Eisner Vote Forces Disney to Catch-Up
By LAURA M. HOLSON
Published: March 10, 2004
LOS ANGELES, March 9 - The Walt Disney Company and its lawyers are renegotiating the employment contract of Michael D. Eisner, the company's embattled chief executive, to allow him to retain a salary of $1 million even though he has resigned as chairman, according to two people close to the negotiations.
What the haggling this week over Mr. Eisner's contract reflects, analysts said, is that Disney's board was forced to act sooner than expected in separating the chairman and chief executive jobs in the face of overwhelming shareholder dissent in recent days. The board has expressed confidence in Mr. Eisner, worried that if he left now, the company would be vulnerable to a hostile takeover attempt, like the recent $54 billion offer from the Comcast Corporation, or would falter on its planned turnaround.
Mr. Eisner's contract, which was reached in 2000, provided that he could quit if he was not retained as chairman through Sept. 30, 2006, when his contract expires. As a result, the board had to renegotiate Mr. Eisner's contract so that he would stay, something he wanted anyway, the two people said.
Now the board and Disney executives are grappling with how the duties of chairman and chief executive will be divided, something they plan to address next month. George J. Mitchell, the former senator who was named chairman, has already said that he plans to resign in less than two years when he turns 72.
"That's not the sequence that you would expect for an organization which has said succession planning is one of their highest priorities," said Tom Wolzien, an analyst at Sanford C. Bernstein. "You wonder how they have changed the termination provisions in Michael's contract and, if they have, what he is getting paid for the privilege."
Mr. Eisner's contract is still being worked out. One person close to the negotiations said that Mr. Eisner, who is 62, would retain most of the benefits in his current contract.
He is now entitled to a post-termination bonus of at least $6 million a year for two years as long as he does not accept another job, according to regulatory filings. His current arrangement provides that he will become a consultant when his contract ends and retain the same perquisites he had as chief executive.
While consulting contracts are common for long-term executives, they have also come under new scrutiny. That is particularly so after it was disclosed in 2002 that John F. Welch Jr., the former chief executive of General Electric who was named a consultant when he left, retained access to the company jet, prime seats at sports games, and had costs of laundry and toiletries paid for at his New York apartment.
"Such arrangements should be more openly questioned," said Sarah Teslik, executive director of the Council of Institutional Investors, which advises large shareholders on governance issues.
What has many Disney investors and analysts concerned is whether Mr. Eisner will leave sooner than Sept. 30, 2006. One person who has talked to Disney's board members said, given the overwhelming outcry from shareholders, it was unlikely that the board would extend his contract beyond 2006. This person said that some directors were wondering whether Mr. Eisner should announce his retirement this year so a formal search for a successor could begin.
A concern is that Disney's directors are vulnerable in light of a proposal being considered by federal regulators that would allow shareholders to put up their own slate if a director receives a no-confidence vote of more than 35 percent. With 43 percent of shareholder votes withheld from Mr. Eisner, the board is well over the minimum threshold. Directors expect that the pressure from dissidents, including former board members Roy E. Disney, the nephew of Walt Disney, and his financial adviser, Stanley P. Gold, who have vowed to oust Mr. Eisner, will not relent.
"The board is not going to sacrifice itself for Michael," said the person who has talked to Disney's directors.
Disney's board had not planned to separate the chairman and chief executive jobs for some time. As little as two weeks ago, Mr. Mitchell told listeners on an investor conference call that it would not happen until 2006. But the board's thinking shifted after several pension funds and proxy advisers indicated in late February that they would not support Mr. Eisner's re-election to the board, a Disney executive said.
Directors received early estimates that Mr. Eisner would receive a no-confidence vote as high as 40 percent, far more than the 30 percent that most had been expecting. And two large institutional investors were still undecided, the executive said. If they voted against Mr. Eisner, the no-confidence vote would soar to near 50 percent, making it one of the most overwhelming rejections of an executive in recent history.
On Saturday, Feb. 28, the board met by telephone to discuss separating the chairman and chief executive jobs to appease critics, Mr. Mitchell said in an interview last week. Any separation, though, was problematic. For one, Mr. Eisner's contract stated that if he lost the chairmanship, he could quit within 60 days. The board was concerned that his departure would leave Disney vulnerable to the Comcast, which has made a hostile bid for the company. Equally as challenging was who would take the job.
Several directors were potential candidates, said two people close to the board, including Robert Matschullat, a former entertainment executive, and Gary Wilson, Disney's former chief financial officer. Both had experience and got along well with Mr. Eisner. The board even discussed appointing a 12th director with a strong business background to become chairman, the two people said.
