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The shareholders' revolt against Disney's Michael Eisner may reflect a power shift that could change post-Enron America as much or more as any new law. Investors are taking more control over corporate governance. Whether burned by the accounting scandals or frustrated by dealing with overpaid and underperforming management, shareholders are demanding a larger say in who runs a company and how. Democratizing Wall Street is good for business.
The complaints that led to last week's no-confidence vote were not that Eisner did anything criminal, but that he choked Disney to the point that the company lost its creative edge. Investors representing 43 percent of shares in the company withheld support for re-electing Eisner to the board, a drubbing that was historic in the extent to which investors decided to involve themselves in management decisions. To help quiet discontent, the ever image-conscious Walt Disney Co. announced afterward that it would separate the roles of chairman and chief executive, with Eisner remaining CEO.
The move isn't likely to pacify critics. The big shareholders opposing Eisner - among them, large state pension funds - want fundamental changes in company policy. They say Eisner has run away Disney's talent, allowed the theme parks to become dated, managed as an autocrat and caused Disney stock to stagnate. To send home the message, shareholders also put the heat on three other directors, including former U.S. Sen. George Mitchell, an Eisner ally and the newly named chairman. The directors got no-confidence votes from between 22 and 24 percent of investors. Disney might soon find it has to react more aggressively if the dissidents, as promised, keep pressing their case.
Corporate sympathizers have worried that Enron might spawn problems in the opposite direction, by giving investors too much say and thereby destabilizing management. That concern is overblown. Most investors - certainly the big, institutional ones with real power - want, more than anything, stability in the board room, predictable returns and a noncontroversial public image. Indeed, that might be why so many turned against Eisner. The leading dissident, Roy Disney, Walt's 74-year-old nephew, is seen by many as having a more genuine interest in the old-fashioned ideals Disney stands for.
Enron, WorldCom and other corporate scandals have in their own bizarre way made corporate America more accountable. More efforts are being made to tie executive pay to performance, companies are redefining their strategic vision and investors are paying more attention to the decisionmaking process. It is about time, and it's good that it happened at a well-known company such as Disney. Michael Eisner may be a trailblazer yet.