The moment I walked into the Philadelphia Convention Center for the Disney (NYSE:DIS) annual meeting, I could feel the swells of emotion. This was no ordinary annual meeting. Most investors would likely be surprised that only a few hundred people attend annual meetings for the largest companies in the world. For many smaller companies, the number of attendees can be counted on two hands.
Not so at this year's Disney meeting -- I estimate more than 2,000 people were in attendance. Many shareholders came to support Disney's beleaguered chairman and CEO, Michael Eisner, but the majority took the opportunity to voice displeasure at the company's performance under his tenure. This second group threw their support behind two former directors of the company, Roy Disney Jr. (Walt's nephew) and Stanley Gold. The ex-board members have led a well-publicized campaign to oust Mr. Eisner and restore the company to its historically profitable levels with a new game plan.
Some of the typical Disney showmanship added to the carnival atmosphere. The company scattered 75 life-size statues of Mickey Mouse in various forms of decoration around the lobby as part of the celebration of Mickey's 75th anniversary. There was a Lone Star Mickey wearing shorts that looked like the Texas flag, a Mexican version aptly named "El Mickey," a scuba Mickey with flippers and all, and something I can only describe as Jackson Pollock Mickey.
Before the shareholder fireworks began, Disney bade a fond farewell to two of its directors who were retiring after many years of service: Ray Watson and Tom Murphy. Tom Murphy, of course, was the man who built Cap Cities/ABC from one small UHF station in 1949 into the media behemoth Disney bought in 1994 for $19 billion.
One of the great things about annual meetings is that any shareholder can ask a question or even make a statement. The company yielded, by prior agreement, the floor to Roy Disney and Gold, who took the opportunity to repeat in no uncertain terms their contention that Eisner had failed the company. In response, Eisner and his lieutenant, Chief Operating Officer Bob Iger, talked about Disney's strengths and tried to make a case for shareholders' continued faith in them as capable leaders. The exchange was extremely heated.
The entire exercise felt not unlike an episode of game show "To Tell the Truth," with each side saying, "No, this is the real Disney." First Roy Disney and Gold railed on the lack of operating income growth (from $3.1 billion in 1994 to $3.2 billion in 2003), despite capital investments in the meantime of roughly $25 billion.
Eisner responded along the lines of, "Yes, but our stock price is up 60% over the last year, which reflects the value management is creating for its shareholders." Disney and Gold claimed that the board has not been independent over the last few years and accused it of blindly approving several ill-advised schemes (see the more than $5 billion price tag on its Fox Family Channel acquisition) and rewarding Eisner with undeservedly high compensation packages.
Eisner countered with the prediction that Disney will generate 30% growth in operating earnings during fiscal year 2004 and also double-digit annual growth through 2007. Both sides were talking about the same company, but which one was right? (See Bill Mann's column from yesterday "A Tale of Two Companies," for an example of how the same company can be viewed in vastly different ways.)
A few of the shareholders who asked questions during the morning question and answer session became a bit obnoxious, causing mild frustration with a dose of pathetic comic relief. One was the famous shareholder "crusader" Evelyn Davis -- who once mooned a board of directors at a shareholders meeting -- and another rebuked Eisner with indignation when he momentarily diverted his undivided attention from her and turned to ask Iger if he wouldn't mind responding to her question. Later in the proceedings, another shareholder, after being interrupted by Ms. Davis during his question, pointedly told her to "sit down and shut up," drawing wide applause.
The meeting was remarkably tense. Disney and Gold have been asking shareholders to deliver a vote of "no confidence" in Eisner and a few other board members, effectively forcing the board's hand to fire them or shaming them into stepping down. This they did in astounding numbers, with more than 41% of all shareholders withholding approval of Eisner. Since there is no alternate slate of directors, even a majority "no" vote wouldn't be sufficient to kick a member off the board. But as in parliamentary systems, a vote of no confidence is a powerful message nonetheless.
To compare, former Time Warner (NYSE:TWX) chairman Steve Case stepped down last year after 22% of his shareholders gave him a vote of "no confidence" at that company's annual meeting. Disney announced, as a way of quelling some of the criticism of the board and Eisner's performance, that they would be splitting the roles of chairman and CEO, with former U.S. Senator George Mitchell assuming the role of chairman of the board. TIAA-CREF, a large Disney shareholder with a history of shareholder activism, noted in a statement that while they were happy the roles had been split, large amounts of shareholders withheld votes for every director, including "an extraordinary withhold rate of 24%" for incoming Chairman Mitchell. Twenty-two percent was enough to encourage Case to resign. A rejection rate of 24% is apparently insufficient to keep a Disney board member from assuming the top spot.
Odds and ends
Following the bitter contest, shareholders were treated to a glimpse behind the curtain of the Magic Kingdom. Division presidents from Disney's various businesses gave presentations on where they are and where they're headed. We were updated on such various issues as the progress of Disney's new Hong Kong theme park, news of the highly anticipated live-action Mary Poppins musical (slated to open in London this fall), and -- scoring highest on the cool-o-meter -- Disney unveiled sneak peeks for several upcoming Disney films including M. Night Shyamalan's The Village, Ladder 49, and The Incredibles, which is the second-to-last Pixar (NASDAQ:PIXR) film for which Disney will act as partner/distributor.
Speaking of which, Eisner said "no one would have wanted to" continue the Pixar relationship "more than [him]," but that it just wasn't economically viable from Disney's perspective. Eisner pointed out the power behind Disney's cable and broadcast television content: No distribution organization can afford not to carry it, he said. This is certainly true -- the ESPN properties in particular are the next best thing to de rigueur for cable systems. Certainly this is one of the reasons that Comcast (NASDAQ:CMCSA) sought to exploit the turmoil at Disney to acquire some of these unbelievable franchises on the cheap.
Curiously, precious little was said about the recent Comcast bid to acquire Disney. The only material statement on the matter was made by Disney's CFO Tom Staggs when he said that Disney management believes it will exceed Comcast's synergistic projections for Disney operating earnings. Certainly both shareholders and management will have both the projections and the Comcast offer in mind as Disney unveils its results in upcoming quarters.
On the one hand, it was nice to see that the Disney board responded to some of the criticisms. On the other hand, there wasn't a person in the room who would deny that the board has lost an enormous amount of credibility. If the board doesn't follow up with a concrete plan of reform, you got the feeling that many in the room would soon be ex-shareholders.
Let your thoughts be known on the Disney discussion board.
Aaron Byrd posts on the The Motley Fool discussion boards under the name aaronbyrd. He does not own shares of any company mentioned in this article, but he is going to DisneyWorld for his spring break vacation. Say hello if you're down that way -- he'll be the one at the Rose & Crown Pub at EPCOT with a pint in hand. He is an MBA student at the Wharton School of the University of Pennsylvania, and he welcomes your comments.
