Disney top man faces investors' wrath

WEAPONS of Mouse Destruction are pointed at Disney's embattled chairman and chief executive, Michael Eisner, as he heads for the company's annual meeting in the ironically dubbed City of Brotherly Love, Philadelphia, today.

Very few people have shown Eisner any love in the past few days as irate shareholders have taken turns to castigate his performance in running the $27 (£14.4bn) business over the past few years.

Their aim may be true but Eisner cannot be voted out of a job at the meeting. He is unopposed and therefore just a single 'for' vote assures him of continuing - but if, as widely expected, some 30% of shareholders withhold their votes it will send a no-confidence message and may force the board to act.

A much talked-about scenario is that Eisner will step aside as chairman but will stay on as chief executive.

Eisner probably feels hard done by. There cannot be many chief executives who anger shareholders while reporting a share price almost doubled in the past 52 weeks and profits in the most recent quarter at $688m, up from $256m the year before.

Despite 2003 being a comeback year financially for Disney and its shareholders, a combination of events has turned disgruntled mumblings into out-and-out revolt.

Dissatisfaction with Eisner is not a new phenomenon - with no fanfare, 8% of shareholders withheld their support last year.

This year the dissatisfaction has become more fiery. The flashpoint was when the last Disney on the board, Walt's nephew Roy, quit in November. The 74-year-old former head of animation did not bow out gracefully. In a three-page letter, he castigated Eisner for his leadership in the past seven of his 19 years of running the company.

Roy Disney wrote that Eisner had started well after taking the helm in 1984. But in the past few years, acquisitions such as the floundering ABC Television networks and sports teams such as the Mighty Ducks of Anaheim ice-hockey side, as well as lacklustre movies, had turned the company into one that is 'rapacious, soulless, and always looking for the quick buck rather than the long-term value, which is leading to a loss of public trust'.

Diatribe too late

HE wrote: 'It is my sincere belief that it is you who should be leaving and not me. Accordingly, I once again call for your resignation or retirement.'

Analysts claimed Roy's diatribe was a couple of years too late. They argued that Eisner was insulated as 2003 proved to be a respectable year. Theme park attendance had recovered from the post-9/11 slump. Disney distributed two of the year's top-grossing films, Pixar-produced Finding Nemo and homegrown Pirates of the Caribbean.

Even ABC managed to produce a couple of entertaining new shows, including 8 Simple Rules for Dating My Teenage Daughter - and its other TV property, ESPN, was the undoubted leader in sports TV and a cash cow.

Those experts underestimated the resentment felt by shareholders. Certainly, 2003 profits rose to $1.3bn, but that was $200m less than in 1996. The stock price had doubled in the year, but over the previous five years it had lost nearly 25% in value - well underperforming the S&P 500 benchmark average.

While shareholders have felt the pain, Eisner has pocketed an estimated $700m in salary and bonus since 1996, according to Roy Disney.

Those with a long, angry view of what was happening in the Magic Kingdom were emboldened by the campaign to oust Eisner by Roy Disney and fellow director Stanley Gold, who quit in protest. The duo launched the website www.savedisney.com to spread their message that the Mouseketeer in Chief must go. Their case was strengthened by two events.

A decision to close an animation studio in Orlando, Florida, was a stab at the creative heart of the company and bolstered their claims that Eisner was no longer interested in creativity, only profit.

A decision by computer animation specialist and Toy Story creator Pixar to end its relationship with Disney proved Eisner cannot manage and nurture important relationships, they said.

The rumour on why Pixar is searching for a new distribution company is that Eisner and Pixar's chairman and chief executive, Steve Jobs, locked horns initially over internet music downloads. Eisner opposes the technology but downloads have given a boost to Jobs' other company, Apple Computer. Their egos never allowed rapprochement.

Then last month came the shock news that the US's biggest cable TV company, Comcast, was launching a $54bn takeover bid for Disney. In a jab at Eisner, Comcast chief executive Brian Roberts said one aim was to restore the Disney brand to prominence and the company to growth.

Comcast's bid came after Eisner refused to hold private talks with the cable giant, which acknowledges it is much more interested in Disney's TV and film content than its theme parks. Comcast, based only three blocks from the 3,000-seater Convention Centre where today's meeting is taking place, is a leader in video-on-demand technology but is struggling to find products. Acquiring Disney programming and sports events via ESPN would be a godsend.

Direct action

DISCUSSION of the possible takeover has moved to the back burner as interested parties focus on the annual meeting, especially as it is generally agreed that Comcast will have to sweeten its offer.

While Roy Disney and Stanley Gold have fanned the emotional flames to try to immolate Eisner, direct action by shareholder groups has hurt him most.

Calpers, the California Public Employees Retirement System, which is the nation's largest public pension fund with assets of about $165bn and is a leader of shareholder advocacy, slammed Disney for its lack of return on investment over the past five years.

Even a personal appearance at Calpers by Eisner the day before could not stop Sean Harrigan, president of the pension fund's board of administration, from stating: 'We have lost complete confidence in Mr Eisner's strategic vision and leadership in creating shareholder value in the company.'

Equally damning to Calpers was that Disney's audit committee authorised auditor PricewaterhouseCoopers to perform an indeterminate amount of non-audit services such as tax examination assistance and other services regarding internal controls.

Such conflict-of-interest work has been largely wiped out in large companies following the scandals at Enron, Worldcom and the like.

Along with Calpers, about a dozen huge public pension funds across the country have said they are going to withhold support for Eisner. To plead his case, Eisner appeared on CNN's Larry King Live show to tout his record and to say he does not want to leave.

Disney has hurriedly put together a newspaper ad campaign featuring Mickey Mouse, ESPN and Kermit the Frog with the caption: 'Our future is in good hands.' But at today's meeting in Philadelphia, the city in which the Declaration of Independence was made in 1776, many shareholders will declare themselves independent of a man they say is a self-serving executive.