More Pension Funds Won’t Back Eisner

Five state pension funds said Thursday that they would join a growing chorus of investors opposing Michael Eisner’s reelection as chairman of Walt Disney Co., and New York’s comptroller called for Eisner’s immediate removal.

Faced with the mounting backlash, the entertainment giant is braced to see Eisner lose as much as 30% of the shareholder votes at Wednesday’s annual meeting in Philadelphia, a source close to the company said.

Representatives of pension plans in New York, New Jer- sey, Connecticut, Massachusetts and Virginia said they had lost confidence in Eisner’s leadership of the Burbank media giant. Despite a recent rebound, the company’s earnings and stock price have changed little since the 1990s.

Alan Hevesi, New York’s comptroller and trustee of the State Common Retirement Fund -- the country’s second- largest pension fund in terms of assets -- said Disney’s board of directors should “separate the positions of chairman and chief executive and replace Mr. Eisner as soon as possible.”

The five funds’ declaration comes one day after the country’s largest pension fund -- the California Public Employees’ Retirement System -- and the smaller California State Teachers’ Retirement System fund said they planned to withhold their support for Eisner at the shareholder meeting.

Representatives of the five state funds said Thursday that they were particularly troubled by the dual roles Eisner holds as chairman and chief executive, a nexus of power that cor- porate governance activists have frowned upon in recent years.

Eisner’s “tight control over Disney’s decision making and his role as CEO and chairman of the board call into question his commitment to corporate governance reforms,” Hevesi said.

But Hevesi and others said their concerns went beyond the issue of Eisner’s joint roles.

“Eisner has created no value for shareholders for the past seven years,” said Orin Kramer, chairman of the New Jersey State Investment Council.

Disney downplayed the significance of the funds’ decisions, saying they were to be expected given that several follow the lead of Institutional Shareholder Services and Glass Lewis & Co.

The highly influential shareholder advisory firms, whose clients represent about 30% and 15%, respectively, of Disney’s shareholder base, have announced their opposition to Eisner’s reelection as chair- man.

Disney spokeswoman Zenia Mucha predicted that the “no” votes would not carry much sway with other institutional investors, given the company’s strong financial results of late. Disney, which earned $688 million in its most recent quarter, is predicting a strong year driven by the film studio and a recovery in its theme parks.

“Ultimately, investors care more about performance, and on those grounds our record speaks for itself,” Mucha said.

The seven pension funds that are withholding their votes for Eisner hold 39 million Disney shares, about 2% of the total.

While that may appear to be a small amount, their votes are of great symbolic importance because the funds’ recommendations are closely watched by large institutional investors.

“They are influential and can tip the balance” against Eisner, said longtime media analyst Harold Vogel, owner of Vogel Capital Management, a venture capital and trading fund in New York. “His position would have been better if at least one or two of these major pension funds had indicated a positive vote.”

Leading the charge against Eisner have been two former board members, Roy E. Disney and Stanley P. Gold, who resigned late last year in frustration over the company’s strategy.

Eisner is running unopposed. However, critics hope that a groundswell of opposition would weaken Eisner and force the board to take action.

Disney board member Judith Estrin said it was too early to say how directors would respond in the event of a large vote of no confidence in Eisner.

“We’re not going to react to innuendoes or claims,” she said. “Whatever the number is, the board will make a decision that is based on the best interests of shareholders.”

Analysts said several factors accounted for the flurry of pension fund anger toward Eisner.

Some are following the recommendations of the proxy research firms. In addition, a string of unfavorable developments has created unease among investors. They include the boardroom tussle with Roy Disney, the company’s bitter split with longtime partner Pixar Animation Studios and, most recently, an unsolicited takeover bid from Comcast Corp. Disney’s board has rejected the offer as too low.

“Investors don’t like uncertainty,” Vogel added. “There’s a bandwagon effect here.”

Richard Greenfield, an analyst with Fulcrum Global Partners, who has a “sell” recommendation on Disney stock, pre- dicted: “You’re going to see a significant no vote next week.”

Shareholders can vote until the day of the meeting and can reverse ballots they already have cast.

Meanwhile, Eisner and members of his inner circle continued to work the telephones to reach out to undecided investors. Eisner and director Robert Matschullat flew to Ohio on Thursday meet with representatives of the state’s public pension funds and answer questions about Disney’s corporate governance. The funds plan to reach a recommendation on Eisner’s fate by Mon- day.

Disney shares rose 43 cents to $26.73 on the New York Stock Exchange. The stock has been trading in narrow range in the last week, after soaring after Comcast’s offer.

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Times staff writer Tom Petruno contributed to this report.