LPWire: Stanley Gold's Remarks at the 2004 Disney Shareholder Meeting

Stanley Gold's Remarks at the 2004 Disney Shareholder Meeting

Good morning.

My name is Stanley Gold. I want to thank the Board and management of The Walt Disney Company for giving me an opportunity to speak to you today.

As some of you may know, I was a Director of the Walt Disney Company for 15 years until about three months ago ... when, along with Roy Disney, I resigned from the Board ... since then, Roy Disney and I have been on a mission -- a mission not to promote ourselves but to save our Company.

Now, I know there are some people who would say, "save it from what? The Walt Disney Company is doing just fine."

I wish that were true. Because, I will tell you, speaking out publicly against the Board and management of a Company we truly love has not been a pleasant experience for either of us. ... indeed, it's the last thing -- and most difficult thing -- we ever wanted to do.

Before Roy Disney and I took our concerns public, we spent literally years trying to work from within the boardroom -- trying to get the Board to face up to what we believed were serious management and governance problems and challenges that needed to be confronted.

Unfortunately, the Board was unwilling to listen.

Unfortunately, the Board was unwilling to hold management accountable for its failures -- unwilling even to acknowledge there had been failures. The Board preferred instead to keep its head buried firmly in the sand and to conduct "business as usual."

The fact that we had a CEO who refused to brook criticism, nurture talent, or even groom a successor did not seem to bother them.

The fact that Disney stock (for almost a decade) was under-performing -- not just the market as a whole, but the media sector in particular -- did not seem to bother them.

The fact that operating income was virtually flat for nearly a decade despite the reinvestment of some $15 billion in capital did not seem to bother them.

The fact that management's glowing projections and flashy business plans didn't pan out -- time after time after time -- did not seem to bother them.

But, things will be different after today. From today on the Disney Board can no longer protest that they don't want to be bothered.

From today on, the Disney Board can no longer pretend they have a great management team producing superior results ... they don't ... and the shareholders know they don't.

From today on, we the shareholders, have sent Michael Eisner and this Board a message. It is my belief that, after the votes are counted, from the preliminary results, more than 40% of the shareholders will have withheld their votes from Michael Eisner being re-elected to this Board, an unprecedented vote of no confidence in the annals of American business. Moreover, I believe that approximately 20% of shareholders have withheld their votes for the re-election of Directors George Mitchell, John Bryson and Judith Estrin.

Further, 6 of the 11 Directors currently standing for re-election today have likewise received a NO recommendation from one or more of the proxy advisory services to which many of the institutional shareholders subscribe.

Even more damning to this Board are the conclusions reached by the proxy advisory services, creditable governance experts in the field and major public institutional shareholders.

Let me read just a few of the indictments of this Board and this management by independent outside third parties who have seriously considered the behavior of the Board and management.

" ... shareholders' interests are best served by a board that is on notice that shareholders are watching and have not forgotten past indiscretions. Here, those past faults are many. The Disney Board has been notoriously insular, famously gullible and blindly loyal to Mr. Eisner." -- Glass Lewis report -- dated February 25, 2004.

"Board ties to Disney management are omnipresent."

" ... at the end of the day, all roads lead back to Eisner." --Institutional Shareholders Services Report -- dated February 11, 2004.

How did this happen?

How could so many men and women of good will on the Disney Board fail to recognize or acknowledge the problems?

How could so many men and women of good will fail to do the right thing? -- bring in new management; encourage creativity within the Company's management ranks and hold that management accountable for high standards of performance.

Let me suggest to you that it happens slowly at first -- bit by bit -- until Directors are compromised to the point at which they are no longer able to do the right thing. That is what has happened to this board.

Let me give you a few pertinent examples:

(1) For eight years, Directors in this Company have been promised by Michael Eisner and Robert Iger that this was the year that the A.B.C. Television Network would turn around. With the beginning of each Fall season Directors would receive floods of e-mails from Michael praising this program or that, telling us about how much progress was being made in the ratings. But as the season wore on programs failed; the e-mails stopped; and the Board showed no curiosity in finding out what happened. More importantly, the Board failed to hold management accountable when it came to compensation, always rewarding Michael and Bob regardless of A.B.C.'s performance. Today, the A.B.C. network continues to be in 4th place.

(2) When the Company bought the Fox Family Channel (re-named A.B.C. Family Channel), the Directors were given a positive presentation on how our Company would change programming and produce a 20% annualized internal rate of growth over the next 5 years. When that failed to materialize ... a mere 3 months after acquisition, the Board held no one accountable. No executive was fired, no executive was criticized -- but both Mr. Eisner and Mr. Iger received -- in my opinion -- lavish and unjustified bonuses. While we, the shareholders, watched the value of our equity decline, Michael Eisner has never had a bad year.

(3) When it came to governance, this Board supported Michael Eisner's use of governing rules to attack his critics.

