Board Facing Eisner Question

As Walt Disney Co. prepares to celebrate the 50th anniversary of Disneyland, board members will assemble today at “the happiest place on Earth” to discuss a sobering topic: whether to renew Michael Eisner’s contract.

The directors are expected to confer about that and a host of other issues during their annual retreat, which started with an informal dinner Sunday at the Anaheim resort.

Pressure to answer the Eisner question mounted after last month’s 45% protest vote against the chief executive at the company’s shareholder meeting. His critics have long complained about the lack of a succession plan and blame him for Disney’s sluggish financial performance over much of the last decade.

“Investors are expecting to see action now,” said Patrick McGurn, senior vice president with Institutional Shareholder Services, a leading proxy advisory firm that recommended that shareholders vote to withhold support for Eisner.

“The time for going out and talking to shareholders is over. Now, people are looking for a tangible response to the punch list of items that investors have drawn up.”

Although the 11-member board stripped Eisner of the chairman’s title after the vote, it has since thrown its support behind the 62-year-old chief, who has held the CEO’s post for two decades and appears in no imminent danger of losing his job.

For his part, Eisner hasn’t indicated whether he would like to serve another term. His contract expires in September 2006, and the directors must decide soon whether to renew it so they can have a successor in place well before the reins change hands.

Eisner has in the past suggested that Disney President Robert Iger replace him. Few people in and outside the company view Iger as the heir apparent, however, given the ratings woes at the Disney-owned ABC that Iger vowed two years ago to address.

The board is expected to discuss, though not settle, the CEO question at the two-day retreat at Disneyland, which opened to the public in July 1955. The company this week will unveil details about the anniversary celebration.

For the board, none of the choices looks particularly good. Moving now to ditch Eisner in the fall of 2006 could make the company more vulnerable to a takeover. Cable-TV giant Comcast Corp. earlier this year made an unsolicited $54-billion bid for Disney that the board rebuffed as too low.

“One of the factors that the board has to weigh is that Comcast is waiting in the wings and they can’t take any kind of action that would create instability in the company,” a source close to the board said.

But some directors are reluctant to renew the contract, fearing that would send the wrong signal to discontented investors, sources close to the board said. In fact, many on the board are eager for it to shed its image in some quarters as a rubber stamp for management and to demonstrate its independence from Eisner.

The fact that the board took the chairmanship away from Eisner, giving it to former U.S. Sen. George J. Mitchell, failed to placate many institutional investors.

The vote “was a referendum on Mr. Eisner himself,” said Christianna Wood, senior investment officer for global equities at the California Public Employees’ Retirement System. “The board needs to realize that their constituency is the shareowners and not Mr. Eisner, and I don’t think they quite get that.”

CalPERS and other pension funds recently demanded a meeting with the board. It is scheduled for May 21.

Beyond the succession issue, many investors want the board to become more heavily involved in overseeing the company’s strategy and ensuring its long-term financial health. Disney’s earnings and stock price have improved in the last year, but they are at about the same level as they were seven years ago. Disney shares closed Friday at $24.65 on the New York Stock Exchange, down 23 cents.

The company’s generally lackluster performance has been tied to the ongoing struggles in its core film animation division and at ABC, which lags behind rivals CBS, NBC and Fox Broadcasting in the ratings.

Just last week, Disney shuffled the deck at ABC, pushing out top prime-time programmers Lloyd Braun and Susan Lyne, the chairman and president of ABC Entertainment, respectively. The position of president of ABC Primetime Entertainment went to Stephen McPherson, head of Disney’s Touchstone Television studio, while cable chief Anne Sweeney and the president of ESPN, George Bodenheimer, were made co-chairs of Disney’s media networks unit.

Changes at the top had been expected, but they nonetheless renewed concerns about Disney’s long-term strategy for ABC. Since 1996, when Disney acquired the network, more than 10 top executives have quit or been forced out.

Meanwhile, Disney’s film studio is off to a rocky 2004 after a record year in 2003. Analysts are predicting costly write-downs stemming from the weak box-office performances of “Home on the Range” and “The Alamo.”

Still, Disney executives have said the company is on track to achieve double-digit gains in earnings this year. It is expected to release strong second-quarter earnings next month because of brisk DVD sales and a recovery in its theme park business.

Disney officials declined to comment on the agenda for the retreat. Sources said directors would receive presentations on business strategies for each of the divisions and discuss criteria for adding another independent director to the board; as it is, eight of the 11 directors aren’t employed by Disney.

In a speech last month at Georgetown University, Mitchell promised that the board would deliver. He said it would pursue a “formal detailed review of succession covering several high executive positions, including that of CEO,” and “participate in developing and overseeing the implementation of strategy and will hold management accountable.”

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Times staff writer Meg James contributed to this report.