NEW YORK — The much-maligned Disney board was back in the headlines Monday as the Mouse House agreed to settle Securities and Exchange Commission charges that it failed to disclose that some directors had family members working for Disney — or that it paid money to a company owned by former director Roy Disney and managed by former director Stanley Gold.
In settling the long-running inquiry, Disney neither admitted nor denied wrongdoing, but rather agreed to refrain from any future violations.
SEC spokeswoman Linda Chatman said shareholders have a “significant interest” in knowing whether a director has a relationship with the company outside of board business, and that Disney should have included the info in SEC filings.
“Failure to comply with the SEC’s disclosure rules in this area impedes shareholders’ ability to evaluate the objectivity and independence of directors,” Chatman said.
No fine was involved in the order, which covered 1999-2001, a time period when Disney topper Michael Eisner was still seen as having too cozy of a relationship with the board and before the company attempted to implement corporate governance reforms.
Order was unrelated to the Disney shareholder trial, which wrapped main testimony one week ago, although both have forced the conglom to spend many millions of dollars defending itself in trying to put troubled times to rest and prove the board has become more independent.
Disney had no comment on the SEC action.
Cooperated with SEC
Conglom, which cooperated with the SEC, moved preemptively in acknowledging the various outside ties the directors had to Disney, first in August 2002 and next in December 2002.
SEC’s findings included:
n Disney should have notified shareholders that then-board members Reveta Bowers, Stanley Gold and Raymond Watson all had children employed by the Mouse House, drawing salaries anywhere from just above $60,000 to more than $150,000.
- Conglom failed to report this in periodic filings with the SEC, even though any salary above $60,000 automatically triggers the reporting provision.
- Bowers’ son Craig had worked at the Disney Internet Group during fiscal 2001 and earned $81,863, according to information released by Disney in August 2002.
- Gold’s daughter Jennifer worked at Disney’s consumer products division and earned $85,111. Watson’s son David worked at the Disney Channel cable net, where he earned $152,608 in fiscal 2001.
- Further, Disney failed to disclose that the wife of current board member John Bryson was employed by Lifetime, a network in which Disney owned a 50% stake. Louise Bryson joined Lifetime as exec VP for affil sales — where she remains — in September 1999, one year before Bryson was named a Disney director. She earned $1 million, in excess of the SEC threshold amount requiring disclosure.
The SEC noted that Disney had no control over Louise Bryson’s salary. Also, Bryson was still considered an independent director.
Next up in the seven-page SEC order was the fact that Disney didn’t disclose its relationship with Air Shamrock, a company owned by Disney and managed by Gold.
Specifically, Air Shamrock was compensated for providing plane rides to Disney when Disney was on Mouse House business. Arrangement, which ran from 1984 to 2003, was initially approved by former Disney prexy Frank Wells.
SEC rules required the information to be disclosed since Disney payments exceeded 5% of Air Shamrock’s gross revenues.
Upon Wells’ death in 1994 in a helicopter crash, requests for payments were received by Eisner’s office and forwarded for payment. Such payments weren’t disclosed until December 2002.
Still, Disney and Gold — who remain powerful Disney shareholders — went on to become Eisner’s chief foes, launching the fight this year to oust him.
In 2002, Disney commissioned an outside analysis of the hourly rate charged by Air Shamrock and that concluded a lower rate should have been charged. Disney sought a rebate of approximately $725,000.
Finally, SEC said Disney should have disclosed that it provided an office, secretarial services, as well as a leased car and driver, to former Capital Cities/ABC chair Thomas Murphy, who joined the Disney board after the merger with ABC.
Eisner agreed to provide the services, valued at more than $200,000 annually, since Murphy had provided the same services to his predecessor when the predecessor retired.
In trading Monday, Disney shares were up 0.18% to close at $27.42.