Beleaguered Disney Head Tries to Shore Up Support

February 27, 2004 ( - Trying desperately to regain his institutional investor support, embattled Walt Disney Co. chief Michael Eisner and his inner circle continue to reach out to undecided investors.

As part of that effort in advance of the company’s March 3 Philadelphia shareholder meeting, Eisner and director Robert Matschullat flew to Ohio on Thursday to meet with officials of the Ohio Public Employees Retirement System (OPERS) after learning they had concerns about Disney’s corporate governance, the Orlando Sentinel reported. The OPERS officials apparently weren’t convinced, because the fund announced Friday that it would withhold voting its 3.9  million Disney shares for the slate of Disney directors.  “ The decision is not intended to be a vote in support of the dissident shareholder group led by Roy Disney and Stanley Gold, but rather a vote for ‘positive change,'” STRS Ohio said in a press release.

Eisner also lost support Friday when North Carolina State Treasurer Richard Moore instructed the state’s public pension funds to withhold votes on their shares for Eisner. The funds hold roughly 2.1 million shares of Disney stock.“The failure of the company to generate long term value for shareholders combined with their past inattention to good corporate governance practices has forced us to take this step,” Moore said.

Officials with the Florida Retirement Fund, which holds 7.3 million Disney shares, were reportedly pondering their next move in the matter. If Florida fund decide to formalize those concerns by voting their Disney shares against Eisner, they would join a chorus of discontent from fellow public pension funds across the country. In addition to Ohio and North Carolina, representatives for pension plans in California, New York, New Jersey, Connecticut, Massachusetts and Virginia have already pronounced themselves as having lost confidence in Eisner’s leadership.

On Wednesday, two of the nations’ largest such funds – the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) – said they were withholding their support for Eisner.  Combined, the seven pension funds hold 39 million Disney shares, representing about 2% of the company’s stock.

The funds’ public pronouncements on the Eisner issue followed the recommendations of two influential shareholder-advisory firms, Institutional Shareholder Services (ISS), and Glass, Lewis & Co. The advisory firms’ clients represent about 30% and 15%, respectively, of Disney’s shareholder base.

Many of the fund representatives said Thursday that they were particularly troubled about the dual roles Eisner holds as chairman and chief executive officer, a nexus of power that many corporate-governance activists have frowned upon in recent years. Also, “Eisner has created no value for shareholders for the past seven years,” said Orin Kramer, chairman of the New Jersey State Investment Council, which sets the Garden State’s investment policy.

For its part, Disney minimized the significance of the pension funds’ decisions, saying they were to be expected, given that several follow the lead of ISS.

Disney spokeswoman Zenia Mucha predicted that the no-votes would not carry much sway with large institutional investors, given the company’s strong financial results of late. Disney, which earned more than $600 million in its most recent fiscal quarter, is predicting a strong year driven by its film studio and by a recovery in its theme parks. “Ultimately, investors care more about performance, and on those grounds, our record speaks for itself,” Mucha said.