Not Just a River in Egypt

First published March 09, 2004

By C. W. Oberleitner

Relaxed and refreshed following last week's trip to Philly, C. W. Oberleitner wonders what might be next for Disney's Big Cheese.

Queen of Denial

Almost immediately following last week’s Disney shareholders’ meeting, where he received an unprecedented 43.4% withhold vote from Mouse House shareholders, Michael Eisner began damage control. In a previously arranged interview he appeared on ABC’s "Nightline" with Ked Koppel.

Earlier that day the remaining stalwarts at Disney’s marathon six-hour shareholders’ meeting watched as Eisner mentally did the math and came to the realization his withhold vote would exceed the 40% predicted by proxy service companies. For the first and only time that day he was visibly affected by events. He quickly adjourned the meeting following the reading of the preliminary vote totals.

By the time he went on the air later that evening with Koppel he had regained his composure. Despite hoarseness in his voice that had plagued him throughout the day he once again appeared relaxed and composed during his "Nightline" appearance. During the interview he began spinning the message that over the course of the next several days would become the mantra of Team Disney Burbank.

In the narrowest possible interpretation of investor and analyst criticism, Eisner said the shareholders had spoken. He told Ted Koppel what Disney shareholders wanted was better corporate governance. He dismissed entirely the notion that the vote was in any way a referendum on his personal style or performance. He also told Koppel that earlier that evening the board met and had decided to advance plans to separate the CEO and Chairman’s roles. He stepped down as Chairman and would remain CEO. Former U.S. Senator George Mitchell—whose own withhold vote was 24.1%—would now be Chairman of the Disney board of directors.

In the days that followed Eisner deviated little from his Nightline remarks. In an interview that appeared in Friday’s Los Angeles Times he did modify one of his earlier statements. During the "Nightline" interview he told Koppel that he would "definitely" stay at Disney for the remainder of his current contract which expires in 2006. When asked the same question by Times staff writer Richard Verrier he said, "I serve at the will of the board as all CEOs do."

Anticipating just such a move by Eisner and the Disney board Stanley Gold and Roy Disney, whose SaveDisney.com spearheaded the withhold vote movement against Eisner and Mitchell, held a press conference immediately following the shareholders’ meeting. At the press conference Gold once again repeated what he had been saying all week. He, Roy, and now major institutional investors would find nothing less than Eisner’s resignation acceptable and the sooner the better.

In a press release dated the day following the shareholders meeting both Stanley Gold and Roy Disney said, "…the public outcry from investors has been deafening." In support of their remarks they released the following list of statements by prominent investors and analysts:

Sean Harrigan, President of CalPERS stated, "This discontent is too wide and way too deep in the marketplace, and it has led us to believe that Eisner should go and the Board should get quickly to work on planning for an orderly transition."
New York State Comptroller Alan Hevesi stated, "what Disney must do is 'separate the positions of chairman and chief executive and ... replace Mr. Eisner as soon as possible.'"
Cynthia Richson, the corporate governance officer for the Ohio Public Employees Retirement System stated, "I'm extremely disappointed with Mitchell. There are questions about his psychological independence, considering his long-standing ties with Eisner."
Robert A.G. Monks, Respected governance luminary, commenting on the vote stated ``This is so high. It would have been a discharge vote at 33 percent. At 43 percent, they shouldn't even take time to blot the ink on the resignation....He's got to go. He really does. You can't have this big shadow over the board and over the succession process. Unhappily, Michael was personally repudiated. He'll just have to take that and accept it... Michael and the Board have to soberly reflect that they've been rejected by their owners".
Patrick McGurn of Institutional Shareholder Services was quoted as saying, "...beyond a referendum on corporate governance. This is a referendum on Eisner's continued presence at the company." A spokeswoman for ISS added, "If the Disney Board believes this is the silver bullet to fix all the problems, they are sort of mistaken. The level of the vote makes it clear that investors have a lot more on their minds than just the splitting of the position."
The Council of Institutional Investors stated today, "And the most troubling thing of all? The company's response to this extraordinary shareholder proxy revolt trivialized it."
Charles Elson, director of the University of Delaware's Center for Corporate Governance said, ``Disney once again seems to be misunderstanding the situation. This is a shuffling of the chairs, not a change.''

Reaction from individual shareholders and the Disney fan community was just as swift, and somewhat less subtle.

Is this board so delusional that they actually think taking the chairmanship away from the man who got a 43% vote and giving it to the man who got a 24% vote is gonna fix things? or even calm the dissidents for a fraction of a second? They better have better ideas than that quickly!

Eisner's making it pretty clear that barring a fatal heart attack or being painfully extracted from his offices like a bum tooth, he doesn't plan on going anywhere. I bet he's in his office right now, swearing revenge on everyone who ever crossed him. When I was there they used to monitor the phones and computers on a regular basis, now would be a really good time for everyone at Disney's to watch their back.

Eisner needs to do more than just resign ONE position - he needs to be GONE, as in "OFF THE LOT, CLEAR OUT YOUR DESK, PUT YOUR RESUME ON MONSTER.COM AND TAKE YOUR SECRETARY WITH YOU" GONE.

