia meeting that said: "We do not believe he is independent in the true spirit of independence."

Critics note that Mitchell's law firm, Piper Rudnick, has received more than $2.1 million in fees and expenses from Disney since the politician-turned-corporate statesman joined the board.

Those payments ended two years ago amid an outcry from corporate governance experts.

While serving as a director, Mitchell has received about $300,000 in fees as a paid consultant to Disney, which terminated the arrangement in late 2001.

Mitchell didn't respond to a request for comment placed through a Disney spokeswoman.

As the spotlight has turned on Disney in recent weeks, it cast an unflattering glare on Mitchell's relationship with a number of corporations since he retired from the Senate in 1995.

Mitchell has been paid up to $100,000 a year per firm as a consultant to while serving on the board of a string of firms, including FedEx Corp., Staples Inc., Starwood Hotels & Resorts Worldwide Inc. and Casella Waste Systems Inc., according to a review of proxy statements and other documents.

Two of the firms, FedEx and Starwood, also retained the services of Piper Rudnick, where Mitchell is a partner, while he was a director on their boards, the report said. (FedEx said last year it expected to stop using the firm.)

Glass Lewis criticized Mitchell's "active participation in companies with questionable results."

In one such instance, Mitchell sat on the board of Xerox Corp. until 2002. He departed just after the copier conglomerate agreed to pay a then-record $10 million fine to settle a Securities and Exchange Commission complaint that it had inflated financial results from 1997 to 2001, which included much of Mitchell's tenure.

Mitchell also served as director of U.S. Technologies Inc., a fledgling Washington-based technology firm that was sued by shareholders for fraud. Mitchell left the board in April 2002, a few months before questions about its accounting burst into a scandal that forced fellow board member William Webster to resign as head of a new federal account watchdog panel.

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