Corporate Version of a Recall Is Difficult, Costly and Rare

Walt Disney Co. shareholders may not recognize the term “consent solicitation,” but many people -- at least in California -- will recognize a tactic that Roy E. Disney and Stanley P. Gold are considering in their quest to oust Disney Chief Executive Michael Eisner.

Essentially it’s the same strategy that got Arnold Schwarzenegger elected governor. In politics, they call it a recall.

Consent solicitations allow shareholders of public companies to vote on important matters between regular corporate elections. In the case of Disney, dissident shareholders could seek a consent solicitation to oust a director, change corporate bylaws or even sell the company to a particular bidder.

“This is very California,” said Nell Minow, editor of a corporate governance website called the Corporate Library. “It’s just like a recall.”

Like recalls, consent solicitations are expensive and rare.

State law in Delaware, where Disney is incorporated, requires that the group or individual pressing for the election contact all company shareholders. For the consent effort to succeed, a majority of the outstanding shares must be voted in favor of the proposal. That’s a heavy burden.

In Disney’s case, there are about 2 billion shares outstanding, held by 2.8 million individuals and institutions, a company spokesman said. To mail one letter with 37 cents postage, the cost of reaching those shareholders exceeds $1 million.

But getting the requisite number of votes would take far more than a stamp, experts predicted.

“The mechanics are fairly complicated and turnout is always an issue,” said Beth Young, senior research associate with the Corporate Library.

Any shareholder can launch a consent solicitation. Typically, the promoter pays for an outside company to print ballots, mail them to shareholders and tabulate results. From the time the effort is officially launched, backers have 60 days to get a majority of shares voted in their favor or the “consents” expire, Young said.

In a regular proxy vote, a victory can be had with a majority of all ballots cast. A consent solicitation, however, requires a majority of all outstanding shares, so someone who doesn’t turn in a ballot is effectively voting no.

At Disney’s annual meeting in Philadelphia on Wednesday, 43% of shareholders casting ballots withheld support for Eisner. That was well short of the level of opposition needed for a consent solicitation to succeed.

In addition, a solicitation seeking the removal of the chief executive is a far more drastic step than what unfolded in Philadelphia, and one that shareholders would likely weigh very carefully, said Greg Taxin, chief executive of San Francisco-based proxy advisory firm Glass, Lewis & Co.

That sales job has to be compelling and sometimes, in person, Taxin said. And, still, the chance of success is slim.

“It is not the sort of thing that most shareholders could afford or that would make economic sense,” he said. “What’s different here is that you have a very passionate, very wealthy shareholder who is willing to spend an amount that others may consider to be an irrational amount of money to make sure that his views prevail.”