Shareholders Stand by Disney’s Board

Walt Disney Co. shareholders rejected a move by some large institutional investors to redefine what constitutes an independent director, although the measure garnered the support of 35% of the shares voted.

The College Retirement Equities Fund made the proposal questioning whether several independent directors had too many ties to Disney and Chairman Michael Eisner.

“It’s a clear wake-up call,” said Pat McGurn, director of corporate programs at Institutional Shareholder Services, which advises institutional investors on proxy issues.

Disney will continue to listen to shareholder concerns on the issue, said Sanford Litvack, senior executive vice president and chief of corporate operations.

“Perceptions are important,” he said. “This is not a controversy we need or have sought.”

This year’s annual meeting was far more subdued than last year’s, which was characterized by Hollywood-like productions featuring Disney’s movies and TV shows and harsh questioning of Eisner by shareholders about the severance package of more than $100 million to former President Michael Ovitz.

While last year’s meeting lasted six hours, this meeting took just 2 1/2 hours and Eisner escaped any direct criticism.

Helping to mute any criticism was a 50% gain in Disney’s share price since last year’s meeting and a shift in location from a hockey arena in Anaheim to a hotel in Kansas City. Disney said it held the meeting here to observe the company’s 75th anniversary. Walt Disney founded the forerunner to the current company in Kansas City.

Tuesday’s vote could presage other attempts by CREF and other big shareholders to hold boards more accountable. CREF is talking to other companies about similar resolutions, though the investment fund wouldn’t offer a resolution unless those talks broke down, a fund officer said.

The CREF resolution defined an independent director as someone with “no present or former employment by the company or any significant financial or personal ties to the company or its management.”

The company, however, believes that the CREF definition of an independent board member is too narrow, Litvack said.

Disney’s board has several members with close ties to Eisner, including Irwin Russell, who is Eisner’s personal attorney, and Reveta Bowers, principal of the elementary school that Eisner’s children attended. The board also includes two former Disney chairmen, Raymond Watson and E. Cardon Walker.

Disney shares fell $2.13 to $111.94 Tuesday on the New York Stock Exchange.