U.S.

SEC, Disney Settle Charges

December 20, 2004 / 2:49 PM EST / CBS/AP

The Walt Disney Co. agreed Monday to settle allegations from federal regulators that it failed to disclose benefits received by some directors and their relatives, including former directors Roy E. Disney and Stanley Gold, who led a shareholder revolt this year against CEO Michael Eisner.

Disney was not fined in the agreement with the Securities and Exchange Commission but did agree to refrain from future violations of securities laws. The media giant neither admitted nor denied wrongdoing in the settlement.

The SEC said that between 1999 and 2001, Disney failed to disclose the transactions benefitting directors and their families, which it was legally required to do in its proxy statements distributed to shareholders and annual reports filed with the SEC.

According to the agency, the Los Angeles-based company failed to disclose that:

It employed three adult children of directors, one of whom was paid more than $150,000. The directors were Gold, Reveta Bowers and Raymond Watson.

The wife of another director, John Bryson, was employed by a subsidiary that is half-owned by Disney and was paid more than $1 million a year.

It made regular payments to Air Shamrock Inc., a company owned by then-director Roy Disney and managed by Gold, that provided air transportation to Roy Disney for Disney Co.-related business purposes.

Roy Disney used Air Shamrock's planes for his business and personal travel from 1984 to 2003, an arrangement approved initially by former Disney president Frank Wells, the SEC said. After Wells died in 1994, requests for payment went to then-chairman and CEO Eisner's office and forwarded for processing. The company did not disclose the payments until December 2002, according to the SEC.

It provided office space, secretarial services, a leased car and a driver to director Thomas Murphy, services estimated to be worth more than $200,000 a year that came out of a verbal agreement between Murphy and Eisner. Murphy is the former chairman of Capital Cities/ABC Inc., which Disney acquired in 1996.

"Shareholders have a significant interest in information regarding relationships between the company and its directors," said Linda Thomsen, the SEC's deputy enforcement director. "Failure to comply with the SEC's disclosure rules in this area impedes shareholders' ability to evaluate the objectivity and independence of directors."

Disney's corporate governance and the role of its board have been the focus of controversy. Earlier this month, Gold and Roy Disney, son of Roy O. Disney and nephew to Walt, ended their yearlong campaign to oust Eisner and force other changes at the company.

Gold and Disney said they would not run a challenge slate of directors at next year's board meeting. The two said in a letter to board members that they have accomplished the goals set a year ago when they resigned from the board and called for the company to fire Eisner, whom they blame for the company's lackluster performance since the late 1990s.

The campaign they led resulted in an unprecedented 45 percent vote against Eisner's re-election to the board last March. In response to that vote, the board stripped Eisner of his board chairman responsibilities and split the roles of chairman and chief executive officer.

By Marcy Gordon

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