Turmoil In House Of Mouse

The Walt Disney Co.'s board voted late Wednesday to split the roles of chairman and chief executive, hours after shareholders delivered a stinging rebuke by withholding 43 percent of their votes for CEO Michael Eisner's re-election to the board.

Disney directors voted unanimously to make board member George Mitchell the company's new chairman and voiced their continuing approval of Eisner's management and the company's strategy.

The change is effective immediately.

The board also rejected a renewed overture from cable television giant Comcast Corp., saying it would serve no purpose to reconsider an offer already dismissed as too low.

The move is unlikely to satisfy the company's most vocal critics, ex-board members Stanley Gold and Roy E. Disney, who have vowed to continue their fight to oust Eisner.

"The shareholders have spoken," said Angela Kohler, global media analyst with Federated Investors in Pittsburgh. "The number is large. This really puts pressure on the board to do something."

The voting results are preliminary, with 43 percent of the votes cast so far going against Eisner. But those votes already represent 38 percent of Disney shares, so the final tally will likely be between 38 percent and 43 percent -- far worse than any other executive has fared in a shareholder revolt.

Shareholders seemed subdued, a departure from the upbeat atmosphere seen at past Disney annual meetings.

"This says the board really needs to give the shareholder vote some thought," said Rob Cork, a shareholder from Springfield, Va.

Added: David Lavender, standing next to his wife Janis after the meeting: "I don't think he's ever going to leave until he is ready to leave."

The meeting lived up to its billing and quickly became a battle between Eisner and two disgruntled former Disney board members, Roy Disney and Stanley Gold, who want to remove Eisner from the company.

Eisner has had his share of setbacks. In only the past few months, he's had to fight off a hostile takeover bid by Comcast and defend himself against criticism after Pixar Animation Studios) abruptly terminated negotiations to extend its contract with Disney.

Disney stockholders were distressed by the breakdown of the Pixar talks. Pixar had provided some of Disney's most successful movies in the past several years, including "Finding Nemo" last summer and the blockbuster "Toy Story" series.

Wednesday's atmosphere inside the convention hall was tense. Eisner, sounding hoarse at times, was greeted with a smattering of applause while his foes, Disney and Gold, each received a standing ovation when they made remarks.

Eisner's most pressing problem has been the unexpectedly strong grassroots campaign for his ouster spearheaded by Gold and Disney, nephew of the legendary Walt Disney. Roy Disney was forced off the company's board late last year, and Gold quickly followed in a show of solidarity.

While some shareholders want Eisner to vacate the chairman position, Disney and Gold have been even more outspoken. They have insisted that the company remove Eisner as chairman and CEO.

Against this backdrop, the centerpiece of the annual meeting was a shareholder vote widely seen as a proxy for the degree of support that Eisner retains to continue on at the top at Disney. Gold had predicted during the meeting that 40 percent of shareholders would register "withhold" votes against Eisner.

It wasn't clear how the shareholders would vote. Many stockholders said before the meeting that they were waiting to hear both sides of the issues before casting their ballots.

But outside the hall, several said that they had concluded it was time for a change at Disney.

For instance, Ashwin Sheth, a longtime shareholder from Harrison, N.J., waited until just before the deadline to submit his ballot. "If what they say is true, the company has to learn to listen," Sheth said, referring to Disney and Gold.

Mary Dougherty, a shareholder from Newton Square, Pa., said she had grown disillusioned with Eisner and the other board members. "The stock has not performed very well," she said. "Under the circumstances, there should be some kind of change."

Dougherty said she respected what Eisner had to say -- but disagreed with the essence of his remarks.

Shares of Disney, a Dow Jones Industrials Average component, dropped 9 cents to $26.67 in afternoon trading.

Gold, in his farewell as a board member, blasted Eisner and the board, saying: "Roy Disney and I have been on a mission ...to save our company."
"Things will be different after today," said Gold. He added that his and Roy Disney's public fight against Eisner has "not been a pleasant experience for either of us."

His voice dripping with sarcasm, Gold said that Eisner "never had a bad year," as he blamed the Disney board for not holding Eisner accountable for Disney's problems.

"You can't fool all of the people all of the time," said Roy Disney when he addressed the shareholders. "We need to install a new management team."

Despite the pressure he was under, Eisner tried to charm the potentially hostile audience with self-deprecating quips. When a shrill shareholder spoke for a lengthy period, Eisner said haplessly: "I thought Stanley was difficult!"