But ultimately it came down to Mr. Mitchell, who oversaw peace talks in Ireland nearly a decade ago and who everyone agreed had the credibility to calm the warring factions of shareholders. No decision was reached that day, Mr. Mitchell said. The board instead agreed to meet at the Four Seasons in Philadelphia the night before the annual meeting on March 3.
Mr. Mitchell, according to one person, was not wholly enthusiastic about being chairman. Mr. Mitchell had young children at home and wanted to spend time with his family in New York, not Burbank, Calif., where Disney is based, the person said. Mr. Mitchell himself said this week that he did not intend to remain chairman past the board's mandatory retirement age of 72.
But investor discontent was mounting and critics were calling for Disney's board to act. More than 800 disgruntled shareholders showed up at a rally last Tuesday to support Mr. Disney. Many of them were more than eager to talk to the 135 television and newspaper reporters who had come to Philadelphia. Mr. Mitchell said he told the board on Tuesday night he would agree to become chairman if asked.
On Wednesday morning, after fierce lobbying by Disney, the two holdout institutional investors agreed to vote in support of Mr. Eisner, a Disney executive said. But even then, the no-confidence vote for Mr. Eisner was 43 percent. And Mr. Mitchell himself received a no-confidence vote of 24 percent, second only to Mr. Eisner.
As board members gathered along with their advisers at their hotel after the five-and-a-half hour shareholder meeting, not everyone agreed on how to proceed, said the two people close to the board. One adviser thought the board should wait until the controversy cooled before making a decision, one person said. Some board members debated whether there would be a backlash against them if they named Mr. Mitchell chairman, given his low marks.
But in the end, all of them, including Mr. Eisner, agreed that they would have to separate the two jobs to stem the shareholder revolt, the two people said. After discussing the move with lawyer Martin Lipton, who had been hired to advise the company, the board announced late Wednesday that Mr. Mitchell would become Disney's new chairman.
The company is expected to announce that it has a new contract with Mr. Eisner in the next week, according to an executive there. Mr. Eisner said in an interview the day after the shareholder meeting that he did not plan to leave Disney anytime soon.
In fact, when asked about what it was like to be criticized by Mr. Disney in front of a crowd of 3,000 investors at the shareholder meeting, he said, "It was a nonevent."
Of Mr. Disney's complaints, he said, "You hear the same thing over and over again with no concrete suggestions. What matters is the performance of the company."
http://www.nytimes.com/2004/03/10/b...f3c12b788037c729&ex=1079586000&partner=GOOGLE
By LAURA M. HOLSON
Published: March 10, 2004
LOS ANGELES, March 9 - The Walt Disney Company and its lawyers are renegotiating the employment contract of Michael D. Eisner, the company's embattled chief executive, to allow him to retain a salary of $1 million even though he has resigned as chairman, according to two people close to the negotiations.
What the haggling this week over Mr. Eisner's contract reflects, analysts said, is that Disney's board was forced to act sooner than expected in separating the chairman and chief executive jobs in the face of overwhelming shareholder dissent in recent days. The board has expressed confidence in Mr. Eisner, worried that if he left now, the company would be vulnerable to a hostile takeover attempt, like the recent $54 billion offer from the Comcast Corporation, or would falter on its planned turnaround.
Mr. Eisner's contract, which was reached in 2000, provided that he could quit if he was not retained as chairman through Sept. 30, 2006, when his contract expires. As a result, the board had to renegotiate Mr. Eisner's contract so that he would stay, something he wanted anyway, the two people said.
Now the board and Disney executives are grappling with how the duties of chairman and chief executive will be divided, something they plan to address next month. George J. Mitchell, the former senator who was named chairman, has already said that he plans to resign in less than two years when he turns 72.
"That's not the sequence that you would expect for an organization which has said succession planning is one of their highest priorities," said Tom Wolzien, an analyst at Sanford C. Bernstein. "You wonder how they have changed the termination provisions in Michael's contract and, if they have, what he is getting paid for the privilege."
Mr. Eisner's contract is still being worked out. One person close to the negotiations said that Mr. Eisner, who is 62, would retain most of the benefits in his current contract.
He is now entitled to a post-termination bonus of at least $6 million a year for two years as long as he does not accept another job, according to regulatory filings. His current arrangement provides that he will become a consultant when his contract ends and retain the same perquisites he had as chief executive.
While consulting contracts are common for long-term executives, they have also come under new scrutiny. That is particularly so after it was disclosed in 2002 that John F. Welch Jr., the former chief executive of General Electric who was named a consultant when he left, retained access to the company jet, prime seats at sports games, and had costs of laundry and toiletries paid for at his New York apartment.
"Such arrangements should be more openly questioned," said Sarah Teslik, executive director of the Council of Institutional Investors, which advises large shareholders on governance issues.
