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Mitchell Consult Work Is Criticized

Governance experts question why the Disney chairman receives fees from companies on whose boards he sits.

March 29, 2004|Richard Verrier | Times Staff Writer

Walt Disney Co.'s new chairman, former U.S. Sen. George J. Mitchell, has praised the company for being at the vanguard of the corporate reform movement -- even if it got there with a shove from shareholders.

"We have established governance as a top priority for one reason," the renowned lawmaker and peacemaker recently told Disney investors and analysts. "It's the right thing to do."

The Burbank-based entertainment conglomerate recently split the jobs of chief executive and chairman and, earlier, ended business relationships between the company and directors. That hit Mitchell's wallet; as a Disney director, he had netted $300,000 in Disney consulting fees.

But the flow continued elsewhere. Regulatory filings show that after Mitchell stopped receiving the fees from Disney, he continued to earn them from other boards on which he sat. And that has prompted some governance experts and investment fund officials to question his sincerity toward reform and sensitivity to appearances.

"You would like there to be consistency," said Christi Wood, senior investment officer for global equities at the California Public Employees' Retirement System. "The fact is, if he really practiced what he preached and believes in good governance, you would think he would not be doing consulting work for companies where he's on the board."

Mitchell, who says his consulting work hasn't compromised his judgment, receives fees from two companies on whose boards he sits -- FedEx Corp. and Staples Inc.

According to proxy documents, FedEx, the overnight mail service, is paying Mitchell $100,000 a year for consulting work while he serves on the board's compensation and governance committees. So far, he is eligible to have received more than $800,000 since joining the board in 1995, according to regulatory filings.

Office supply giant Staples, meanwhile, has a deal to pay Mitchell $75,000 annually in stock for consulting services under an agreement established when he joined the board in 1998. Like several other boards on which Mitchell has served -- including Disney's -- Staples retained Washington law firm Piper Rudnick, where Mitchell is a partner. Disney no longer uses the firm.It isn't uncommon for high-profile public figures to command special payments for lending their expertise and names to corporate boards. But in the wake of scandals at Enron Corp., WorldCom Inc. and elsewhere, the practice has drawn fire from some investors and corporate governance activists. Their concern is that directors may have competing loyalties between the shareholders they are supposed to serve and the executives who put them on the payroll.

Mitchell, who would respond only in writing to questions submitted by The Times, said: "I have always thought, spoken and acted with complete independence on the Disney board and on all other boards on which I have served."

He stressed that there are no laws or stock exchange rules barring directors from receiving money on top of their regular compensation for board service.

"The fact that Disney has chosen to adopt governance guidelines that go beyond the requirements of any existing or contemplated rule has nothing whatever to do with the policies and practices of other companies," he said. "There is nothing inconsistent about the fact that different companies use different approaches to achieve full compliance."

Executives of Staples and FedEx defended the payments to Mitchell and praised his contributions to their companies.

"Obviously, he's very well respected and his work in the international arena has proven very valuable to the company, so we're happy to have him," FedEx spokeswoman Kristin Krause said. "It was determined that his [consulting] work is independent from his board activities."

Staples CEO Ron Sargent also said Mitchell's compensation hadn't undermined his effectiveness. He said Mitchell was classified as a non-independent director because of his consulting fees.

"You put people on your board because they bring value to your shareholders," Sargent said. "Sen. Mitchell has done that in spades.... The key is disclosure, and we've certainly done that."

In recent months, Mitchell's business affairs have come under increasing scrutiny because of the turmoil that has engulfed Disney. He was named chairman earlier this month after shareholders walloped his predecessor, Michael Eisner, with a 43% vote of no-confidence in his reelection to the board. Eisner, who lost the chairman's title after nearly 20 years, remains chief executive.

Mitchell's credibility also took a hit in the vote. Of shares cast, 24% were withheld for his reelection, a result that some major investors said should have precluded his ascension. Among other things, they questioned his independence because of the past business ties to Disney. Company executives have countered that Mitchell is one of the nation's most respected leaders, whose integrity is beyond reproach.

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