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By MARK ALBRIGHT, Times Staff WriterAfter 43 percent withhold votes for the CEO, the Disney board acts to appease them by naming a separate chairman.
PHILADELPHIA - Walt Disney Co. shareholders Wednesday delivered a stunning rebuke of Michael Eisner, the Hollywood mogul who has been chairman and chief executive of the entertainment giant for 20 years.
In a contentious annual meeting, investors representing 43 percent of shares withheld their votes from Eisner, who was running unopposed for re-election as chairman.
That's more than twice what a dissident shareholder group led by Roy E. Disney, Walt's 74-year-old nephew, had hoped to get in its campaign to oust the 61-year-old Eisner. It's also twice what corporate governance experts had said would be needed to send a strong message that Disney's executive suite needs a housecleaning.
Disney's embattled board of directors later Wednesday responded by separating the roles of chief executive officer and chairman, with Eisner retaining the CEO title.
The directors unanimously voted to replace him as chairman with former U.S. Sen. George Mitchell. It became effective immediately.
The move was aimed at appeasing some dissident shareholder groups that want a more independent board to ride herd over Eisner. But many observers figured the move was too little too late.
"I feel vindicated," said Roy Disney, a former board member who owns about 1 percent of the company and spent millions of his own money on the battle for shareholder support. "We need a new CEO, plain and simple. If the board does not do the right thing, we will keep up the pressure to make sure they do."
Stanley Gold, a former Disney board member who joined Roy Disney in his fight, added, "A vote of no confidence this large is unprecedented for any sitting CEO of a Dow Jones Industrial Average company. Eisner must go."
By comparison, AOL Time Warner chief executive Steve Case stepped down last year after his shareholders cast a 22 percent vote of no confidence.
Eisner, who knew of the outcome hours before the vote was announced, told one dissident shareholder: "I will continue to work to keep the magic alive" at Disney.
The company's board of directors met in private after the annual meeting where it decided to accelerate their earlier decision to talk about Eisner giving up his chairman's post when his employment contract expires in September 2006.
But major shareholder groups, such as the California state employee pension fund, which holds 9.9-million shares, are in no mood to compromise.
"The discontent is too wide and way too deep," said Sean Harrigan, president of the California Board of Administration. "Eisner should go."
Comcast Corp., the cable giant, renewed its call for a meeting with Eisner or the Disney board to talk about its Feb. 11 offer to acquire Disney for a stock deal valued at the time at $54-billion.
"We think that a signal has been sent loudly and strongly to the Disney board and the Disney management that the shareholders continue to believe they haven't properly represented shareholders' interests in a variety of ways. One is the way they handled the Comcast proposal," said David Cohen, Comcast executive vice president. "The ball we think is very much going to be in Disney's court."
The Disney board responded to that late Wednesday as well, saying it would serve no purpose to reconsider a merger offer already dismissed as too low.
The sense that Disney's top leadership is vulnerable might attract more bidders.
Eisner, who held off releasing the preliminary vote tally until the very end at the 51/2-hour meeting, showed no sign of relinquishing his hold on what he has called the "best job in America."
Once results were announced, Eisner adjourned the meeting and walked off the stage.
Disney spokeswoman Zenia Mucha dismissed the idea the vote was a mandate for Eisner's ouster.
"You have to look at how many different issues shareholders were addressing in their votes," she said. "There was lot of piling on and grandstanding today. A lot of the votes were based on a lot of distortion of the facts."
Dissident shareholders complained that Eisner kept getting and passing out multimillion-dollar bonuses even as the company's fortunes faltered in recent years. They also blamed him for chasing off creative executives who could have blossomed into his replacements as CEO. They have faulted him for everything from poor maintenance at the theme parks to the weak ratings performance of its ABC television network. Disney's stock has been a laggard for most of the past eight years.
Word of the shareholder vote came in late afternoon and did not appear to shake Disney's stock price. It closed at $26.65, down 11 cents.
The vote against Eisner was worse than it might seem on the surface. As many as 20 percent of shareholders do not vote, which means Eisner gets their votes automatically. Gold said that meant a majority of shareholders who voted withheld their votes for Eisner.
The dissidents also worked to put heat on the board of directors. Three directors targeted, including Mitchell, attracted 22 to 24 percent no-confidence votes each.
"Given the vote of no confidence Mitchell received, he should be not be considering himself an independent director, presiding director or the chairman," Gold said.
The appointment is also sure to be questioned by analysts and investors because the two men are friends and Mitchell has long been a supporter of Eisner. The concession could well stoke the campaign against Eisner, and could ultimately jeopardize his reign at Disney.
The vote came in the circus atmosphere of a marathon Disney annual meeting. To protest mega-media conglomerates, about 70 people staged a march from the Disney meeting to Comcast headquarters five blocks away. Picketers also protested "sweatshop" working conditions in Chinese factories where many Disney products are made.
At the start of Wednesday's meeting, Eisner acknowledged the company's poor financial performance, but he blamed much of it on the economic slowdown after the terrorist attacks of 2001 and two subsequent wars. He argued the company's fortunes are about to take off, promising a 30 percent increase in operating income in 2004 and double-digit earnings growth for the next five years.
He turned the dais over to Disney executives who spent 31/2 hours outlining their plans for the company. The slick presentations ran right through the lunch hour.
By the time they were done after 3 p.m. most of the crowd had left.
"They wore us down," said shareholder Carol Saghirian as she headed for the exits. "But I'm happy. They cannot continue to ignore the shareholders."
Other shareholders said they were heavily influenced by Roy Disney.
"Frankly, I was scared by what Roy Disney said has happened to the company," said Jack Kammer, a shareholder from Cape May, N.J.
- Information from the New York Times was used in this report.