By BRUCE ORWALL, BRIAN STEINBERG and JOANN S. LUBLIN
Staff Reporters of THE WALL STREET JOURNAL
After Walt Disney Co. shareholders delivered a powerful rebuke of top management, Michael Eisner Wednesday night agreed to step down as chairman of the entertainment giant he has led for nearly 20 years.
But Mr. Eisner will remain as chief executive as Disney tries to ride out the twin threats of a shareholder revolt and an unsolicited acquisition offer from Comcast Corp.
George Mitchell, the Disney board's presiding director, was named chairman,
serving in a nonexecutive capacity. The shakeup, which has been brewing for
days as shareholder dissent against Mr. Eisner gained momentum, came after
investors withheld a startling 43% of voted Disney shares from Mr. Eisner at
a marathon annual meeting in Philadelphia Wednesday.
In an interview with "Nightline" on Disney's ABC Network Wednesday night, Mr. Eisner said it is his intention to serve out the remainder of his contract as CEO, which extends until 2006. He defended the company's performance but said, "I do not belittle a large withhold vote." By splitting the two jobs, he said, "We heard our shareholders, who seemed to be interested in that, so we went ahead and did it." He conceded, "There are obviously certain people that are not happy with me, personally, I guess."
As measured against the standards of typically pliant U.S. shareholders, the historic protest vote against Mr. Eisner represents a near-deafening howl from a broad base of Disney shareholders. Those holders say they are unhappy with a range of issues including Mr. Eisner's leadership, the company's corporate governance practices, and its lagging financial performance and stock price over most of the last seven years.
In a statement, Disney's board said it heard the message sent by shareholders wanting to split the chairman and chief executive roles, but added: "That is not to say that we view the vote as limited to governance issues alone. We are aware that some voted for an immediate change in management and in the board."
Indeed, installing Mr. Mitchell as chairman could be a risky move. About 24% of the Disney shares voted were withheld from Mr. Mitchell at Wednesday's meeting, and his possible ascension was being assailed by critics even before it was announced. In addition, he is seen as an ally of Mr. Eisner, which will cause some to question whether change has truly transpired at the company. People familiar with the situation said the board held an intense debate over questions such as how it could signal that Mr. Mitchell has been empowered enough to overcome any perception that his appointment is window dressing. These people said Mr. Mitchell himself was initially somewhat reluctant about the arrangement.
The board statement expressed "unanimous" support of Mr. Eisner and the rest of management. But the outcome of the shareholder vote nonetheless may further threaten Mr. Eisner's once ironclad grip on the Magic Kingdom. It also gives the company a weaker hand to play against Comcast, the cable giant that has made an unsolicited stock offer to acquire Disney.
Even the surrender of Mr. Eisner's chairman role is not likely to give Disney or its chief much peace. Many of the company's critics think the shareholder dissent should lead to Mr. Eisner's ouster as CEO as well.
Oddly enough, Comcast's hostile bid affords Mr. Eisner some protection. The Disney board has been reluctant to oust Mr. Eisner as chief executive, people close to the board say, out of fear that firing the CEO would be unwise at a time when Disney is being stalked by Comcast. Comcast immediately pounced on Disney's bad news, asking for a meeting with Disney's independent directors. Disney's board Wednesday night said it did not believe Comcast's "reiteration" of the previous proposal "would lead to a transaction beneficial to Disney shareholders."
The Disney vote marks the first time that the CEO of a major company targeted in a "Vote No" campaign has had such a big nay vote from shareholders, governance watchers say. Disgruntled shareholders at other companies will "step forward to say, 'If it can happen at Disney, why can't it happen here?' " said Patrick McGurn, a senior vice president and special counsel at Institutional Shareholder Services Inc., an influential proxy advisory firm.
Indeed, AFL-CIO officials said Wednesday that they will mount a Vote No campaign this spring against Brian Roberts, Comcast's CEO. In a Feb. 24 letter to Comcast Chairman C. Michael Armstrong, AFL-CIO Secretary and Treasurer Richard L. Trumka said the labor federation dislikes the fact that Mr. Roberts runs the board's governance and directors nominating committee.
A Comcast spokesman said Mr. Roberts will remain in charge of the committee -- as required under its charter. "We're not at all defensive about our governance," he said.
The Disney meeting caps the first chapter of what is likely to be a long-running crisis over the company's future. The drama began late last year, when Roy E. Disney, nephew of the company's founder, and his long-time business partner, Stanley Gold, quit the company's board after learning that Mr. Disney was going to be forced off it by a mandatory retirement policy. They went on to wage a bitter campaign urging shareholders to oppose Mr. Eisner and three other directors as Mr. Eisner's long list of critics, including several big pension funds, used the moment to launch their own broadsides against him.
At Wednesday's extraordinary meeting before about 3,000 shareholders at the Pennsylvania Convention Center, Mr. Eisner braced the crowd for the contentious debate, by saying: "I love this company. The board loves this company. And we are all passionate about the output from this company."
Moments later, Messrs. Gold and Disney were granted time to make their case while Mr. Eisner looked on. The men were greeted with stronger applause than Mr. Eisner and repeated many of the blunt criticisms with which they have bludgeoned him and other Disney board members in recent weeks. Mr. Gold was quick to dismiss the impact of the board's expected moves, pledging to continue haunting Mr. Eisner and saying: "It is no longer sufficient to separate the roles of chairman and chief executive. That is not what this is about." He added: "While we the shareholders have watched the value of our equity decline, Michael Eisner has never had a bad year."
Mr. Disney then reprised his view that the company has lost its creative heart. "In recent times, there's been a tendency to refer to us as 'the Disney brand,'" he complained. "Branding is something you do to cows....Branding is what you do when there's nothing original about your product."
When Mr. Eisner returned to the stage, he thanked the men but couldn't resist tacking on: "Always a joy." Mr. Eisner then tried to deflect their blows by saying: "The conclusions you've just heard are just fundamentally wrong" and said the dissidents' rhetoric "replaces reason."
When asked later what their next step would be, Mr. Gold said the pair and their backers had "an array of strategies," upon which he declined to elaborate in detail. Litigation was possible, Mr. Gold said. He declined to comment when he was asked if the duo would propose an alternate slate of directors in the future.
Write to Bruce Orwall at firstname.lastname@example.org, Brian Steinberg at email@example.com and Joann S. Lublin at firstname.lastname@example.org
Updated March 4, 2004 12:09 a.m.