Novice Disney Board Member to Be Chairman

Walt Disney Co. on Wednesday named the former chief executive of consumer products giant Procter & Gamble Co. as its next chairman, part of an ongoing remake of a board once criticized for passivity and lack of independence.

John E. Pepper Jr., 67, one of Disney’s newest outside directors, will take over the position on Jan. 1 from retiring Chairman George J. Mitchell, the former Senate majority leader. Disney Chief Executive Robert A. Iger in a statement said Pepper “has quickly immersed himself in our business” since joining the board of the Burbank-based entertainment giant in January.

Shareholder groups praised the move. Mitchell had long been criticized for being too close to former Disney CEO Michael D. Eisner, who retired last year. Mitchell assumed the chairman’s post during a crisis in March 2004, when directors stripped Eisner of the job following a contentious annual meeting in which Eisner received an embarrassing 45% no-confidence vote from investors.

“Eisner’s era was over anyway, but this puts an exclamation point on it,” said Patrick McGurn, executive vice president of proxy advisor Institutional Shareholder Services Inc.

Disney’s board for years was criticized for lacking business experience and having personal ties to Eisner. At one time, its directors included Eisner’s personal lawyer, his architect and the principal of the elementary school his kids attended. Business Week named Disney’s board the worst in America for two years running, in 1999 and 2000.

“The only reason we gave Disney an ‘F’ in corporate governance,” said Nell Minow of Corporate Library, a shareholder rights advocate, “is because there wasn’t a lower grade we could give.”

Responding to shareholder pressure, Disney in Eisner’s final years as CEO began a revamping that eventually earned the company praise from corporate governance experts.

All but three of Disney’s 14 directors are now classified as independent. Disney also has separated the job of chairman from that of chief executive, turning it into a non-executive position.

Mitchell had planned to leave the board earlier this year. But he was asked in December to delay his departure so a successor could be found, even though he had reached the mandatory retirement age of 72.

Other directors had expressed interest in the post, but the same length of tenure that they felt made them strong candidates would have troubled some investors.

“One of the things I find most appealing is that they picked one of the new people, which is very courageous,” said Minow. “This really underscores that a new era has begun, and I think that’s just great.”

If Disney’s stock were still headed down, the board instead might have tried to signal a big change in direction by tapping Apple Computer Inc. CEO Steve Jobs.

But investors have been pleased with Iger so far, and Jobs, who became a director earlier this year with Disney’s acquisition of Pixar Animation Studios, has dismissed suggestions he should be chairman and isn’t classified as independent. With the Pixar deal, he now owns 7% of Disney’s stock, making him its largest shareholder.

Pepper is one of four directors added to Disney’s board since 2005. He also sits on the board of Boston Scientific Corp. and was a director of Motorola Inc.

A Yale graduate, Pepper spent 38 years at Cincinnati-based Procter & Gamble, where he attracted attention for rejuvenating overseas operations. He took over as CEO from an ardent cost-cutter and was seen as far more collegial during his four years on the job. Pepper served until 1999 and was P&G;’s chairman between 2000 and 2002. He later took the top financial job at his alma mater.

Inside and outside Disney, some said Pepper’s management experience and international background would be welcomed, because overseas growth was a key goal of Iger’s.

“He’s respected in the financial community,” said University of Delaware corporate governance expert Charles Elson. “It’s real progress.”

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Back story

Name: John Pepper

Age: 67

Education: B.A., Yale, 1960

Military service: U.S. Navy, 1960-63

Key positions: At Procter & Gamble, he was president from 1986 to 1995, CEO and chairman from 1995 to 1999, and chairman from 2000 to 2002.

Source: Times research

Los Angeles Times