What has many Disney investors and analysts concerned is whether Mr. Eisner will leave sooner than Sept. 30, 2006. One person who has talked to Disney's board members said, given the overwhelming outcry from shareholders, it was unlikely that the board would extend his contract beyond 2006. This person said that some directors were wondering whether Mr. Eisner should announce his retirement this year so a formal search for a successor could begin.
A concern is that Disney's directors are vulnerable in light of a proposal being considered by federal regulators that would allow shareholders to put up their own slate if a director receives a no-confidence vote of more than 35 percent. With 43 percent of shareholder votes withheld from Mr. Eisner, the board is well over the minimum threshold. Directors expect that the pressure from dissidents, including former board members Roy E. Disney, the nephew of Walt Disney, and his financial adviser, Stanley P. Gold, who have vowed to oust Mr. Eisner, will not relent.
"The board is not going to sacrifice itself for Michael," said the person who has talked to Disney's directors.
Disney's board had not planned to separate the chairman and chief executive jobs for some time. As little as two weeks ago, Mr. Mitchell told listeners on an investor conference call that it would not happen until 2006. But the board's thinking shifted after several pension funds and proxy advisers indicated in late February that they would not support Mr. Eisner's re-election to the board, a Disney executive said.
Directors received early estimates that Mr. Eisner would receive a no-confidence vote as high as 40 percent, far more than the 30 percent that most had been expecting. And two large institutional investors were still undecided, the executive said. If they voted against Mr. Eisner, the no-confidence vote would soar to near 50 percent, making it one of the most overwhelming rejections of an executive in recent history.
On Saturday, Feb. 28, the board met by telephone to discuss separating the chairman and chief executive jobs to appease critics, Mr. Mitchell said in an interview last week. Any separation, though, was problematic. For one, Mr. Eisner's contract stated that if he lost the chairmanship, he could quit within 60 days. The board was concerned that his departure would leave Disney vulnerable to the Comcast, which has made a hostile bid for the company. Equally as challenging was who would take the job.
Several directors were potential candidates, said two people close to the board, including Robert Matschullat, a former entertainment executive, and Gary Wilson, Disney's former chief financial officer. Both had experience and got along well with Mr. Eisner. The board even discussed appointing a 12th director with a strong business background to become chairman, the two people said.
But ultimately it came down to Mr. Mitchell, who oversaw peace talks in Ireland nearly a decade ago and who everyone agreed had the credibility to calm the warring factions of shareholders. No decision was reached that day, Mr. Mitchell said. The board instead agreed to meet at the Four Seasons in Philadelphia the night before the annual meeting on March 3.
Mr. Mitchell, according to one person, was not wholly enthusiastic about being chairman. Mr. Mitchell had young children at home and wanted to spend time with his family in New York, not Burbank, Calif., where Disney is based, the person said. Mr. Mitchell himself said this week that he did not intend to remain chairman past the board's mandatory retirement age of 72.
But investor discontent was mounting and critics were calling for Disney's board to act. More than 800 disgruntled shareholders showed up at a rally last Tuesday to support Mr. Disney. Many of them were more than eager to talk to the 135 television and newspaper reporters who had come to Philadelphia. Mr. Mitchell said he told the board on Tuesday night he would agree to become chairman if asked.
On Wednesday morning, after fierce lobbying by Disney, the two holdout institutional investors agreed to vote in support of Mr. Eisner, a Disney executive said. But even then, the no-confidence vote for Mr. Eisner was 43 percent. And Mr. Mitchell himself received a no-confidence vote of 24 percent, second only to Mr. Eisner.
As board members gathered along with their advisers at their hotel after the five-and-a-half hour shareholder meeting, not everyone agreed on how to proceed, said the two people close to the board. One adviser thought the board should wait until the controversy cooled before making a decision, one person said. Some board members debated whether there would be a backlash against them if they named Mr. Mitchell chairman, given his low marks.
But in the end, all of them, including Mr. Eisner, agreed that they would have to separate the two jobs to stem the shareholder revolt, the two people said. After discussing the move with lawyer Martin Lipton, who had been hired to advise the company, the board announced late Wednesday that Mr. Mitchell would become Disney's new chairman.
The company is expected to announce that it has a new contract with Mr. Eisner in the next week, according to an executive there. Mr. Eisner said in an interview the day after the shareholder meeting that he did not plan to leave Disney anytime soon.
In fact, when asked about what it was like to be criticized by Mr. Disney in front of a crowd of 3,000 investors at the shareholder meeting, he said, "It was a nonevent."
Of Mr. Disney's complaints, he said, "You hear the same thing over and over again with no concrete suggestions. What matters is the performance of the company."
http://www.nytimes.com/2004/03/10/b...f3c12b788037c729&ex=1079586000&partner=GOOGLE
