Man Without Qualities

Monday, March 01, 2004

The Fall Of The House Of Eisner VIII: The Dog That Didn't Bark

The Walt Disney Company's annual meeting in Philadelphia is almost upon us, and the company's management is resigned to investors representing more than 30 per cent of its shares registering their dissatisfaction with Mr Eisner's leadership and the company's performance.

The percentage of Disney shareholders expressing their dissatisfaction is likely to be far north of that 30%.

To see why, consider first that the level and extent of market hostility to Disney is far broader and deeper than that expressed by current shareholders. It is an obvious fact of life that in a free stock market the most severe critics of any public company will not be found among its current shareholders - but among those investors that will not buy the company's stock at all, and therefore aren't heard from at any shareholders meetings: the dogs that don't bark. Here, Disney is really exceptional. Consider the Capital Group Companies, Inc. - a huge institutional investor managing about $850 billion in managed assets. Capital is headquartered in Los Angeles, just a few miles from Disney's headquarters in Burbank. At one time Capital was a major Disney shareholder. Today, the inside word is that Capital owns no Disney shares whatsoever. Capital is not exceptional. Many managers of institutional funds and mutual funds who would once, not so long ago, have insisted on holding significant Disney stock have decided that they will no longer even consider touching it. And Michael Eisner is a very big reason in many of those decisions. In sum: there is a pervasive hostility to Michael Eisner through most of the investor community throughout the nation - current shareholders are mostly his least severe critics.

Now add to that pervasive hostility to Mr. Eisner the fact that about two-thirds of Disney's stock is held by institutional and mutual fund owners. That is: About two-thirds of Disney's shareholders are fiduciaries. In ordinary times such holders vote with management. But these are not ordinary times. Right now, some of the nation's largest shareholder consultants have recommended against a vote for Michael Eisner, which just reflects the general hostility towards him. Many of the nation's largest and most influential public pension funds - including the two largest such funds in Disney's home state of California - have expressed unvarnished hostility for Mr. Eisner's continued presence. Not even a single large investor is really defending him loudly. Disney admits he will probably lose at least that 30% of the shareholders.

Why would any fiduciary want to fight all that, especially where Mr. Eisner has no big, respected defender? Why would a fiduciary want to explain a vote that runs contrary to such general market hostility, especially where Mr. Eisner and Disney have offered no compelling reason to do so? It is much easier for a fiduciary to explain that he or she voted the Disney shares they held in trust as the consultants and public pension funds did and in accordance with the general, national hostility towards Mr. Eisner. Fiduciaries generally take the easiest road.

And the easy road in Philadelphia leads to a substantial majority of Disney shareholders just saying "no" to Michael Eisner this time around.

We'll know in a very little while.

Wednesday Morning Update:

Wednesday morning, the State of Wisconsin Investment Board and the Missouri State Employees Retirement System joined other pension funds -- including the Florida Retirement System -- in withholding their votes for Eisner's reelection.

The American Federation of State, County and Municipal Employees Pension Plan, the Ohio Public Employees Retirement System, the California Public Employees' Retirement System, the New York State Common Retirement Fund, the Massachusetts Pension Reserves Investment Trust, and funds in Connecticut, North Carolina and New Jersey have also decided to withhold their votes for Eisner. Dissident former Disney Co. board members Stanley Gold ... predicted 40 percent of those voting on Eisner and the board's reelection would vote to withhold their support.

In addition to resistance from fiduciaries, my guess is that the general market hostility towards Eisner will be reflected in a large negative vote from non-fiduciary shareholders, too - all of which will put the anti-Eisner vote north of even the 40% Mr. Gold suggests.

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