Disney Investor Proposal Gets a Boost From SEC

In a victory for shareholder activists, the Securities and Exchange Commission said Walt Disney Co. should include on its shareholder ballot a proposal that could give investors a say in nominating company directors.

The opinion by the SEC staff, obtained by The Times on Friday, can be challenged by Disney. It comes two months after pension funds including the powerful California Public Employees’ Retirement System asked the SEC to allow a vote at the company’s annual meeting on the proposal. It would give Disney shareholders the right to nominate up to two directors in a board election and have them included on the ballot at no cost to the investors.

“We think it’s a very significant move on the part of the SEC,” said Richard Ferlauto, director of pension and benefits policy for the American Federation of State, County and Municipal Employees, one of the groups pushing for proxy-ballot access.

Disney declined to comment late Friday.

The Burbank-based media and entertainment giant had sought the SEC opinion under rules that allow companies to seek informal recommendations from the agency staff.

In the past, the staff usually has sided with management in cases in which shareholders have sought access to the proxy ballot, said an agency official, who spoke on condition of anonymity.

“The staff has said for a long time that these types of proposals

In this instance, however, the staff was influenced by the commission’s 2003 proposal to give shareholders of public companies a greater -- albeit limited -- opportunity to place independent board nominees on corporate ballots, the official said.

Approval of the proxy access plan has been stalled for months amid resistance from major business lobbies, but the broad goal of improving access remains the commission’s last formal word on the matter.

The proposal by CalPERS and other funds is designed to give a greater voice to shareholders who have been critical of Disney’s board and Chief Executive Michael D. Eisner. In March, shareholders delivered a 45% vote of no confidence in Eisner, who was later stripped of his chairman’s title.

The proposal would ask shareholders at the company’s 2005 annual meeting next spring to set up a process to allow shareholders to nominate up to two directors on the Disney board and for the company to include those nominees in its proxy mailings.

Currently, all the directors are nominated by the board itself, and shareholders who want to nominate outside directors have to bear the heavy cost of including them in any mailings.

If that measure is approved by a majority of shares voted, the stockholders could vote on the outside-nominated directors at the 2006 annual meeting.

When the pension funds first made the proposal in October, Disney said it would oppose the measure partly because it would create contested elections.

Officials with CalPERS and the other funds said they were pleased with some steps taken by the Disney board, including its decision to remove Eisner as chairman. But they have also expressed frustration that the board spurned three people they had recommended as directors, who could participate in the search for Eisner’s replacement as chief executive.

Instead, the board named former Estee Lauder Cos. CEO Fred Langhammer as its 12th member, effective in January. Directors have said they will add one more director next year.

The shareholder vote on the pension funds’ proposal will be a litmus test of how well Disney has done in addressing concerns over its corporate governance, said Charles Elson, professor of corporate governance at the University of Delaware.

“The vote will be a barometer of shareholders’ views on the progress or lack thereof Disney has made in addressing shareholder concerns,” he said.

The SEC’s proposal on proxy access, meanwhile, has been stalled over a provision that would allow shareholders to challenge a company’s nominee for its board of directors if 50% of them withheld votes from the company’s choice.

The two Republican members of the SEC want the proposal amended to allow boards to come up with an alternative nominee if their first choice is challenged.

The two Democrats on the commission favor a strong plan for shareholder access. Chairman William H. Donaldson, a Republican, has been struggling to broker a compromise.