Disney huddle kindles questions

Corporate governance, downsizing, growth plans on slate

Today’s meeting of Disney directors could yield clues about how the Mouse House will shrink its board as promised. A subplot revolves around whether head Mouseketeer Michael Eisner will minimize board foes in the process.

Execs wouldn’t discuss the agenda for the board meeting, set for conglom’s Burbank campus. There’s likely to be more talk than action on key issues, but chief among skedded topics is the potentially potent topic of corporate governance.

Directors are expected to mull ways of promoting more independent viewpoints on board committees, as well as the question of board shrinkage. Eisner is also expected to detail a five-year growth plan, essentially discussing with directors the strategies he’s been tubthumping on Wall Street for turning around ABC and other troubled operations.

But the corporate governance questions would seem to loom largest.

Some Disney directors have become plainly disenchanted with Eisner’s leadership, not to mention Mouse’s languishing share price. So, governance adjustments take on greater political overtones in such tumultuous times.

Downsizing board

Disney is expected to propose reducing its 16-member board by three seats or so when conglom next circulates its annual proxy statement in January. Execs have suggested such a move could have a related benefit of increasing board independence, but the devil is in the details.

The reduction could be accomplished by retirement-induced attrition, which may or may not increase independence. Alternately, the board could be reduced in size as a result of conglom’s ongoing review of what constitutes an “independent” director vs. an “insider” board member.

In a recent amendment to its annual 10-K regulatory filing, Disney listed a handful of situations in which a director previously deemed independent has a relative employed at the conglom. That could make such directors insiders under recently tightened New York Stock Exchange guidelines.

One of the situations listed involves the daughter of board member Stanley Gold — a chief critic of Eisner. A key Mouse source, while contending the independence review is an earnest attempt to conform with NYSE guidelines, acknowledged the process ultimately could bolster Eisner’s hold on the board.

Gold has been “pushing for board independence, and it’s nobody else’s fault that he didn’t really study what that meant,” the insider said. “If you put the noose around your neck, you really can’t blame anybody for hanging you.”

Gold rolled

In the case of Gold, this wouldn’t involve his removal from the board, but would reduce his participation on certain committees. Gold is a partner in investment firm Shamrock Holdings with Disney vice chairman and fellow Eisner critic Roy Disney.

Various directors have been mentioned in speculation about who may step down from the board when appointments and reappointments are proposed in the January proxy. But there appears consensus only that thesp Sidney Poitier will probably retire.

One additional board meeting will be held before the proxy is circulated, likely some time in December. That would be when directors would formally vote on whether to reduce the size of the Disney board and how.

Mouse loyalists believe they’ve received insufficient credit for one step already taken toward creating a more politically correct set of corporate governance policies at the House of Mouse.

Earlier this year, Eisner announced Disney would no longer allow its auditors to serve in a dual role as conglom consultants — a onetime common corporate practice widely decried in the aftermath of the Enron-Arthur Andersen scandal.

But the drumbeat for additional changes to corporate governance has continued.

“Changes in the size of the Disney board could make it a more efficient operating entity,” said Gerard Klauer Mattison analyst Jeffrey Logsdon. “(But) corporate governance is an issue in every board room in America right now.”

Eisner’s future

Meanwhile, though there’s been much made of the question of whether Eisner will outlast conglom’s current difficulties, most believe he still has at least months to shore up his flanks. Part of his job security arises from a lack of obvious successors to the Mouse throne.

Viacom prexy Mel Karmazin is considered a potential CEO candidate for Disney. But most sources believe he won’t be available until year’s end, following a skedded contract powwow with Viacom chief Sumner Redstone.

Then there’s also the question of Disney’s existing contract with Eisner, which runs to 2006. An early payoff could see Mouse on the line for hundreds of millions of dollars, according to one Street estimate.

Of course, a dramatic rise in conglom’s share price would neatly render the whole matter moot. But nobody’s holding his breath.

On Monday, shares fell 17¢ to $15.07. The stock is off 27% this year.

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