Are Disney’s Directors Only Eisner’s Puppets?

To Walt Disney Co. shareholders hoping that Comcast Corp.’s offer -- or any others that follow -- will get an objective hearing on their behalf, the scariest words in the world might have been the ones uttered by Disney Chairman and Chief Executive Michael Eisner late last week: “The board is very solidly behind the management of this company.”

Of course, it’s possible that Eisner was talking through his hat. It’s also possible that the board is behind him largely because several directors who stood up to him in the past, namely Andrea Van de Kamp, Roy E. Disney and Disney’s business partner, Stanley P. Gold, have been ousted or quit. Finally, it’s possible that the board sees in Eisner something that Comcast has overlooked: a skilled executive poised to lead his company back to glory after seven years of wandering through the slough of despond.

Comcast’s bid threw down the gauntlet to a board that has long had a reputation as Eisner’s cat’s-paw. According to the traditional picture of this body, Eisner sets its agendas. He brooks little discussion at board meetings and certainly not heated disagreement, and seldom loses a vote. He discourages directors’ getting to know one another outside of board meetings, the better to remain the sole source of information for each.

Several board members say this picture is a caricature, but it nevertheless contributed to last week’s recommendation by Institutional Shareholder Services, a widely respected advisory firm for institutional investors, that shareholders cast a symbolic “no” vote against Eisner’s election to the board at the Disney annual meeting next month. (“If there were ever a case for separating the roles of Chairman and CEO,” ISS wrote, “this company is the poster child.”)

Is that changing? In recent years, the board has taken steps to move toward what corporate do-gooders call “improved governance.” It retired several directors whose role seemed to be chiefly decorative, such as the movie star Sidney Poitier, and raised the ratio of at least nominally independent directors -- those without financial ties to Eisner or the company.

It created the post of presiding director, a job designed as a sort of non-Eisner center of authority, and filled it with former U.S. Sen. George Mitchell, a longtime Disney director whose work as a negotiator in Northern Ireland and the Middle East has given him unassailable credentials for rectitude and intrepidness. Mitchell schedules an executive session at every board meeting, from which Eisner and other Disney officers are excluded.

“The board is absolutely getting a bad rap,” Judith Estrin, a successful Silicon Valley entrepreneur and a Disney director since 1998, told me. She says it has made steady progress toward modern standards of independence and stockholder representation, and that public perceptions haven’t caught up to reality. “This process takes time,” she says. “You can’t find great board members in a month.”

Plainly its bad rap has begun to get under the board’s skin. Over the last few days Estrin and other directors have taken rare public exception to an attack -- some of it exceedingly personal -- that Gold and Roy Disney launched in a conference call with a proxy advisory firm the day the Comcast offer was unveiled. (“About two-thirds of the way through every meeting I’ve ever sat through,” Disney said at one point, “they’re looking at their watch trying to figure out what time the plane leaves.”)

The conclusion is unavoidable that things must have gotten, well, rather colorful inside the boardroom while Gold and Disney were still directors. (Some of the remaining members talk about “appreciating” and “respecting” the brusque and outspoken Gold in tones that suggest that most of the time they were wishing he’d just shut up.) Now that the two dissidents are on the outside tossing bombshells back over the wall, their targets contend that they’re trying to provoke the board into dumping Eisner simply to get some peace and quiet.

Board members say that whatever the case in the past, the current Disney board is a “model of independence,” in the words of Raymond L. Watson, vice chairman of Irvine Co. and a Disney director for 30 years. (Watson will retire from the board next month.) “It’s totally false that the board is Michael Eisner’s instrument.”

Still, in many ways the Disney board remains a living testament to what’s wrong with American corporate governance, even in this supposed golden age of empowered oversight.

Among the directors are current or former officials of companies so troubled that their ability to oversee Disney’s journey out of the swamp is debatable.

