Board Shuffle Within Disney Seems Likely to Aid Eisner

The New York Times ^ | 12/03/2002 (for editions of 12/04/2002) | Laura M. Holson

[GeneD]

LOS ANGELES, Dec. 3 — The Walt Disney Company announced several changes today to its board, including one that could reduce the influence of a chief critic of Michael D. Eisner, the chief executive.

Disney also said it was lowering its 2002 earnings estimate because of the disastrous performance of the animated "Treasure Planet," which cost $140 million to make but took in only $17 million at domestic theaters over the holiday weekend.

As part of the boardroom changes, Disney will add a new independent director, Robert Matschullat, a former Wall Street banker and top media company executive. It will also reconfigure the board committees and conduct two meetings a year without company executives present. The moves are part of a yearlong process by Disney to shore up its board, which has long been criticized for being too close to Mr. Eisner.

One director who will be most affected by the change is Stanley P. Gold, the financial adviser to Roy E. Disney, also a board member and the nephew of Walt Disney. The board agreed that under its new guidelines, Mr. Gold would no longer be considered an independent director because of his business relationship with Mr. Disney. As a result, Mr. Gold will no longer serve on the prominent audit, compensation, or governance and nominating committees.

Many analysts and experts viewed the changes as a victory for Mr. Eisner in the boardroom power play between him and Mr. Gold, who has criticized Mr. Eisner for being too complacent. Mr. Gold has been urging Mr. Eisner for months to settle on a successor and work harder to turn around the ailing ABC network.

Mr. Gold and Mr. Disney, like investors, have watched a lot of their wealth disappear as Disney's stock price hit a four-year low in August. Mr. Eisner has told board members that a logical choice to succeed him would be Disney's president, Robert A. Iger, but according to people close to the board, many members are taking a wait-and-see approach.

"This will make Stanley less effective because he's not on any of the key committees," said Richard H. Koppes, a lawyer who specializes in corporate governance and advises boards. "It's an interesting maneuver, to say the least, given his criticism of management, which has stirred up a lot of review."

Mr. Eisner has been on a public campaign to woo analysts and investors since Mr. Gold and others began criticizing his performance. The company is encouraged by the initial progress it has made in turning around ABC. The network, which finished fourth last November among the pivotal group of viewers 18 to 49 years old, surged to second place this November, up about 8 percent from last year. Its most prominent hit was "The Bachelor."

But Disney's troubles are far from over. ABC is expected to take years to turn around completely. Attendance at Disney's theme parks is unlikely to rebound quickly if travelers, fearing a war with Iraq or escalating terrorist attacks, continue to stay home. In another area, Disney said last week that it would cancel a weeklong cruise so that it could disinfect its Disney Magic ship after hundreds of people reported flulike symptoms after a trip in the Caribbean.

Disney lowered its 2002 earnings estimate today to 60 cents a share from 63 cents because of the poor performance of "Treasure Planet."

The failure of "Treasure Planet" is likely to give Pixar Animation Studios, the creator of hits like "Toy Story" and "Monsters Inc.," which Disney distributes, more leverage in the renegotiation of its lucrative partnership agreement with Disney.

Mr. Matschullat, who will be chairman of the audit committee, should give Disney's board some of the financial heft it needs. Mr. Matschullat is now a private equity investor, but he has had a long career on Wall Street; he headed investment banking in the early 1990's at Morgan Stanley.

"He's a no-nonsense kind of guy who knows what things are worth," said Phyllis Grann, a former chief executive at Penguin Putnam who has worked with Mr. Matschullat. "He knows how to find out what's going on."

Other board changes included the selection of former Senator George J. Mitchell as a presiding director to oversee meetings when management is not present and the announcement that Robert A. M. Stern, who has done architectural work for Mr. Eisner, is not independent.

Disney also said it was being investigated by the Securities and Exchange Commission for disclosing in an August filing that relatives of several independent board members had links to Disney or a company it controls. The information should have been revealed sooner, a Disney executive said.