Calpers says it will not vote for Eisner

[kechara420]

http://www.nytimes.com/2004/02/26/business/media/26disney.html

February 26, 2004
Pension Fund and Proxy Firm Join Critics of Disney Chief
By LAURA M. HOLSON

LOS ANGELES, Feb. 25 - The nation's largest public pension fund said Wednesday that it would withhold its votes for Michael D. Eisner, the besieged chief executive of the Walt Disney Company, signaling that the ranks of disaffected shareholders are growing ahead of next week's annual board election.

"We have lost complete confidence in Mr. Eisner's strategic vision and leadership in creating shareholder value in the company," said Sean Harrigan, president of the board of administration of the California Public Employees' Retirement System, which owns 9.9 million Disney shares and has a reputation for shareholder activism. "We believe shareholders should send the message loudly and strongly that it is time for Disney to get a more focused strategy that will improve shareholders' return on invested capital."

The decision comes on the same day as a no-confidence vote for Mr. Eisner from the proxy adviser Glass, Lewis & Company, the second such organization to advise stockholders to withhold votes for the chief executive in two weeks.

The news also comes only a day after court documents were unsealed in a case in Delaware related to Mr. Eisner's firing of Michael Ovitz, the former Hollywood agent who received a $140 million severance package after he was ousted as president in December 1996.

Among the documents, which Disney's lawyers had hoped to keep sealed until March 2, the day before the company's annual meeting in Philadelphia, is a seven-page, single-spaced typed letter from Mr. Eisner to Mr. Ovitz written in 1996. The documents also include a report that suggests that Disney's board did not properly oversee the hiring and firing of Mr. Ovitz.

In the letter, Mr. Eisner explained in detail why Mr. Ovitz had to leave, including his attempts to hire a chef and demands for a costly office renovation. Mr. Eisner also said Mr. Ovitz was preoccupied with controlling the news media, including Variety's editor, Peter Bart, and objected to paying for all of the costs of his daughter's bat mitzvah, which was held at the House of Blues, where Disney was a part owner.

"Operations done well would have made your image fantastic, but I could never convince you of that," Mr. Eisner wrote to Mr. Ovitz. "Michael, mostly a leader of a public company has to lead by example."

The words are particularly striking now that Mr. Eisner himself has come under increasing criticism from investors, former board members and governance experts for not being able to get along with corporate partners, exerting too much control over Disney's board and not managing the company's assets as well as he could have the past five years. Last fall, two former board members, Roy E. Disney, the nephew of the company's co-founder, and Stanley P. Gold, quit the board and called for Mr. Eisner's ouster. Since then, additional critics have emerged.

"As chairman, he retains a lot of power to control the board," said Gregory P. Taxin, chief executive of Glass, Lewis, which is encouraging Disney to separate the offices of chief executive and chairman. Mr. Eisner's running of Disney for nearly 20 years in both posts, Mr. Taxin said, "puts a tremendous amount of influence in one man."

A Disney spokeswoman, Zenia Mucha, responded to the Glass, Lewis recommendation to withhold votes for Mr. Eisner and two other directors, saying the report had factual errors and is "a sideshow by Glass, Lewis, an upstart company that is trying to grab publicity that diverts attention from the fact that Disney's record of building value is indisputable and that it is a well-managed company with world-class governance and a laser-focus on building shareholder value."

Regarding the announcement from the California pension fund, known as Calpers, Ms. Mucha said, "The Disney board does not agree with Calpers's statements on management, as it believes the company has well laid out its key long-term strategies for achieving attractive double-digit earnings growth, which is reinforced by the strong recent performance of Disney shares."

Still, the no-confidence votes from Glass, Lewis and from Calpers, combined with an earlier recommendation by Institutional Shareholder Services, which advises big investors on proxy votes, suggest that the number of dissident shareholders is growing. And it is not just Mr. Eisner who is being singled out.

All three groups, to varying degrees, have expressed dissatisfaction with 8 of the board's 11 directors up for election. Those not criticized so far are John S. Chen and Aylwin B. Lewis, the two newest board members, and Disney's president, Robert A. Iger, who also serves on the board.

Although no one knows what the tally will be for or against Mr. Eisner, the board's response will be watched closely. Already, Disney's management is expecting that Mr. Gold and Mr. Disney will call for a recount no matter what the result.