Take John E. Bryson, the chairman and chief executive of Edison International and a Disney director since 2000. As a utility executive Bryson lobbied for the deregulation of California’s electrical industry, which he saw as an opportunity to reap huge profits in the free market. When deregulation turned catastrophic, he recast his company as a reluctant participant and lobbied for a state bailout from the risks of competition in the cold, cruel world. Southern California Edison customers are still paying the price for his misjudgments.

Bryson also sits on the board of Boeing Co., where scandals involving its apparent misappropriation of a competitor’s secrets and its alleged tampering with a Defense Department official cost CEO Phil Condit his job last year.

Former Sen. Mitchell was a director of Xerox Corp. through 2002, a period in which that company faced allegations that its management manipulated its financial results for four years -- and failed to cooperate with government investigators to boot. (The company paid a stiff fine, restated four years of results and, surprise, neither admitted nor denied the charges.)

One of the board’s newest directors -- joining only last month -- is Aylwin Lewis, the chief operating officer of Yum Brands Inc. (This is the holding company for KFC, Pizza Hut and a few other fast-food chains). Lewis sits on one other board -- that of Halliburton Co., which is no longer famous for being the company once headed by Vice President Dick Cheney. It’s now famous because of its apparent compulsion to rip off the federal government in ever-novel ways on its contracts for oil and administrative services in Iraq.

Mitchell’s resume, meanwhile, raises another important point about the Disney board (and, sadly, many others): He looks to be stretched rather thin. At present, Mitchell sits on three corporate boards other than Disney’s -- FedEx Corp., Staples Inc. and Starwood Hotels & Resorts Worldwide Inc. He is also a partner in a prominent Washington lobbying firm, and presumably remains on call to help quell any geopolitical crises that may require his intervention.

To be fair, Mitchell, has sharply scaled back his workload -- in the 2000-02 period, he sat on eight boards. And he has many admirers in the company, who say he has never missed a board or committee meeting in his nine years as a director.

“His reputation speaks for itself -- he is a very high-integrity person,” Estrin says. “He’s at every board meeting, engaged. This is a high priority for him.”

One principle of corporate board-making, Watson observes, is that directors should have enough outside interests and financial resources to keep them from being beholden to any company’s management. But how many directorships can one person handle while remaining fully engaged? Eight seems certainly to be overdoing it, but what about four? (This reminds me of the old joke about martinis -- one’s not enough, two’s too many, three’s not enough, etc.)

The prevalence of multiple directorships among the Disney board members -- and once again, this is characteristic of almost all corporate boards -- underscores how the traditional view of directorships as part-time jobs is increasingly at odds with the time demands of board membership, its increasing exposure to legal liability and mounting shareholder expectations.

Even the compensation paid to directors recognizes implicitly that managements don’t really expect them to pay rapt attention. After all, the benchmark fee of about $50,000 a year may seem lavish for a VIP to sit through four or six board meetings a year in a stupor; but it’s not nearly enough for someone determined to keep a canny CEO like Michael Eisner in check by actually learning the business.

The truth is, it’s impossible to tell just from the testimony of insiders and dissidents whether the Disney board is now genuinely independent or whether its governance initiative is still, to crib from the title of Eisner’s 1998 autobiography, a work in progress. Board members can praise Eisner’s assiduousness in meeting and communicating with them, while begging the question of whether he’s always told them everything they need to know.

One can attribute Disney’s woeful performance over the last few years to the bad economy and the aftermath of 9/11, as Eisner’s fans do, or consider whether the fabulous job he did with the late Frank Wells in turning around the company from 1984 to 1994 continues to inoculate him from taking more responsibility for the dismal decade that followed.

If this board is truly independent, it could ask for no better opportunity to show it than through its handling of the Comcast offer. That doesn’t mean it has to accept even a bid at a financial premium, only that a rejection will have to be based on more than: In Eisner we trust. Comcast implicitly made Eisner the issue in its merger offer, and it may be that the board can fulfill its responsibility to the shareholders only by isolating him from the review process and striking out on its own, wherever the path leads.

Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at golden.state@latimes.com and read his previous columns at latimes.com/hiltzik.