Mitchell Consult Work Is Criticized

Walt Disney Co.’s new chairman, former U.S. Sen. George J. Mitchell, has praised the company for being at the vanguard of the corporate reform movement -- even if it got there with a shove from shareholders.

“We have established governance as a top priority for one reason,” the renowned lawmaker and peacemaker recently told Disney investors and analysts. “It’s the right thing to do.”

The Burbank-based entertainment conglomerate recently split the jobs of chief executive and chairman and, earlier, ended business relationships between the company and directors. That hit Mitchell’s wallet; as a Disney director, he had netted $300,000 in Disney consulting fees.

But the flow continued elsewhere. Regulatory filings show that after Mitchell stopped receiving the fees from Disney, he continued to earn them from other boards on which he sat. And that has prompted some governance experts and investment fund officials to question his sincerity toward reform and sensitivity to appearances.

“You would like there to be consistency,” said Christi Wood, senior investment officer for global equities at the California Public Employees’ Retirement System. “The fact is, if he really practiced what he preached and believes in good governance, you would think he would not be doing consulting work for companies where he’s on the board.”

Mitchell, who says his consulting work hasn’t compromised his judgment, receives fees from two companies on whose boards he sits -- FedEx Corp. and Staples Inc.

According to proxy documents, FedEx, the overnight mail service, is paying Mitchell $100,000 a year for consulting work while he serves on the board’s compensation and governance committees. So far, he is eligible to have received more than $800,000 since joining the board in 1995, according to regulatory filings.

Office supply giant Staples, meanwhile, has a deal to pay Mitchell $75,000 annually in stock for consulting services under an agreement established when he joined the board in 1998. Like several other boards on which Mitchell has served -- including Disney’s -- Staples retained Washington law firm Piper Rudnick, where Mitchell is a partner. Disney no longer uses the firm.It isn’t uncommon for high-profile public figures to command special payments for lending their expertise and names to corporate boards. But in the wake of scandals at Enron Corp., WorldCom Inc. and elsewhere, the practice has drawn fire from some investors and corporate governance activists. Their concern is that directors may have competing loyalties between the shareholders they are supposed to serve and the executives who put them on the payroll.

Mitchell, who would respond only in writing to questions submitted by The Times, said: “I have always thought, spoken and acted with complete independence on the Disney board and on all other boards on which I have served.”

He stressed that there are no laws or stock exchange rules barring directors from receiving money on top of their regular compensation for board service.

“The fact that Disney has chosen to adopt governance guidelines that go beyond the requirements of any existing or contemplated rule has nothing whatever to do with the policies and practices of other companies,” he said. “There is nothing inconsistent about the fact that different companies use different approaches to achieve full compliance.”

Executives of Staples and FedEx defended the payments to Mitchell and praised his contributions to their companies.

“Obviously, he’s very well respected and his work in the international arena has proven very valuable to the company, so we’re happy to have him,” FedEx spokeswoman Kristin Krause said. “It was determined that his [consulting] work is independent from his board activities.”

Staples CEO Ron Sargent also said Mitchell’s compensation hadn’t undermined his effectiveness. He said Mitchell was classified as a non-independent director because of his consulting fees.

“You put people on your board because they bring value to your shareholders,” Sargent said. “Sen. Mitchell has done that in spades.... The key is disclosure, and we’ve certainly done that.”

In recent months, Mitchell’s business affairs have come under increasing scrutiny because of the turmoil that has engulfed Disney. He was named chairman earlier this month after shareholders walloped his predecessor, Michael Eisner, with a 43% vote of no-confidence in his reelection to the board. Eisner, who lost the chairman’s title after nearly 20 years, remains chief executive.

Mitchell’s credibility also took a hit in the vote. Of shares cast, 24% were withheld for his reelection, a result that some major investors said should have precluded his ascension. Among other things, they questioned his independence because of the past business ties to Disney. Company executives have countered that Mitchell is one of the nation’s most respected leaders, whose integrity is beyond reproach.

One powerful voice in the investor revolt was Institutional Shareholder Services, which advises pension funds and other major investors on proxy votes. It recommended that clients withhold votes from Eisner but that they support Mitchell because of his apparent open-mindedness.

But the service’s senior vice president, Patrick McGurn, said he found it hard to square Mitchell’s continuing consulting work with his praise of Disney’s move toward broad reforms.

“Whether you want to call it hypocrisy or inconsistency, both terms would apply,” McGurn said. “If it’s bad at one company, why isn’t it bad at all companies?”

Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, agreed.

“As a director, your job isn’t to consult for the company,” he said. “In the post-Enron environment, these relationships are very frowned upon.... He [Mitchell] is a bright and sensitive guy. I wish he’d step back and evaluate his position on this issue.”

Mitchell joined the Disney board in 1995 after 15 years in the Senate, where the Maine Democrat ended his career as majority leader. Soon after, he began receiving annual consulting fees of $50,000 to assist in the company’s “international business operations and development efforts,” according to Disney regulatory filings. (Non-employee directors at Disney receive annual retainers of $45,000 and $1,000 per meeting.)

His law firm -- then called Verner, Liipfert, Bernhard, McPherson & Hand -- was hired by Disney. Over a three-year span, the firm received more than $2 million for advice on a “variety of legal and regulatory matters,” including federal regulatory hearings on the cable and broadcast industry.

The exact nature and extent of Mitchell’s personal consulting remains unclear.

In his response to The Times, Mitchell said: “I met and consulted with the CEO and with other members of Disney management on international business operations and made several trips on such matters, including visits to Tokyo and Paris.”

Several former high-level Disney executives familiar with the company’s international operations said they never crossed paths with Mitchell in any of their overseas business. Jim Cora, a former chairman of Disneyland International, recalled only a brief encounter with Mitchell during an event at Tokyo Disneyland that was attended by other directors as well.

“I honestly didn’t know he was a consultant until I read about it in the proxy,” said Cora, who retired in 2001 after 43 years at Disney.

Paul Pressler, Disney’s former theme parks and resorts chief who now heads Gap Inc., said through a spokesman that he had “no knowledge of the consulting work that Mitchell did for Disney.”

Disney spokesman John Spelich wouldn’t elaborate on Mitchell’s consulting duties, saying the information was “proprietary.”

Whatever the work, Disney’s payments to Mitchell and his law firm -- along with other ties between board members and Eisner -- prompted an outcry from corporate governance activists.

CalPERS, for one, withheld support for Mitchell’s reelection two years running, citing his business ties to Disney.

Disney directors responded to accusations that they were too soft on management by enacting a series of sweeping reforms. The changes adopted in 2002 included shrinking the board’s size and hiring more independent directors.

The company also ended the consulting and professional services relationships that Mitchell and fellow director Robert A.M. Stern had enjoyed. Stern’s architectural firm received more than $1.2 million in fees from Disney. He has since left the board.

Mitchell proudly recited the reforms when he spoke to investors in Orlando, Fla., last month, before the shareholder rebuke.

“Ultimately, the actions we have taken are about more than just Disney,” he said. “They are about governance. Whether with a small ‘g’ or a capital ‘G,’ there are few issues more important or of more meaning to me personally.”

Times researcher John Jackson contributed to this report.