Disney board bracing for major changes

LOS ANGELES -- While pressure mounts for Walt Disney Co. to improve its profits, the entertainment company's board will meet to address some of the other issues raised by unhappy investors: the makeup of the board itself and the accountability of chief executive Michael Eisner.

At Tuesday's meeting, the board is expected to discuss a major reorganization plan intended to shrink its size and strengthen the influence of independent directors.

Disney's board has long been seen as too close to Eisner -- who has run the company since 1984 -- and not willing to challenge management. Critics have lobbied for a smaller, more nimble board made up of directors less loyal to him and more responsive to shareholders.

While Eisner's job does not appear to be in immediate danger, he is being pressured by the board and investors to improve the company's performance. Disney's stock has been trading between $15 and $16 in recent weeks, below its 52-week high of $25.17.

The company has been plagued by the low ratings of its third-place ABC Television network and lagging attendance at its theme parks.

While the board will be dealing with significant concerns about the performance of the entertainment giant, it also meets at a time when the role of corporate boards is rapidly changing in the wake of high-profile corporate failures at Enron, Tyco and other companies.

"Corporate boards are evolving a lot right now, and they are becoming more aware of their responsibility to the shareholders," said Tom Wolzien, a media analyst for Sanford C. Bernstein & Co.

No more consulting

Because of the increased scrutiny, Disney has been re-examining its corporate governance practices, starting in January when it announced it would no longer use its independent auditing firm to perform non audit-related consulting work.

Eisner will present his budget and a five-year plan for the struggling company when the board meets Tuesday in Burbank, a person familiar with the agenda said, speaking on condition of anonymity.

In addition, the board will discuss a corporate governance plan that would shrink the panel from its current 16 members. The plan being presented by Eisner, who also serves as chairman, would change the composition of key board committees by redefining which members can be considered independent under new guidelines proposed by the New York Stock Exchange.

In August, Disney revealed that three of its independent board members had grown children employed by the company with annual salaries ranging from $81,863 to $152,608. A fourth independent board member's wife is employed at Lifetime Entertainment Television, a cable network half-owned by Disney.

Under guidelines likely to be adopted by securities traders, only board members who have not worked for the company in the past five years can be considered to be independent. The guidelines also apply to family members.

Key committees

Disney would have to change the composition of key committees under the guidelines, which would require that a board's nominating, compensation and audit committees be composed solely of independent directors.

Disney is facing increased scrutiny from institutional investors, who met this past week in New York and plan to forward their concerns to Disney's board before Tuesday's meeting.

The group, led by Providence Capital, are expected to suggest, among other things, that Disney appoint more qualified independent members to the board.

The group also wants Disney to detail a management succession plan. Investors at the meeting were not clamoring to replace Eisner, according to Prudential Securities analyst Katherine Styponias, who attended the meeting. Rather, they want a clear plan outlining who will replace key management should vacancies arise.

Providence Capital's president Herbert Denton also wants Disney to split the office of chairman and chief executive, a goal he has pushed at other companies as well.

Denton's firm owns fewer than 2,000 shares. He would not say what other firms or how many shares were represented at the meeting, although analysts say about 55 to 60 people attended either in person or by phone.

"We view the recommendations that came out of this meeting as reasonable and could help significantly improve sentiment in the stock," Styponias wrote in a report on the meeting.

Earlier this month, Eisner, chief financial officer Thomas Staggs and others met with separately with investors and analysts in New York to outline their plans for a turnaround.