Disney Settles Disclosure Case

Walt Disney Co. on Monday settled Securities and Exchange Commission allegations that it failed to tell shareholders in a timely manner that the children of three company directors worked for the entertainment giant and that other board members had financial ties to the company.

The SEC didn’t fine Disney and the Burbank company didn’t admit to any wrongdoing in the 2-year-old case, although it promised to “cease and desist” from securities violations in the future.

“Failure to comply with the SEC’s disclosure rules in this area impedes shareholders’ ability to evaluate the objectivity and independence of directors,” Linda Chatman Thomsen, deputy director of the SEC’s division of enforcement, said in a statement.

A Disney spokesman declined to comment.

Although the Burbank company isn’t being penalized, the settlement comes at an awkward time.

Disney has been making strides in revamping its board to appease critics who contended that it historically lacked independence under Chief Executive Michael Eisner. Past and current directors also are under fire in a Delaware lawsuit in which shareholders allege that directors rubber-stamped Eisner’s hiring and firing of Michael Ovitz. Ovitz was Disney’s president for a little more than a year and received a severance package valued at $140 million in 1996.

“While some may view this as a wrist slap ... it’s a major embarrassment for Disney directors and executives,” said Lynn Turner, managing director of Glass Lewis, a San Francisco proxy service firm.

In the settlement, regulators said Disney should have reported from 1999 to 2001 that three directors at the time -- Stanley P. Gold, Reveta Bowers and Raymond Watson -- had adult children working at the company. Each child made more than $60,000 a year, the threshold for reporting to the SEC, with one making more than $150,000.

Gold, Bowers and Watson have all since left the board.

Disney also was admonished for failing to properly disclose that the wife of current board member John Bryson made more than $1 million a year as senior executive at Lifetime TV cable channel, 50% owned by Disney.

Finally, the SEC said that Disney neglected to properly disclose that the company provided a car, a driver and secretarial services to former Capital Cities/ABC Inc. Chairman Thomas Murphy when he became a company director, and that it reimbursed an aviation company owned by former Vice Chairman Roy E. Disney when he used his own plane on company business.

Murphy and Disney, a nephew of the company’s founder, also have since left the board.

Roy Disney and Gold led a shareholder revolt against Eisner that resulted in a 45% no-confidence vote at the annual shareholder meeting in March.

A spokesman for Gold and Disney said the two had no comment. Bowers, Bryson, Murphy and Watson couldn’t be reached.

Disney detailed the family relationships in 2002 as the New York Stock Exchange was in the process of adopting a new, more stringent definition of an independent director. Disney’s disclosure triggered an inquiry by the SEC questioning why the company hadn’t provided the information earlier. Disney revealed the SEC probe to shareholders later that year, adding that it was cooperating with the agency.

In the settlement, the SEC criticized Disney for disseminating erroneous information in a letter to shareholders in April 2002 about the independence of its board members.

In the letter, Disney said it had reformed its corporate governance, declaring that key board committees were “now restricted to independent directors” and that Disney had 13 independent directors. At the time, however, only 10 directors could be classified as independent because of the family ties to the company.

The SEC has been cracking down on companies for failing to disclose enough information to shareholders. In September, the agency agreed to a similar settlement with General Electric Co. for failing to detail the lucrative retirement benefits for former CEO Jack Welch, including use of GE planes, an $11-million Manhattan apartment, a chauffeured limousine, bodyguards and security systems for his homes.

Disney shares rose 5 cents to $27.42 on the NYSE.