Pension funds want to nominate Disney directors

The nation's big pension funds are flexing their financial muscles, demanding a direct role in determining who is going to run The Walt Disney Company. Four pension funds owning more than 18 million Disney shares have submitted a proposal for the company's next shareholders meeting which, if passed, would give shareholder groups the right to nominate their own candidates for Disney's board of directors.

Leading the charge is the California Public Employees' Retirement System (CalPERS), the New York State Common Retirement Fund, the American Federation of State, County and Municipal Employees Pension Funds (AFSCME) and the Illinois State Board of Investment. Those big pension funds, and others, have been talking with Disney's board of directors about possible nominees for the board. But if those talks don't work out to their satisfaction, the pension funds are ready to use this shareholder resolution as a big hammer to get action.

"The first step in restoring investor confidence was for Michael Eisner to step down, the second step was to search for a successor as the CEO, but the third step - - getting independent directors to serve next year and in the years ahead - - is the most important step of them all," said CalPERS President Sean Harrigan. "We have agreed to co-sponsor this resolution to use in the event the Disney Board doesn't satisfy our concerns about independent directors."

"For us, the essential issue at Disney is ensuring that there are independent directors who can hold management accountable. This is particularly important now as the company seeks a new CEO," said New York State Comptroller Alan G. Hevesi, who is the sole trustee of the New York State Common Retirement Fund. "We are hopeful that Disney will add independent directors on its own. But it would have been irresponsible of us not to file this proposal since the issue has not yet been resolved."

"This will help shareholders hold the Disney board accountable if it does not select strong independent directors for open board seats," said AFSCME Employees Pension Fund Chair Gerald W. McEntee.

"Only through the election of independent board members can shareholders be confident that their interests are protected by boards of directors," added Ed Smith, Chairman of the Illinois State Board of Investment. "Our action is one step towards increasing the accountability of the Disney Board to its shareholders."

The proposal, which could be voted on at Disney's 2005 annual shareholders meeting, would allow shareholder groups to nominate two candidates to Disney's 11-member board. It wouldn't take effect, though, until the 2006 annual meeting. It can be withdrawn before the 2005 vote, though, if the pension funds are satisfied with the actions of the Disney board over the next several months.

RBR observation:
Pension funds have long been the sleeping giant of Wall Street, but the giant was awakened by the corporate scandals at Enron, Tyco and others. The big funds are now demanding a voice in how big companies are run and they're holding boards of directors accountable for making managers run their companies for the benefit of shareholders, not as their own personal kingdoms. While the pension funds supported Roy Disney and Stan Gold last Spring in their unsuccessful effort to oust Michael Eisner, the fund managers are making it clear that they are free agents - - ready to support which ever side of the battle is working for their best interests. It will be interesting to see whether the board of directors, long criticized for being too cozy with Eisner, will assert enough independence to win the support of the pension funds and their huge block of votes.