"Is there a point in which the board has a fiduciary responsibility to act?" asked Tom Wolzien, an analyst at Sanford C. Bernstein & Company. "Even when the vote comes in next Wednesday, different sides are going to spin it differently."

[kechara420]

Calpers to Withhold Voting for Eisner

By BRUCE ORWALL
Staff Reporter of THE WALL STREET JOURNAL


The drumbeat of dissent against Walt Disney Co. Chairman and Chief Executive Michael Eisner grew louder as the nation's largest public pension fund said it had "lost complete confidence in Mr. Eisner's strategic vision and leadership in creating shareholder value" and would withhold voting for him at Disney's crucial annual meeting next week.

The decision by the California Public Employees Retirement System adds to recent events threatening Mr. Eisner's 20-year leadership of Disney.

Also Wednesday, San Francisco-based Glass, Lewis & Co., a proxy advisory firm, recommended withholding support from Mr. Eisner. It relied in part on unflattering court documents unsealed late Tuesday that resurrect Mr. Eisner's hiring and firing of former Disney president Michael Ovitz in the mid-1990s. The developments come against the backdrop of a campaign by two dissident ex-directors, Roy E. Disney and Stanley Gold, who are asking shareholders to oppose Mr. Eisner and three other directors at the company's March 3 meeting.

The withhold campaign seems to be gathering momentum, and even some at Disney are bracing themselves for the likelihood that well over 30% of Disney shareholders will withhold support from Mr. Eisner -- a potentially brutal vote of no confidence. The Disney board has already discussed the possibility of such an outcome and is preparing a response.

The anti-Eisner campaign earlier got a big boost when Institutional Shareholder Services, an influential Rockville, Md., proxy advisory firm, threw its weight behind the "vote no" campaign against Mr. Eisner. ISS has said that its main issue is Disney's refusal to split the chairman and chief executive's duties.

Disney says that ISS clients represent about 35% of its shareholder base. If their opposition to Mr. Eisner results in a big vote against him, Disney will argue that the results only mean that shareholders want to divide the two key posts -- not that Mr. Eisner should be ousted. That may be a difficult point to get across in the face of the substantial public criticism of Mr. Eisner against the backdrop of Comcast Corp.'s recent unsolicited all-stock takeover offer. While Comcast insists it is neutral in the proxy fight, its recent statements blasting Disney's corporate governance have reinforced the dissidents' campaign against Mr. Eisner.

The Calpers decision to withhold voting for Mr. Eisner is likely to influence other public pension funds to follow suit. Calpers carries a lot of weight not only because of its size, but also because the fund has long been a harsh critic of Mr. Eisner's pay and alleged governance weaknesses on Disney's board. With 9.9 million Disney shares, Calpers is Disney's 29th-largest shareholder. Calpers is also withholding its support from the three members of Disney's audit committee, because it said it has "failed to abide by the highest possible standard" in audit practices -- a move that Disney said it was "dismayed" by, given that its audit practices are "beyond reproach."

The Glass Lewis recommendation threatens to turn the discussion of Mr. Eisner's track record into a career retrospective. It relies heavily on Disney's brief, unhappy involvement with former Hollywood agent Michael Ovitz, who in 1995 and 1996 lasted only 14 months as the company's president before being fired. Mr. Ovitz received a $140 million stock-and-cash package to leave, which is the basis of a shareholder lawsuit against Disney in Delaware's Court of Chancery.

Late Tuesday, Chancellor William B. Chandler III issued an order unsealing documents in the case, scolding representatives of Disney's directors who tried to delay the matter until the day before Disney's annual meeting.

Chancellor Chandler wrote that the requested delay was an attempt to "sanitize the public record, effectively maintaining a cloak of secrecy." Lynn Turner, managing director of research for Glass Lewis, said "it is relevant to bring up what happened eight or nine years ago" because, in his firm's view, Disney's culture, dominated by Mr. Eisner, hasn't changed. Disney has argued that it has improved its corporate governance practices in recent years by overhauling its guidelines and bringing in new, independent-minded directors. But with the shareholder vote less than a week away, the recent Disney track record seems to be falling on deaf ears.

Disney issued a statement in which a spokeswoman called Glass Lewis "an upstart company that it is trying to grab publicity that diverts attention from the fact that Disney's record of building value is indisputable."

[waltersgirl]

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