Critics Won’t Be Easily Brushed Off

What a difference two months make. Or don’t.

Although Walt Disney Co. Chief Executive Michael Eisner has enjoyed a run of good news lately, the nation’s leading pension funds aren’t cutting him -- or his board -- any slack.

In an unusual meeting today, representatives from six public pension funds will pressure Disney directors to provide detailed plans on their company’s long-term financial strategy and on how they intend to groom a replacement for Eisner.

Above all, they say, they want assurances that Disney’s directors aren’t merely a rubber stamp for Eisner, who has been at the helm of the company for nearly 20 years.

“All the issues at Disney, as far as I’m concerned, relate back to making sure that there is true independent thinking in the Disney board,” said North Carolina State Treasurer Richard Moore, who will be among those attending today’s meeting in New York.

Six of Disney’s eleven directors will gather for today’s meeting, including newly installed board Chairman George J. Mitchell and Disney President Robert Iger. Eisner will not attend.

Disney declined to comment on any aspect of the meeting.

Also present will be representatives of the California Public Employees’ Retirement System, the California State Teachers’ Retirement System and fund officials from Ohio, Connecticut and New York.

They requested the meeting in late March, after shareholders delivered a sharp rebuke to Eisner with a no-confidence vote of 45% in his reelection to the board.

Publicly, the directors characterized the results largely as a protest against the dual roles Eisner held as chairman and chief executive. Eisner was stripped of his chairman’s title after the raucous shareholder meeting in Philadelphia.

Since then, Eisner’s hand seems to have been strengthened.

Just last week, the company recorded a 71% jump in fiscal second-quarter earnings, driven in part by a recovery in its theme parks. Earlier, Comcast Corp. said it was backing off its $49-billion takeover bid for Disney. The entertainment giant also shook up top management at its ABC network in an effort to revive the sluggish broadcasting division.

None of that, though, has prompted a change of heart among the pension funds, which are more focused on long-term returns.

“I really don’t think anything has changed,” Moore said. “Two quarters ... do nothing for me. We’re still looking at 10-year performance.”

CalPERS spokeswoman Pat Macht declined to comment on today’s meeting other than to say, “We remain as concerned today as we were prior to the vote.”

It’s rare for so many high-profile investors to meet directly with a single board, said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

He said the meeting was being viewed as a test case for the increasing corporate activism that has surfaced in the wake of scandals at Enron Corp. and other major companies.

“This could be a watershed area in terms of what the funds are able to accomplish,” Elson said.

Fund officials interviewed by The Times said that they wanted to make clear that the stunning shareholders’ vote reflected concerns not only about Eisner’s dual roles but also about Disney’s weak long-term results. In their letter to the board, the funds noted that Disney had lost more than 20% in stock value over the last five years -- nearly five times more than the losses incurred by the S&P; 500.

Fund officials also want to know specific steps board members are taking to find a successor to Eisner, including whether they are identifying executives within the company for advancement as well as looking for outside candidates.

High executive turnover at Disney and the lack of a clear succession plan for Eisner have been longtime concerns among investors. The Disney board recently vowed that Mitchell would head an effort to develop and review its succession plan for Eisner, whose contract runs through September 2006.

The board already has started reviewing candidates who could fill the top job. They have divided them into three groups: insiders, alumni and “foreigners” -- outsiders who have never worked for the company, said a source close to the board.

The fund officials also plan to question the directors about compensation. Some fund officials believe that executive pay needs to be more closely tied to performance.

In addition, the funds hope the board will allow them to nominate one or more independent directors.

Despite broad agreement on the need for Disney to improve its governance and long-term results, the coalition is divided on the question of Eisner’s future.

Though CalPERS has openly called for his removal, others, including New York State Comptroller Alan Hevesi, have said Eisner should be given more time to turn Disney around.

Fund officials also have differed over how to respond to the elevation of Mitchell, sources said. Some want the fund, as a bloc, to call for his resignation, citing his lack of business experience, the 26% no-confidence vote when he was reelected and his closeness to Eisner. Others believe that, as a tactical matter, the coalition should try to work with him.

Since the shareholder vote in March, Disney has conducted an aggressive campaign to woo the pension funds, which also have been lobbied by former directors Stanley P. Gold and Roy E. Disney. The two men led the protest campaign against Eisner.

Eisner and other company executives as well as Disney lobbyists have talked on the phone or met privately with several pension fund officials since the March meeting. That maneuvering has irked some investors.

After one meeting, Moore of North Carolina wrote to Mitchell, saying the company had treated the session like a “short-term public relations campaign.”

Also annoyed was Pennsylvania State Treasurer Barbara Hafer, who will not be attending today’s meeting but made her displeasure known in a letter to Eisner.

The company’s representatives, Hafer said, portrayed him as “an irreplaceable creative genius.... It is only in the movies that one lives forever.”