The Board had disregarded common sense; they declared me as a non-independent director because my daughter worked for the Company in a non-executive position -- but simultaneously crafted rules to keep John Bryson, an Eisner loyalist, independent -- notwithstanding his wife's employment by the Lifetime Channel, a 50% owned subsidiary of The Walt Disney Company where she was paid multiples of my daughter's compensation.

(4) Another example -- the Company insisted in its press releases that it wanted to follow "the best practices" with respect to governance. When Ira Milstein, the governance lawyer hired by Michael, testified before the Congress that the most important rule of governance was to split the Chairmanship and the CEO-ship, the Disney Board retreated from the "Best Governance Practices" standard and protected Michael Eisner who wanted to hold both titles. This retreat from common sense was led by George Mitchell, who should have known better.

The same theme appears time and time again -- protect Michael Eisner at the expense of the shareholders; protect Michael from questioning Directors.

Before long, you buy into the myth that Michael is irreplaceable; that no one else can do this job; without him the Company will fall apart. In essence, you have compromised your soul -- lost your integrity.

It goes on further. Andrea Van de Kamp raised serious concerns about executive compensation; raised concerns on the failed efforts of the new Walt Disney Studio Park in Paris; and on the form over substance governance rules that Michael and his paid advisors were insisting upon.

What to do?

Michael organized a coup to get Andrea off the Board. And, by then, most Board Members were so compromised they no longer had the courage to tell Michael "no." Some have even told me they regretted this decision, but the pressure was so difficult to overcome that one Director actually wept at the board meeting at this outrage. But the Board, with a few exceptions, fell in line and Andrea was dismissed from the Board.

These are just a few examples of the many occasions when this Board failed to assert its independence and failed to make management, and especially Michael Eisner accountable for his behavior.

This is the story that Roy Disney and I have told as we have crisscrossed the country in the last 30 days talking to small and large shareholders alike. From the responses we have received, and from the "no" votes we are receiving today, we believe that our message has resonated loud and clear. For that we are grateful and we thank you.

But that is the past. What about the future?

Today is a new day!

The owners of this Company have spoken and the Board has a second chance starting today to get it right. It now has an opportunity to correct the wrongs and do what is right; to do what is in the best interests of the shareholders.

Let me be clear, no half measures, no excuses, no amount of spinning will be tolerated.

Shareholders have waited too long and have spoken too clearly ...

Michael Eisner must leave now!

It is no longer sufficient to separate the role of Chairman and CEO. That is not what this campaign has been about.

I urge the Board to read the comments of the major advisory services and its major shareholders that have been published in the past few days:

• "we have lost complete confidence in Mr. Eisner's strategic vision and leadership in creating shareholder value in the company." -- Sean Harrigan, President of the CalPERS Board of Administration.
   
• what Disney must do is "separate the positions of chairman and chief executive and ... replace Mr. Eisner as soon as possible." -- New York State Comptroller, Alan Hevesi.
   
• "Eisner has created no value for shareholders for the past seven years." -- Orin Kramer, Chairman of the New Jersey State Investment Council.

Former Senator George Mitchell should no longer serve as Presiding Director. Although he has made a great contribution to American life as a public servant -- and we are grateful for his services to our country, in the boardroom, he doesn't have the ability or courage to confront a CEO bent on covering up poor performance and using bullying tactics to lay waste to directors with minority opinions.

Judith Estrin must no longer be involved in compensation decisions. She has shown by her willingness to consult with Michael Eisner's outside personal lawyer to get Michael the compensation that he wants. That alone shows she lacks the independence to confront a CEO and make him accountable for his actions.

John Bryson, who was never independent, failed to stand up to Michael, as Chairman of the Governance and Nominating Committee, during the dismissals of Andrea Van de Kamp and Roy Disney from the Board.

We, the shareholders, are entitled to a better Board and a better management and we have said that repeatedly today with our votes. Let me say on my behalf, and on behalf of the Disney Family, that we are grateful for your support and grateful to have you as partners. Let me say that we see today's meeting as the first step in reforming the Company -- in our words, literally saving Disney.

We are not looking for cosmetic rule changes, we are seeking real and meaningful change.

It is our intention to be here next week, next month and next year, it is our intention to be here for as long as it takes. We intend to press forward and keep Disney management, and especially its Board, accountable. Our policy is similar to that of Ronald Reagan's when he said: "trust and verify." We trust that this Board has heard our message today and that in a very short period of time will do what needs to be done; find a new CEO and a new team with strategic vision and an ability to create superior, creative and financial performance. But we will not trust alone; we will verify; we will be watching; we will be using all means available to us to make sure that real reform happens. If this board fails to seize this second opportunity, we promise you that we will be back. We hope that won't be necessary, but we are realistic and we know that change comes hard.

This has not been a pleasant campaign for us -- but we will not, and cannot, shirk from our responsibility to The Walt Disney Company ... to return it to its status as one of the most admired companies in the world. We hope and trust the Board will do the same. We hope and trust that the shareholder/owners of Disney will see those results in the shortest time possible.

Thank you for your support.

--Posted March 3, 2004
Source:  Roy Disney and Stanley Gold