Disney Board Under Scrutiny Again

A major pension fund's proposal to make Walt Disney Co.'s board of directors more independent from management won unexpected support from shareholders at the company's annual meeting, but was ultimately rejected.

The College Equities Retirement Fund, an investment group known as CREF, garnered 35 percent of the shares voted, defying predictions it would win 20 percent at most. The fund owns 6.8 million Disney shares.

The fund proposed a measure that would require that a majority of Disney directors have no history of Disney employment or "significant" financial or personal ties to management.

Shareholder disgruntlement with the board's makeup has been growing over the past year, even as Disney's stock price raced to record heights.

There were no specific complaints about the performance of the current 16-member board, which includes six current or former Disney executives and at least three other individuals with close personal ties to Michael Eisner, Disney's chairman.

"Disney is a firm that has been pretty consistently criticized for the compensation of its board for the relationship many have with their sitting CEO," said John Hawkins, managing director of the executing recruiting firm Russell Reynolds Associates.

"Many in the institutional investment community believe this is a firm that needs to amend some of its principles and practices with the way it composes its board," he said.

A year ago, at a Disney annual meeting, shareholders vented anger at Eisner's huge compensation and a rich buyout of the contract of Eisner's friend, Michael Ovitz. Ovitz spent 14 months as Disney's president.

Tuesday's meeting, attended by 1,495 shareholders in the city where Walt Disney created his earliest cartoons, did produce one revision in the directorship: the end of the board's classification by staggered, three-year terms.

Starting with the slate proposed for election in 1999, all directors will stand annually for one-year terms.

The change won't shorten the three-year terms to which Eisner and five other directors were re-elected Tuesday, all with more than 95 percent of shares voted.

By Dana Fields
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