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Eisner out as Disney chair

Stanley Gold, right, and Roy Disney hold a press conference after the vote.
Stanley Gold, right, and Roy Disney hold a press conference after the vote.

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Disney
Michael Eisner
Corporate Governance

NEW YORK (CNN/Money) -- The board of Walt Disney Co. has stripped CEO Michael Eisner of his role as chairman after about 43 percent of shareholders voted to oppose his re-election to the company's board.

The board opted to separate the positions of chairman and chief executive at a meeting that followed what was an often quarrelsome five-hour annual shareholder meeting in Philadelphia earlier in the day. It unanimously elected former U.S. Senator George Mitchell chairman.

The board also said Comcast's takeover proposal, which the cable company repeated Wednesday, would not be in the interest of Disney shareholders. But it also said it was open to looking at a "reasonable proposal."

Still, the turmoil in Disney's executive suite could play into Comcast's hands. "In order to make it clear to Comcast that they don't want to be taken over, Disney needs to get a strong competent manager in there quickly," said Bob Monks, principal with Lens Governance Advisors (LGA), a corporate activist law firm.

Comcast said late Wednesday that it would like to meet with Disney's board to discuss a friendly merger.

"Today's unprecedented withhold vote by Disney's shareholders sends a powerful message that Disney's board and management need to focus more on shareholder interests," said a Comcast spokeswoman.

"Consistent with this focus, Disney's independent directors should immediately meet with Comcast so we can directly present our full and generous proposal and the benefits of the merger."

Strong opposition

Earlier, Disney said about 1.8 billion shares, or nearly 87 percent of the total shares outstanding, were represented in the proxy vote. Nearly 772 million shares opposed Eisner's re-election to the board. Several prominent pension funds had announced publicly in recent days that they planned on withholding their votes for Eisner.

"This is without a doubt the most withholding of support for a CEO of a major company that I have ever seen. It's really an expression of dissatisfaction," said Kevin Calabrese, an analyst with Argus Research.

Following Wednesday's vote, California's Calpers, the nation's largest pension fund, called for Eisner to resign by the end of the year and urged Disney to split the role of chairman and CEO. Calpers owns more than 9.9 million shares of Disney. The pension fund had said it would withhold its vote for Eisner at Wednesday's meeting, but this is the first time Calpers has specifically called for Eisner's ouster.

"This discontent is too wide and way too deep in the marketplace, and it has led us to believe that Eisner should go and the board should get quickly to work on planning for an orderly transition," Sean Harrigan, president of the board of administration for Calpers, said in a written statement.

Disney had previously said it expected at least 30 percent of shareholders to oppose Eisner's re-election to the board. But Stanley Gold, one of two ex-board members who is seeking Eisner's ouster, accurately predicted at the beginning of Wednesday's meeting that more than 40 percent of shareholders would withhold their votes for Eisner.

"It is an unprecedented no-confidence vote in the annals of American business," Gold said.

LGA's Monks said that even if only a third of shareholders voted against Eisner, that would have been a clear enough signal to the board that change was necessary.

A faster departure?

Calabrese at Argus Research said he doubts the board would seek to immediately replace Eisner as CEO because of Wednesday's vote. But he added that the backlash against Eisner could hasten his eventual departure from the company.

"I expect the board to come out with a succession plan rather rapidly and possibly give us a date for when Eisner leaves," he said.

Eisner's contract expires in 2006 but Calabrese said he would not be surprised if Eisner stepped down by early 2005.

Even before Wednesday's events, there had been growing speculation that Disney's board will need to make some management changes quickly to appease dissident shareholders.

"The public outcry following a large withhold vote in this age of corporate governance scrutiny may force the Disney board to act quickly after Wednesday's annual meeting," wrote Richard Greenfield, an analyst with Fulcrum Partners, in a research note this week.

There had been talk that former Mitchell could be named chairman. But nearly 24 percent of voting shareholders opposed Mitchell's re-election Wednesday. One analyst said Disney will need to name an independent outsider to replace Eisner as chairman.

"They're going to have to find someone other than George Mitchell to stand as chairman in order to satisfy the pension funds that are voting against Eisner," said Paul Hodgson, senior associate at the Corporate Library, a research firm focusing on corporate governance issues.

Hodgson added that nothing less than Eisner's departure would be needed in order to silence Gold and Disney. Representatives for neither of them could be reached late Wednesday for comment on Eisner's ouster as chairman.

Eisner defended his company's performance at the meeting. He pointed to the company's strong fiscal first-quarter report last month as evidence that Disney's growth is back on track. He added that Disney expects to report a 30 percent increase in earnings in this fiscal year and double-digit earnings gains until 2007.

Eisner said he was pleased with Disney's performance in all its major units, including its ABC television network, which has struggled for the past few years.

Still, strong results in recent months have not been enough to silence many Disney critics. Gold outlined a list of problems he felt Eisner and the board have failed to address, including the continued ratings woes at ABC and the lack of a defined succession plan.

Gold also noted that the stock has underperfomed the broader market and several media rivals during the past decade. His comments were occasionally met with raucous applause from members of the audience.

In other news at the meeting, Eisner again defended the company's decision in January not to renew its distribution partnership with animation studio Pixar.

Disney stock edged lower on the New York Stock Exchange.

The company's stock has surged nearly 15 percent so far this year, thanks in large part to Comcast's hostile takeover bid. During the meeting, Disney CFO Thomas Staggs disputed Comcast's claims it would be able to boost profit margins if it bought Disney.


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