Eisner’s Wild Ride Reaching Crossroads

Walt Disney Co. Chairman Michael Eisner once recounted an observation his best friend had made when the two were boys.

“You have a way of taking charge that makes people want to follow,” Eisner quoted his pal as saying, “even though they aren’t always sure why.” If ever Eisner needed to make a case for following him, it’s now.

He faces a personal referendum next week on his leadership of the Magic Kingdom that may well be the most pivotal moment in his nearly 20 years as head of the company.

Disney shareholders will gather March 3 in Philadelphia to vote on an issue they previously had rubber-stamped since Eisner joined Disney in 1984: whether he should remain on the company’s board of directors.

Practically speaking, the issue already has been decided. Eisner, who heads the board, is running unopposed.

But the twist this year is that two former Disney directors, Stanley P. Gold and Roy E. Disney, are campaigning furiously for shareholders to withhold their votes from Eisner in protest. They accuse the chief executive of management blunders that have tarnished the Burbank entertainment icon’s finances and image.

Their goal is to turn up the heat high enough so that directors will feel pressure to boot the man they now back.

What initially seemed a quixotic quest has drawn momentum from recent rapid-fire hits to Eisner’s reputation. Those include the breakup of Disney’s gold-plated partnership with Pixar Animation Studios, a $50-billion takeover bid by cable giant Comcast Corp. challenging Disney’s management and the call by a powerful Maryland shareholder advisory group for its clients to give the chairman a thumbs-down.

“It’s been like the perfect storm for Eisner,” said Anthony S. Valencia, vice president of Los Angeles-based Trust Co. of the West, which owns 1 million Disney shares.

A Disney spokesman said that neither the company nor Eisner would comment for this story.

Exactly how many votes are needed to rattle the Disney board is open to interpretation. But conventional wisdom from experts, and even the Gold-Disney camp, has pegged 20% as a threshold.

“If you get a bloc of at least 20%, a board is being told it really isn’t doing its job,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. But he added that “any vote over 10% wouldn’t be cause for celebration on the part of the company.” The possibility that such a small slice of dissent could be considered a defeat speaks loudly about the nature of corporate elections and why even a minor protest vote can resonate.

In corporate elections, each share is counted as one vote. But big institutions, which control large blocks of stock through pension and mutual funds, heavily influence the results. Management-certified executives and directors usually are reelected by near-acclamation.

“Most of these votes are on autopilot,” said Bill Patterson, director of the AFL-CIO office of investment. “The goal here is to fire a shot across the bow that signals to a company they have a problem that shouldn’t be taken for granted.”

Steve Case resigned as chairman of Time Warner Inc. last year after getting a whiff that such big shareholders as Los Angeles-based Capital Group Cos. planned to withhold votes to protest his role in crafting the disastrous America Online merger.

Although Case received 78% of shareholder votes, the election was widely interpreted as a severe rebuke. Likewise, former Enron Corp. director Frank Savage was embarrassed when he received only 72% of the votes in his election as a director of Lockheed Martin Corp. after a noisy campaign by organized labor.

With the stakes so high, experts estimate that the Disney combatants collectively are spending millions of dollars on consultants, lawyers and public relations specialists to woo shareholders and sway public opinion.

Representatives from both sides have been crisscrossing the country, meeting with shareholders and making personal pitches in hundreds of calls.

Each side is targeting an estimated 600,000 owners of Disney stock. That pool includes employees and people who hold at least 250 shares. The Gold-Disney team said it was trying to contact as many as 200,000 of them by phone.

As Gold put it: “We’re smilin’ and dialin’.” The two directors, who resigned last fall and called for Eisner’s firing, note that the company’s stock price and earnings, although rebounding, remain at about the same levels as during the 1990s. They also contend that Eisner has chased away talented managers and failed to cure Disney’s ills, including poor performance at its ABC network and theme parks, the Disney Family Channel and its once-sterling animation operation.

Eisner and his backers, meanwhile, seem to be taking nothing for granted. They have launched an aggressive counteroffensive that is unfolding in public and private.

Disney directors dismiss Gold and Roy Disney as bitter and misguided.

They contend that the company’s earnings of $688 million in its fiscal first quarter, which exceeded Wall Street expectations, are a sign of bigger things to come. Last week they unanimously backed Eisner while spurning Comcast’s offer as too low. Comcast said it was standing pat and had not indicated whether it would sweeten its bid.

Friday night, as part of his campaign, Eisner appeared on CNN’s “Larry King Live.” (“This will go away, I believe,” Eisner said of the controversy.) Earlier that week, Disney President Robert Iger told Bloomberg News he thought his boss wasn’t going anywhere.

In some respects, the company’s campaign has taken on the feel of a Hollywood testimonial dinner for Eisner, who turns 62 four days after the shareholder meeting.

Recently, Walt Disney Parks and Resorts President Jay Rasulo said at an investor conference: “I have seen, firsthand, the creative fountainhead that Michael is, in extending the Disney franchises in new and creative ways.” With the knowledge of the company’s public relations staff, producer David Kirkpatrick, who worked for Eisner at Disney and Paramount Pictures, e-mailed to the news media a six-page defense of Eisner.

“As Irving Thalberg, Darryl Zanuck, [and] Walt Disney have already taken their place in 20th century history as creative leaders and visionaries in filmed entertainment,” he wrote, “so too will Michael Eisner.” Nowhere is the company’s determination more evident than in its continuing behind-the-scenes effort to persuade Institutional Shareholder Services Inc., an influential firm that advises on shareholder elections, to reverse its call for clients to shun Eisner.

Six Disney directors -- nearly half of the board -- pleaded their case during a conference call Friday, said Patrick McGurn, ISS’ senior vice president. He said his group was standing by its decision, which Disney executives have called “inexplicable and unjustified.” The firm came to its decision after being pushed hard by both sides.

Disney executives and board members made three trips to the advisory firm’s headquarters in Rockville, Md., officials there said. Eisner made two visits himself.

For their part, Gold and Roy Disney buttonholed McGurn for a dinner meeting at the San Diego Marriott Del Mar hotel while he was in town for a speech.

In its final report, the advisory firm lauded Disney for improving its corporate governance, saying the company now ranks near the top of its industry. Institutional Shareholder Services also rejected calls by Gold and Roy Disney to withhold votes from three other directors -- George Mitchell, Judith Estrin and John Bryson.

But the advisor said that the entertainment company had been hobbled by too much internal turmoil and that accountability rests with the man who has headed the company for nearly two decades. “At the end of the day,” the firm said, “all roads lead back to Eisner.”

Ultimately, as with politics, the spin that follows the shareholder vote may be as important as the totals.

“Both sides are likely to claim victory,” said Gregory Taxin, chief executive of shareholder advisory company Glass, Lewis & Co. “No matter what the outcome.”