Analysts say proof of Disney reforms yet to come
By Peter Henderson
12/04/02 20:26 ET
LOS ANGELES (Reuters) -- Walt Disney Co.'s reformed boardroom rules provide a stronger framework for governance at the embattled entertainment giant, but their ultimate success hinges on the willingness of directors to challenge management, analysts said on Wednesday.
Investors, frustrated by the company's recent slump, have pushed Disney to detail turnaround plans, a successor for long-serving chief Michael Eisner and steps to improve the independent oversight by the board for the past year.
Disney's board adopted new rules on Tuesday, which give directors power to tease details of succession planning from Eisner, but a "secret letter" and the composition of the board may undermine the changes, some governance analysts said.
The rules require a substantial majority of directors be considered "independent" under guidelines that have been toughened, and the board was required to hold two annual meetings without Chairman and Chief Executive Eisner or other management directors.
Eisner is also required to discuss succession planning at least once a year with non-management directors, who will then discuss the plans at a separate meeting.
CHANGES IN LINE WITH PEERS
The changes put Disney in line with many major corporations and follow a model set by General Electric Co. and pending requirements from the New York Stock Exchange.
But the steps did not completely solve all the outstanding issues, experts said.
"The governance changes all go in the right direction. We applaud them. Our concern in the past has been the people on the board, and we would like to see more improvement," said Sarah Teslik, executive director of the Council of Institutional Investors, which represents many funds that hold Disney stock.
Eisner may still be able to dominate the board by virtue of his powerful personality and the latitude in the rules which are in some cases open to interpretation, others said.
The Disney chief is credited with revitalizing Disney from a staggering has-been in the 1980s but has been criticized for its recent performance, especially in the face of slow attendance at the company's signature theme parks and weak performance at its ABC broadcasting unit, an area that has shown sparks of improvement recently.
Eisner, the longest serving chief executive of a company in the Dow Jones Industrial Average, pressed to prepare for a successor, has drafted a letter with his recommendation, in case of an accident. He recently told Forbes magazine he recommended the "obvious" choice and hinted that would be Disney President Bob Iger.
DOTTING THE I'S, CROSSING THE T'S
Disney officials said the letter, required under the new rules, would remain sealed unless a calamity befell Eisner, which left some corporate watchdogs agog.
"That's nonsense," said Alan Cleveland, a lawyer specializing in corporate governance at Sheehan, Phinney, Bass and Green, who advises institutional investors.
"This looks like there is a real effort here to dot the I's and cross the T's with respect to good corporate governance practices," he said of the new rules. "But if you've got a succession plan that is not shared with the non-management directors, then I think it is more show than substance."
However, the new rules require the chief executive to share and discuss the plan with the board, even while it allows the letter to be secret. That means the effectiveness of Disney corporate governance rests on directors being willing and able to confront management, analysts said.
Former Senator George Mitchell has been given a leadership role as the designated chair of board meetings without management, but Mitchell, who sits on other boards and has agreed to serve on a national committee investigating the Sept. 11 attacks, may be overstretched.
PICK OF THE CROP
Disney on Tuesday added a new board member and audit committee chief, former Seagram Chief Financial Officer Robert Matschullat, but could have had its pick of the most senior executives in the United States, one investor said.
"I know of CEOs and CFOs of Fortune 10 companies who are interested in being on that board," said the investor, who declined to be named.
In addition, one of the most outspoken voices on the board, Stanley Gold, lost his nominal independent status under the new rules, since he is a financial adviser to Vice Chairman Roy Disney. Gold can no longer sit on the governance and nominating committee as a result.
Jack Coffee, a Columbia University law professor specializing in corporate governance, said new rules required directors to get to know Disney better.
"This is going to get directors down into the nitty gritty of the company," he said.
And while some analysts argued Eisner's secret letter suggested kingmaking powers, Coffee said that the letter would not be binding on the board, and that keeping it secret from senior managers could avoid defections from those not picked.
Nevertheless, he called the secrecy of the letter "an interesting decision", concluding, "I don't think that is an ideal procedure."
