Mouse heads to court over CEO search
NEW YORK — Roy Disney and Stanley Gold are looking to haul the Mouse to court yet again, accusing Disney and a handful of board members of lying to shareholders when they promised to conduct a good-faith search for a new CEO.
In the complaint, filed Monday in Delaware Chancery Court, the pair declare that “in reality, the board’s CEO selection process precluded serious and effective consideration of external candidates.”
A Chancery Court judge is expected to rule this summer on a shareholder suit against Disney, its board and CEO Michael Eisner’s former No. 2 Michael Ovitz.
The Disney Co. responded, “The record of strong performance of the Walt Disney Co. speaks for itself, and this frivolous and baseless lawsuit reflects the mean-spirited, self-serving interest of two ex-board members.”
Disney launched a CEO search last fall and on March 13 announced its choice of chief operating officer Bob Iger, the only internal candidate considered. The former ABC topper will formally take the helm when Eisner resigns in September.
Roy Disney and Gold claim the Mouse used company resources to promote Iger’s candidacy.
They said if they’d “known that the company and a majority of the board did not intend to stand by their public statements about engaging in a bona fide CEO selection process,” they would have run an alternate slate of directors at the 2005 annual shareholders meeting in February.
In December, the duo had backed off their threats to run an alternate slate. With Disney stock and ABC ratings on the mend, a CEO search under way and investors applauding, it’s not clear what support a Disney-Gold slate would have drawn.
The two are suing Disney, Eisner, Iger, chairman George Mitchell and board members Judith Estrin, John Chen, Aylwin Lewis, Monica Lozano and Leo O’Donovan for fraud and breach of the duty of disclosure.
The suit asks the court to void the most recent election of Disney directors and to compel the company to hold another election after “full and fair disclosure of all material facts about the CEO selection process.”
Meanwhile, the pair want the court to enjoin the company from changing either Eisner’s or Iger’s compensation or employment contracts.
Suit details a series of events starting in 2002 when Roy Disney and Gold, as directors, urged their fellow board members to hold Iger and Eisner accountable “for the company’s poor performance.”
Roy Disney was pushed off the board, and Gold resigned. They accelerated their campaign, which culminated at the 2004 annual meeting in which a large number of shareholders withheld support for Eisner’s re-election to the board. Eisner was forced to relinquish the chairman title.
But the ex-directors’ protests were sustained in large part by a powerful group of institutional shareholders dismayed by Disney’s stagnant stock. It was fortuitous timing for Iger that the stock picked up steam and ABC hit pay dirt this season as the CEO search began.
Roy Disney and Gold cited reports that the board interviewed only one external candidate, eBay CEO Meg Whitman, during the search. They said some external candidates refused to participate in the process with Eisner present “or expected to be present” at all interviews.
However, Wall Street, the main pressure group able to force change at the top, is mostly pleased with Iger’s appointment and sees the search process — for better or worse — as water under the bridge.
“I’m not sure what Roy and Stanley are trying to do,” said one Wall Streeter. “Get Iger removed?”
The Streeter said references in the suit pertaining to the purchase of cable net Fox Family could be potentially more worrisome for Disney, although they were presented as a side issue. Suit says the board failed to investigate Iger’s role in the $5.3 billion acquisition.
Roy Disney and Gold cited James B. Stewart’s recent book “DisneyWar,” in which the author writes that management presented the board with overly optimistic projections for Fox Family. Management withheld from the board a plan by Disney’s chief financial officer to save the company $400 million by writing down the value of Fox Family assets by $2 billion, according to Stewart.
Disney will report its latest quarterly financial results Wednesday.