Eisner's Stewardship of Disney Facing First Major Test

By RiSHAWN BIDDLE
Staff Reporter

Walt Disney Co.'s annual meeting, to be held Wednesday in Philadelphia, will be the scene of the first serious challenge to Chairman Michael Eisner in his two decades of stewardship.

Depending on whom you ask, if 20 percent or more of the Disney shareholders decline to approve Eisner for renomination, the board will have to consider demoting or even removing him.

"There is enough opposition out there now to send a message and people are listening," said Guzman & Co. analyst David Joyce. "It may cause enough opposition to send a message to the board, but the actual results won't be immediate."

No opposing slate of directors has been nominated, so Eisner will keep his seat no matter the final vote tally. But his grip on the company has clearly been shaken.

After revealing last month that he and George Mitchell, the presiding director, had learned of a pending bid from Comcast Corp. and decided to reject it on arrival, the California Public Employees Retirement System declared it would vote its 9.9 million shares against Eisner. The California State Teachers' Retirement System, the New York State Common Retirement System and Connecticut's state pension fund joined it in the action.

Recommendations against Eisner have also come from Institutional Shareholder Services and its chief rival, Glass Lewis & Co., both of which advise many of Disney's biggest Wall Street shareholders.

So pronounced has the opposition become that even Eisner, who has long worked to keep himself ensconced as Disney's boss, admitted during an appearance on the "Larry King Show" that his future isn't totally in his hands.

Sending a message

Institutional investors in entertainment and media firms rarely exert such pull because in the sector's publicly traded companies including News Corp. and Viacom Inc. control rests in the hands of management through a separate class of stock, with voting rights superior to those of other holders.

But Disney has no such arrangement, allowing shareholders to express displeasure or support in a more significant manner. Former director Roy E. Disney, who with another former director, Stanley Gold, has been campaigning to remove Eisner, thinks that if at least 20 percent of shareholders vote against the renomination, it would be a significant message.

"It could be 35 percent or 20 percent or 19 percent (withheld). It's pure speculation," said Sander Morris Harris analyst David Miller.

The pressure would be especially fierce on the independent directors, who include Mitchell, La Opinion President Monica Lozano and former Morgan Stanley investment banker Robert Matschullat, who are also being targeted by Calpers for removal.

Still, Eisner may not be as far gone as his most vocal opponents would like.

Disney directors could view votes withheld at the coming meeting as merely a sign that small changes are needed, choosing to focus on weighing the discontent among those dissenting investors who haven't gone public.

Depending on what they determine behind closed doors the board could bow to pressure by separating Eisner's chairman and chief executive titles. Or they could tell Eisner to scotch his plans to name Chief Operating Officer Robert Iger as his successor and recruit an outsider instead.

"The real question is how loud the voices are and where's the shouting coming from. If it's just a few shareholders with large stakes, that's not always going to sway the board," said executive recruiter Timothy Chrisman, who is also chairman of Hawthorne Financial.

Nor would it necessarily lead the board to give the Comcast deal a second look. Disney may have tipped its hand when it hired Bear Stearns & Co., known for helping out companies in a jam by arranging strategic acquisitions, as an advisor.

And in the end, forcing Eisner out may not serve to boost the value of Disney's shares.

With Disney's diverse operations, even a blue-chip replacement such as News Corp. Chief Operating Officer Peter Chernin, wouldn't necessarily have a positive effect.

"You need someone with experience running theme parks, broadcast networks and studios. Especially the studio experience," said Sander Morris' Miller. "There aren't exactly a lot of people out there with such experience.




Showdown in Philadelphia - Large shareholders will be the key to Disney vote on March 3.

Percent Re-elect

Rank Entity Held* Eisner?

1. Barclays Bank PLC 3.48 WND

18. Roy Disney 0.84 No

20. TIAA-CREF Investment 0.72 WND

22. Michael Eisner 0.69 Yes

28. Calpers 0.43 No

30. NY State Common Retirement Fund 0.42 No

34. California State Teachers' Retirement System 0.39 No

37. Teacher Retirement System of Texas 0.37 WND

49. State of Wisconsin Retirement Board 0.30 WND

Institutional Shareholder Services Adviser No

Glass Lewis & Co. Adviser No

Robert A.G. Monks Adviser No

*As of Dec. 31, 2003 WND=Would not disclose Sources: Bloomberg News; press reports

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