What Next

At their press conference last Wednesday Stanley Gold and Roy Disney were asked what they would do next if Michael Eisner and the other targeted board members refused to leave. Both Gold and Disney said that they weren’t going away. They had no specific announcement regarding their next plan of action. They said further news would be forth coming.

Since that press conference several news organizations have reported that the former WDC directors are considering a "Consent Solicitation." Delaware law—the WDC is incorporated in the state of Delaware—permits shareholders to force a vote on officers and issues between annual meetings and elections.

Most analysts agree that forcing a consent solicitation is a very risky proposition. Unlike the nonbinding withhold vote, which relies heavily on public pressure to force directors into action, a consent solicitation requires a clear majority of a company’s outstanding shares before it can pass. Disney has approximately 2.4 billion outstanding shares held by nearly 3 million institutional and individual shareholders according to the company’s public filings. If any of those shareholders fails to vote or return their ballot on time it’s automatically considered a NO vote.

For the time being public pressure from Wall Street and increased scrutiny from the media remains the primary means to persuade the Mouse House board to act.

Send A Message to Michael

Roy Disney and Stanley Gold acknowledged the "vital" role the Internet played in helping them reach out and get their message to individual Disney shareholders. Because of this I wanted to know if there were still more things small shareholders, and the millions of Disney fans who communicate via the web, could do.

"Absolutely," said one of the San Francisco Bay Area’s leading marketing and communications specialists, who agreed to speak with me on condition of anonymity. "It’s all about numbers. One complaint gets lost, five thousand get noticed."

After spending some time reviewing the SaveDisney.com website, which he had not seen prior to our conversation, he said it was a very good rallying point, and an excellent way of keeping people informed.

He went on to say that organization is the key. "People can also use SaveDisney to discover useful strategies for organizing their own efforts." I asked him to be more specific.

"Take letter writing," he said. "There’s enough information at SaveDisney.com to compose and send a letter requesting the (WDC) board to replace Mr. Eisner."

How should the letter be phrased?

"A straight-forward request for action," he replied. "You don’t want to threaten the company you love. The goal is to show your support for the demands being made by the investment community, and also to reinforce that this is far more than a battle among millionaire investors and giant pension funds. Ordinary fans are passionate about this issue, too."

He repeated that the key factor here was numbers. When asked if fans and individual shareholders should e-mail Eisner and the board or print out letters and mail them he responded, "Both. You want to impress everyone connected with this that you and thousands like you are serious about this."

"The larger a group effort the more likely you are to succeed." He went on to say if people are serious about organizing a letter writing campaign they could use Internet tools like discussion boards to encourage others who share their feelings to print, mail and e-mail the company.

I was reminded of Tim Robbins character in Stephen King’s "The Shawshank Redemption" who writes a letter a day to the prison board about his incarceration. One day the director of corrections writes back telling him there’s no need to keep writing they aren’t going to review his case. He then proceeds to write two letters a day until he eventually gets his review.

Assuming fans and small shareholders do organize around the web are there other means by which they can demonstrate their support for Roy and Stanley’s efforts without hurting the company or its stock?

"Well, to quote Hippocrates, ‘First, do no harm,’" our marketing and communications expert advised. "It is not a good idea to threaten a boycott. Your objective is to effect a management change, not to hurt the company. But, a peaceful demonstration outside of company headquarters or the resorts might be useful in making your support of the issues known. Just be sure you first learn about, and conform with, your local laws and ordinances, and avoid doing anything that obstructs or impedes Disney’s operations or employees."

"Multiply your effort," he continued. "Use the media. Keep them informed of your activities. Just make sure that if you invite the press to an event you’ve got sufficient numbers to make a positive impression."

Having mentioned the word "boycott" I asked our expert about a form of Internet protest I recently heard about, Internet avoidance. Organized Internet avoidance campaigns call upon people to literally avoid going to a specific organization or in this case corporation’s website(s). The object being to get your message across to the company by driving down the traffic its various web pages usually receive.

"That sounds like a good idea," the communications expert told me. "You’re not denying service to a provider. You’re making your presence known, and aside from some possible minor loss of ad revenues, you’re not harming the company in any way."

He quickly went on to point out to me that for an Internet avoidance campaign to be effective against Disney it would have to include not only Disney.com but ABC TV, ABC affiliate stations, ESPN’s network of sites, Lifetime, A&E, The Biography Channel and who knows how many other sites owned or co-owned by Disney.

"The thing of it is," he said, "if people are able to have an impact on the numbers of those sites you would, in effect, be enlisting the help of some very powerful allies. Many ABC affiliates are privately owned and Disney has some very powerful partners, like the Hearst Corporation at ESPN, who may not appreciate seeing their investments affected by this controversy."

He concluded by saying that the Internet is proving to be a far more powerful business communications tool than people thought possible following the collapse of the "dot com bubble."

"Just look at MoveOn.org and other successful political action groups that are using the Internet to engage and mobilize thousands, even millions of people, and really make a significant difference."

C’ya real soon!