Disney Yields to Investor Protest

Mar 8, 2004  •  Post A Comment

If Walt Disney Co. CEO Michael Eisner’s daily necktie choices are an indication of how he thinks his day might go, the tie he chose to wear for last Wednesday’s annual shareholders meeting suggested he was bracing for the worst.

Deep red with a pattern of midsize, dark-blue Mickey Mouse silhouettes and worn with a dark suit, Mr. Eisner’s selection was far more muted than the energetic ties he has worn in the past, including one he sported at a recent investor conference that featured a series of smiling Mickey Mouses against a dark background or another that featured medium-blue Mickey silhouettes against a background of power-tie yellow, which he wore to a December fund-raiser.

The choice reflected the somberness of the day, in which Mr. Eisner faced a hall packed with investors, many of whom had lost patience with Disney’s lackluster performance and the failure by the company’s board to hold anyone accountable. They made their displeasure known by withholding 43 percent of their votes for Mr. Eisner’s re-election to the board of directors-the highest no-confidence vote for a chief in modern corporate history, according to corporate governance experts.

Indeed, the gathering had all the makings of high drama early on, as several camera crews stood by waiting for news outside Philadelphia’s Pennsylvania Convention Center on a mild, partly cloudy day. Nearby, a handful of protesters handed out fliers-on topics ranging from the allegations that ABC News is biased in its coverage of Middle East affairs to charges that Comcast is unfair-to thousands of shareholders entering the meeting hall.

Inside, owners of Disney stock lined up hours before the 10 a.m. start of the meeting to witness what had been billed in the press as a showdown pitting Mr. Eisner and the Disney board against an ever-growing dissident shareholder group led by former board members Roy Disney and Stanley Gold. It was a far cry from Disney’s 2003 shareholders meeting in Denver, which just 50 shareholders braved a snowstorm to attend. Disney has more than 2 billion shares outstanding.

Mr. Eisner opened what would end up being a 51/2-hour meeting that included voting, a Q&A session and presentations by Disney executives on the state of the company. Calling the conclusions by dissident shareholders about the state of the company “rhetoric” and “fundamentally wrong,” Mr. Eisner, whose voice got more hoarse as the day wore on, defended his job and the board’s oversight. “Our record of creating value is evident,” Mr. Eisner said. “This is a well-managed company, with first-rate governance.”

He highlighted many of the things he had said on the road to investors in the days leading up to the meeting: that Disney was poised to generate a 30 percent rise in earnings per share for fiscal year 2004; that Disney shares had advanced 60 percent since the last shareholders meeting; and that the company was on course to generate double-digit compounded growth over the next several years.

“I am increasingly happy with the earnings, cash flow and capital returns,” Mr. Eisner told the crowd, adding that he was pleased with the performance of ESPN, the ABC owned-and-operated television stations and “World News Tonight” and “Good Morning America.”

He also sought to justify Disney’s divorce from Pixar, saying, “No one more than I had hoped we could continue this relationship, but the economics of this relationship were not in the interest of our shareholders. Our company is prepared to continue to be a leader [in animation].”

If the crowd’s reception of Mr. Disney’s and Mr. Gold’s speeches during the meeting was a sign, many shareholders weren’t entirely sold on Mr. Eisner’s read of the company. Speaking as part of an agreement reached between the dissidents and the Disney board, Mr. Disney and Mr. Gold were given 15 minutes to make a last-ditch pitch to shareholders as to why Mr. Eisner, along with board members George Mitchell, John Bryson and Judith Estrin, did not deserve to be re-elected.

Interrupted on a few occasions by loud applause and even receiving standing ovations from a number of shareholders, Mr. Gold said he and Mr. Disney were “on a mission to save our company,” having resorted to launching a public fight after failing to change things from within the board room.

“Unfortunately, the board was unwilling to listen,” Mr. Gold said. “Unfortunately, the board was unwilling to hold management accountable for its failures-unwilling to even acknowledge there had been failures. The board preferred instead to keep its head buried firmly in the sand and to conduct business as usual.”

He cited Disney’s underperforming stock, years of flat operating income, “flashy business plans that didn’t pan out” and ABC’s continued ratings weakness. “How could this happen?” he asked. “It happened slowly at first, bit by bit, until directors are compromised to the point at which they are no longer able to do the right thing. That is what happened to this board.”

The crowd responded similarly to Mr. Disney, who accused the company of compromising corporate values by what he called “institutional-think”-a mind-set that has led the company to consider Disney a brand that has been “bureaucratically managed rather than a name to be creatively championed … branding is something you do to cows.”

Near the end, the results were read and it was clear that shareholders had issued a stinging rebuke of Mr. Eisner. And he wasn’t alone. More than 20 percent withheld votes for Mr. Mitchell, Mr. Bryson and Ms. Estrin.

The sense was that the anti-Eisner campaign had achieved its goal, as 772 million of the 1.8 billion votes cast, or 43 percent, were withheld.

Disney’s board held a closed-door session immediately after the meeting. Late Wednesday, Disney announced that Mr. Eisner had stepped down as chairman, while remaining CEO, and Mr. Mitchell was named nonexecutive chairman.