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Disney Under Growing Pressure

Big investors protest a decision to keep Michael Eisner as chief executive. Two prominent former board members look to deliver a knockout blow.

March 05, 2004|James Bates | Times Staff Writer

PHILADELPHIA — The pressure on the board of Walt Disney Co. continued to grow Thursday as public and private pension fund managers chastised the company's directors for standing by Michael Eisner.

The board's decision to keep Eisner in the chief executive job -- after stockholders at the annual meeting here delivered one of the harshest snubs ever to a CEO -- was roundly criticized. Though the board took the chairmanship away from Eisner, awarding it to former Senate Majority Leader George Mitchell, the entertainment company's detractors weren't appeased.

"This just doesn't put it to rest," said Barbara Hafer, treasurer of Pennsylvania, whose pension funds control 2.75 million Disney shares, all of which were withheld from voting for Eisner's reelection to the board.

Of all shares voted Wednesday, 43% did not back Eisner. Such elections usually are pro forma events in which a director harnesses a tally of 90% or more.

Sarah Teslik, executive director of the Council of Institutional Investors, which represents 130 pension funds, said that by 11 a.m. Thursday she had heard from 10 institutions. They all were unhappy that the Disney board hadn't ditched Eisner in the wake of a resounding declaration of no confidence in Eisner.

Teslik said one e-mail she received arrived at 3 a.m. and included the phrase "They just don't get it" in italics.

The two former board members leading the campaign to oust Eisner, who had been chairman since 1984, also were disparaging. Roy E. Disney, nephew of the late Walt Disney, and his business partner Stanley P. Gold called Eisner "a lame-duck CEO" in a statement and took their former fellow directors to task for what they said was "a blatant rejection of shareholder will, a betrayal of trust and a significant step backwards for substantive governance reform in America's capital markets."

When they resigned from the board last fall, Gold and Disney called on Eisner, who turns 62 on Sunday, to step down. They contend that he has done little since the mid-1990s to boost the company's stock price and earnings to acceptable levels, as ABC television ratings have languished and few hits have emerged from the Disney animation factory.

Now Gold and Disney are looking for a knockout punch. Disney and members of his inner circle -- who were on a plane back to California from Philadelphia on Wednesday night when they learned that Eisner still had a job -- were considering launching a seldom-used procedure called a consent solicitation, sources said.

A consent solicitation is a potent weapon, because it allows shareholders to vote to replace a director at any time, not just during an annual meeting. But it requires the backing of stockholders owning a majority of all outstanding shares and thus is tough to pull off.

Asked whether he was worried about such a move, Eisner said in an interview that he didn't see Gold and Disney as much of a threat. "I think they do a disservice to shareholders," he said. He predicted their campaign would lose steam as shareholders learned about the company's successes. "They will go away because the performance will force them to go away."

On Thursday, Disney shares rose 15 cents to $26.80 on the New York Stock Exchange, suggesting that investors were content to wait and see how the company would fare.

Some in the Disney-Gold camp, as well as some major shareholders, contend a consent solicitation would put the squeeze on the board to abandon Eisner because the process could be set in motion immediately and possibly culminate within two months.

Advocates of the move say they would be riding the wave of momentum of the vote at the annual meeting, exploiting the growing fury of shareholders.

Another argument is that a consent solicitation would be more effective than the protest vote at the annual meeting, because at the meeting shares held in brokerage accounts were voted for Eisner unless shareholders made an effort to instruct their brokerages to do otherwise.

In a consent solicitation, all shareholders can participate directly in the vote.

A spokesman for Gold and Disney said Thursday that no decision had been made on tactics. The two men will visit with major shareholders in the coming days to discuss strategies. Sources said several options -- including legal action and nominating a dissident slate at next year's annual meeting -- were under consideration.

Experts estimated that a solicitation campaign could cost $5 million to $10 million. And losing it could take the wind out of a dissident movement that has brought unprecedented results.

"You risk snatching defeat from the jaws of victory," said Patrick McGurn, senior vice president of Institutional Shareholder Services, a proxy advisory firm in Rockville, Md. "You could take a 43% vote being hailed as a landslide and potentially turn it into a 49% vote that's called a loss."

Greg Taxin, chief executive of shareholder voting advisor Glass, Lewis & Co., cautioned that stockholders who found it easy to withhold a vote in protest might have second thoughts about abruptly firing an executive such as Eisner with no transition period.

"It's one thing to convince shareholders they should shame a director," Taxin said. "It's quite another to ask them to throw out someone. It's a much more radical step."

Times staff writer Richard Verrier in Los Angeles contributed to this report.

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