At Disney, Facing Their Critics

Some pension funds have criticized the behavior of directors who make up the board's audit committee, saying they moved too slowly to resolve a potential conflict by the company's outside auditor. Others are calling for the head of the board's compensation committee, arguing the committee doled out unearned bonuses to Eisner and other top executives when the company was doing poorly. Still others are trying to push out the board's presiding director, a sort of super-director, saying he fails to stand up to Eisner.

The company has argued that the board has been conscientious. For instance, one of the board's reforms is to annually review the status of its directors, a process that led the company to reconsider how it regarded one member.

John E. Bryson, chairman of Edison International, has been a Disney director since 2000. His wife, Louise, is an executive at the Lifetime cable television network, which is half-owned by Disney. One of the new tests of independence set by the Disney board considers how much money changes hands between Disney and any company that employs a director's relative. Last year, Louise Bryson's Lifetime bought television programming from Disney. The undisclosed sum exceeded a set revenue threshold, meaning John Bryson no longer could be considered an independent director.

Still, Roy E. Disney and Gold are urging shareholders to withhold their votes from Bryson because the relationship should have been flagged earlier. Bryson has said he did nothing wrong.

The California Public Employees' Retirement System (Calpers), which owns 9.9 million Disney shares, said shareholders should withhold their votes from Eisner. Calpers officials "remain concerned" about directors Monica C. Lozano, Robert W. Matschullat and Leo J. O'Donovan, who make up the board's audit committee.

Though Calpers said "the Disney board is beginning to increase its attention on improving corporate governance," it faulted the audit committee for using PricewaterhouseCoopers for both auditing and consulting work, which it felt could pose a conflict

"If we learned anything from recent corporate scandals, it is that audits must be beyond reproach," said Sean Harrigan, president of the Calpers board of administration.

Disney said it fixed the problem.

"We did inform [PWC] if they didn't separate [auditing and consulting divisions] that we would then go to somebody else to finish the work," director Raymond L. Watson, one of two directors retiring tomorrow, said during a conference call recently with Glass, Lewis & Co., a San Francisco proxy solicitation firm. (Thomas S. Murphy, a director since 1996, also is set to retire on Wednesday.) PWC split the divisions and continued in Disney's employ, Watson said.

Roy E. Disney and Gold, meanwhile, have also taken aim at the compensation committee headed by board member Judith L. Estrin, which has given Eisner millions in cash and stock bonuses. Following the disastrous 2001 and 2002 years -- which saw Disney earnings plummet largely because of the tourism crash following the Sept. 11, 2001, terrorist attacks -- the board did not award Eisner a cash bonus. Instead, it gave him $5 million in restricted options that vest in two and four years, saying that he had managed the company as well as anyone could have during a difficult period.

Asked on the Glass Lewis call if Eisner requested a cash bonus, Estrin responded tersely: "Michael can request whatever he wants. The compensation committee decides what he gets."

Glass Lewis also is urging shareholders to withhold their votes from Gary L. Wilson, a member of the board's three-person executive committee along with Eisner and presiding director George J. Mitchell. A recently unsealed 1997 shareholder lawsuit against Disney regarding the hiring and firing of former president Michael Ovitz alleges Wilson -- and former directors -- allowed Eisner to unilaterally negotiate a $140 million severance package for his friend Ovitz.

Mitchell has drawn shareholder criticism for being too close to Eisner. He turned down the job of Disney president in 1995 when Eisner offered it. Further, Mitchell's law firm did work for Disney in 2001 and 2002.

As proof of his independence, Mitchell said that he conducts board meetings without Eisner's presence, to discuss management issues, and is convening a series of board meetings to consider a successor to Eisner.