An influential proxy advisor criticized Walt Disney Co.'s board of directors for naming Chief Executive Robert A. Iger as the company's next chairman, a decision that it claims "reversed a commitment to independent board leadership."
Disney disputed Institutional Shareholder Services' contention in a regulatory filing Thursday, calling it "false — no such commitment was made."
The matter of an independent board chairman dates from a contentious period of the company's history, in early 2004, when 45% of Disney's shareholders heeded the late Roy E. Disney's call to cast a vote of no confidence in then-Chairman and Chief Executive Michael D. Eisner.
After the shareholder vote, the Disney board said it would separate the positions of chairman and chief executive, and named an independent director, former Sen. George Mitchell, to serve as board chairman.
At the time, the Connecticut Retirement Plans and Trust filed a proposal to permanently separate the roles, according to ISS.
Disney changed its corporate governance guidelines to specify that the board chairman would be an independent director — unless recombining the posts would serve "the best interests of shareholders." In that case, the board would explain its decision in a statement to shareholders and name a lead independent director.
The issue was reignited last fall, when Disney's board announced that Iger would assume the role of chairman upon the retirement later this month of the current chairman, John Pepper. Iger would then serve in a combined chairman and CEO role until he retired as chief executive in March 2015. He would remain chairman through June 30, 2016.
Disney's board said the decision was part of its succession plan to provide a smooth transition for the next chief executive.
"The board concluded that succession planning would be best served ... by naming a successor CEO during Mr. Iger's extended tenure in order to enable a healthy mentoring process during the remainder of his term as chairman," Disney wrote Thursday in a letter sent to shareholders explaining the decision.
The company said the board had decided to appoint a lead independent director to address governance concerns, and argued that there was nothing out of the ordinary in combining the functions — noting that 68% of the top 100 companies in the S&P 500 have combined chairman and chief executive positions.
ISS faulted Disney for failing to adequately reach out to shareholders before the announcement on Oct. 6, 2011 — which came one week after the Sept. 30 deadline that would have allowed shareholders to include in the proxy statement any proposal to separate the chairman and CEO positions in time for the company's March 13, 2012 meeting in Kansas City, Mo.
"The board's reversal of its prior commitment to an independent chair, without suitable transparency and input from shareholders, constitutes a material failure of governance," the ISS wrote in its Feb. 29 recommendations.
ISS recommended shareholders vote against four board members who serve on the Nominating and Governance Committee — including Facebook Chief Operating Officer Sheryl K. Sandberg.
ISS also took issue with Iger's compensation, which has risen to $31.4 million — up from $17.25 million when he became chief executive in October 2005. An investment of $100 made in the company five years ago would be worth only $105 at the end of fiscal 2011, it notes. Disney uses a different set of numbers to characterize the company's performance under Iger, which yielded four times greater return to shareholders than that of the Standard & Poor's 500. It notes that the same $100 invested at the start of Iger's tenure as CEO would be worth $171 as of Dec. 30, 2011.