Man Without Qualities

Wednesday, March 03, 2004

The Fall Of The House Of Eisner X: The Second Shoe Drops

So far, I'm wrong. The Board is trying to get by with appointing George Mitchell as Chairman. That's a big mistake for Disney. Twenty-four percent of the shareholders voted against even keeping Mitchell on the Board - and now the Board unanimously has made him Chairman. Repercussions have no doubt already started - and by tomorrow Disney will be in full-blown crisis.

Well, it is an entertainment company.

The Disney Board has issued the following press release "explaining" its bizarre decision:

The Board of Directors, mindful of the shareholder vote today, announced that it is separating the positions of CEO and Chairman. Effective immediately, the Board created the position of Chairman of the Board. The Board has unanimously elected former Sen. George Mitchell to serve in that non-executive position.

While making this change in governance, the Board remains unanimous in its support of the Company's management team and of Michael Eisner, who will continue to serve as chief executive officer. Following recent detailed reviews of each major business and with an ongoing, in-depth knowledge of our operations, the Board has confidence in the strategic direction of the company. Our belief in the Company's strategy, financial results over the last several quarters, and the level of earnings and improved returns we expect going forward
make us confident that results will validate our judgment on the quality of our management team.

While there appear to have been a number of different forces at work in the shareholder vote, a significant message conveyed in the vote was in the area of governance, as evidenced by governance-driven withhold recommendations by two influential proxy recommendation groups and the public and private statements by a number of other shareholders. In particular, there was substantial focus on the question of whether the Chair and CEO functions at the Company should be split.

That is not to say that we view the vote as limited to governance issues alone. We are aware that some voted for an immediate change in management and in the board. However, taking all of these factors into account, we believe the action we have taken today is in the best long-term interest of the shareholders of the company.

With respect to the statement made by Comcast, the Board of Directors stated that it does not believe today's reiteration by Comcast of its previous proposal, which we rejected as inadequate, would lead to a transaction beneficial to Disney shareholders. The Board will carefully review and analyze any reasonable proposal.

Could there be stronger evidence that the Board is completely clueless? No mention is made, for example, of the fact that 24% of shareholders signaled that Mr. Mitchell, the man the Board has now appointed Chairman, should not be on the Board at all? Disney needs a lot of work, urgently and right now. After the shareholders vote, Mr. Eisner's management team cannot be expected to do it. It has no credibility.

The Disney Board is beginning to cross the boundary where the individuals may be flirting with very, very large personal liabilities for their acts. Whatever else this press release may evidence, it does not evidence due care by this Board in managing this company.

There's an old cartoon cliche: The sound of the third dropping shoe. Expect it.

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