By Peter Henderson
12/04/02 20:26 ET
LOS ANGELES (Reuters) -- Walt Disney Co.'s reformed boardroom rules provide a stronger framework for governance at the embattled entertainment giant, but their ultimate success hinges on the willingness of directors to challenge management, analysts said on Wednesday.
Investors, frustrated by the company's recent slump, have pushed Disney to detail turnaround plans, a successor for long-serving chief Michael Eisner and steps to improve the independent oversight by the board for the past year.
Disney's board adopted new rules on Tuesday, which give directors power to tease details of succession planning from Eisner, but a "secret letter" and the composition of the board may undermine the changes, some governance analysts said.
The rules require a substantial majority of directors be considered "independent" under guidelines that have been toughened, and the board was required to hold two annual meetings without Chairman and Chief Executive Eisner or other management directors.
Eisner is also required to discuss succession planning at least once a year with non-management directors, who will then discuss the plans at a separate meeting.
CHANGES IN LINE WITH PEERS
The changes put Disney in line with many major corporations and follow a model set by General Electric Co. and pending requirements from the New York Stock Exchange.
But the steps did not completely solve all the outstanding issues, experts said.
"The governance changes all go in the right direction. We applaud them. Our concern in the past has been the people on the board, and we would like to see more improvement," said Sarah Teslik, executive director of the Council of Institutional Investors, which represents many funds that hold Disney stock.
Eisner may still be able to dominate the board by virtue of his powerful personality and the latitude in the rules which are in some cases open to interpretation, others said.
The Disney chief is credited with revitalizing Disney from a staggering has-been in the 1980s but has been criticized for its recent performance, especially in the face of slow attendance at the company's signature theme parks and weak performance at its ABC broadcasting unit, an area that has shown sparks of improvement recently.
Eisner, the longest serving chief executive of a company in the Dow Jones Industrial Average, pressed to prepare for a successor, has drafted a letter with his recommendation, in case of an accident. He recently told Forbes magazine he recommended the "obvious" choice and hinted that would be Disney President Bob Iger.
DOTTING THE I'S, CROSSING THE T'S
Disney officials said the letter, required under the new rules, would remain sealed unless a calamity befell Eisner, which left some corporate watchdogs agog.
"That's nonsense," said Alan Cleveland, a lawyer specializing in corporate governance at Sheehan, Phinney, Bass and Green, who advises institutional investors.
"This looks like there is a real effort here to dot the I's and cross the T's with respect to good corporate governance practices," he said of the new rules. "But if you've got a succession plan that is not shared with the non-management directors, then I think it is more show than substance."
However, the new rules require the chief executive to share and discuss the plan with the board, even while it allows the letter to be secret. That means the effectiveness of Disney corporate governance rests on directors being willing and able to confront management, analysts said.
Former Senator George Mitchell has been given a leadership role as the designated chair of board meetings without management, but Mitchell, who sits on other boards and has agreed to serve on a national committee investigating the Sept. 11 attacks, may be overstretched.
PICK OF THE CROP
Disney on Tuesday added a new board member and audit committee chief, former Seagram Chief Financial Officer Robert Matschullat, but could have had its pick of the most senior executives in the United States, one investor said.
"I know of CEOs and CFOs of Fortune 10 companies who are interested in being on that board," said the investor, who declined to be named.
In addition, one of the most outspoken voices on the board, Stanley Gold, lost his nominal independent status under the new rules, since he is a financial adviser to Vice Chairman Roy Disney. Gold can no longer sit on the governance and nominating committee as a result.
Jack Coffee, a Columbia University law professor specializing in corporate governance, said new rules required directors to get to know Disney better.
"This is going to get directors down into the nitty gritty of the company," he said.
And while some analysts argued Eisner's secret letter suggested kingmaking powers, Coffee said that the letter would not be binding on the board, and that keeping it secret from senior managers could avoid defections from those not picked.
Nevertheless, he called the secrecy of the letter "an interesting decision", concluding, "I don't think that is an ideal procedure."