Disney Could Encounter Stormy Scene at Midwest Meeting Site

There’ll be no free Disneyland tickets for stockholders as the directors of the Walt Disney Co. meet today in Walt’s boyhood home of Kansas City, Mo., “in observance of the company’s 75th anniversary and Mickey Mouse’s 70th birthday.”

Some cynical entertainment reporters might even suggest that Disney preferred that lovely Midwest location--where Disney held its annual meeting 11 years ago--for a far different reason.

Disney chief Michael Eisner may hope that by clicking his heels three times and transporting himself to the region that gave us the “Wizard of Oz” he can avoid the shareholder rancor and public relations nightmare that his image-finicky company engendered last year on its own turf in Anaheim. It’s odd that a company so successful at creating wealth for its owners is so sensitive to shareholder criticism.

Compared with the crowd of more than 10,000 shareholders who packed the Mighty Ducks’ hockey arena, the Pond, for last year’s marathon session, Disney officials say they expect only about 2,000 at today’s meeting at the Hyatt Regency Crown Center resort hotel in Kansas City, where Walt’s family moved in 1910 and where the Chicago-born cartoonist later founded his Laugh-O-Grams studio and made his first films.

At last year’s long and contentious shareholders’ gathering, the Disney king found himself excoriated for the lucrative exit package his longtime pal Michael Ovitz received when his 14-month Disney presidency went kaput and for his own rich pay package worth hundreds of millions of dollars.

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As much as Eisner would like to think Ovitz’s huge severance deal was last year’s news, since “the settlement has already been accounted for and has no further financial impact on Disney,” according to a company spokesman, surely some cranky shareholder will point out that the former uber-agent’s payout is now worth more than $200 million between his 3 million stock options and the $38 million he received in cash. And just think. Shareholders were outraged last year when the Ovitz cash-stock parachute was only worth $78 million.

Disney’s stock has surged 50% over the last 12 months, closing at $114.06 on the New York Stock Exchange Monday after hitting a record high of $115.75 during trading.

The company’s more recent high-profile legal settlement, with former studio Chairman Jeffrey Katzenberg, who leveled a $250-million breach-of-contract suit against his ex-employer, also will surely be a topic of some conversation. It’s never been revealed how much money Katzenberg, who helped build Disney into the entertainment empire it is today, actually will walk off with, but it’s believed to be around $100 million.

Eisner may hear an earful as well about the vast fortune he’s accumulated as Disney chairman, recently cashing in options worth $565 million.

No doubt, this year’s hot-seat issue for Eisner will be continuing questions of cronyism on the Disney board--whether Disney’s board includes too many directors with personal ties to Eisner or the company. Investor unrest over the issue appears to be escalating.

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Some industry analysts predict that a proposal by College Retirement Equities Fund for Disney to reconfigure its board so the majority of directors are independent could rally as much as 25% of the vote today.

While Disney would argue that a 75% vote against the proposal would be a clear defeat, others view potentially growing support for the resolution as significant.

“That would be a real red flag to management,” said Desmonde Printz, a senior analyst with Proxy Monitor, a New York-based independent management-owned corporation that advises pension funds and their investment managers. The firm is recommending a vote for more independence on the board.

Printz says shareholders shouldn’t be blinded by Disney’s outstanding stock performance in considering the matter. He points to a successful company like Apple Computer that “had a board that was a rubber stamp that didn’t look at anything and the company went down the tubes.” He submits that a similar fate could befall Disney, “which has a board very beholden to its management.”

Disney contends that it complies with corporate governance guidelines that at least 60% of its board membership be independent.

But the company’s definition of an independent director and the College Retirement Equities Fund’s differ. The 1996 guidelines used by Disney state that a director is not independent “if he or she presently or during the preceding three years has been an employee of the company. . . .”

The fund defines an independent director as “ . . . one who has no present or former employment by the company, or any significant financial or personal ties to the company or its management.”

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Defending Disney’s position, corporate spokesman John Dryer said, “Our board is quite independent by standards of most organizations we have met with. CREF has a very restrictive policy that is mechanistic and does not recognize the contributions that board members make to increase shareholder value. . . . It creates artificial standards.”

Disney, said Dryer, has devised its own proposal to de-stagger its board so that all members would be elected annually rather than in three-year groups as they are now.

While Disney claims most of its 16 board members are independent, some analysts, including Printz, argue that only six are independent. Among Disney’s directors are Irwin Russell, Eisner’s personal attorney; architect Robert Stern, who designed Eisner’s home, his parents’ apartment and some buildings for Disney; and Reveta Bowers, the principal of an elementary school once attended by Eisner’s children.

Printz suggests that one particularly troubling issue regarding Disney’s present board involves the question of succession.

“The Disney board has abdicated all responsibility in this area to Eisner and obviously he’s not so great in picking his own successor,” said Printz, referring to the Ovitz debacle and Eisner’s earlier rejection of Katzenberg as his heir apparent.

Aside from the issue of board independence, Printz freely admits that no Disney shareholder who’s been around for the last 13 years has much to gripe about.

As Dryer noted, “This is the board that has overseen the tremendous performance of the Walt Disney Co.,” which has seen its stock appreciate 15% since Jan. 1 of this year alone.

Presumably, the cries of the Disney dissidents will be drowned out by the giddy cheers coming from such influential Disney shareholders as Warren Buffett and the Bass brothers.

And Eisner--who recently became $565 million richer in a single day when he exercised options from a previous contract--can merrily continue down the yellow brick road.