The proposal -- filed in time to be voted on by shareholders at the 2005 annual meeting -- calls for a group of shareholders to be able to nominate up to two directors on Disney's 11-member board and have them included on the company’s proxy. If the proposal receives a majority of votes in 2005, the shareholders could be able to nominate the two directors for the 2006 annual meeting.
The coalition of funds includes the California Public Employees’ Retirement System (CalPERS), the New York State Common Retirement Fund, the AFSCME Employees Pension Plan, and the Illinois State Board of Investment. They own more than 18 million shares of Disney stock together.
Sean Harrigan, President of CalPERS, said Disney’s Board should be willing to accept nominations and be more responsive to shareowners, and this resolution would allow that to happen.
"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 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, 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. "We look forward to Commissioner Donaldson’s support this fall. While this tool would be used infrequently, Disney is a classic example of a case for when proxy access would be appropriate."
"Only through the election of independent board members can shareholders be confident that their interests are protected by boards of directors," said 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."
After the wave of corporate scandals, many investors and corporate governance experts have concluded that it is essential to have independent directors on corporate boards. The issue of allowing shareowners to nominate independent directors to corporate boards has been at the forefront of the corporate governance debate in recent months and is before the SEC for a final decision.
Currently, shareowners are largely shut out of the system of nominating directors, with incumbent boards determining who to nominate and shareowners left to ratify choices through votes at the annual meeting. Even if shareowners decide to bankroll their own proxy materials to advance director candidates, the expense for public funds puts the option out of reach.
The shareholder proposal filed at Disney is similar to one put forth by AFSCME and other public pension funds last year at Marsh McLennan, following news of scandals at its Putnam subsidiary. The funds withdrew the proposal after Marsh McLennan nominated Zachory Carter, a former federal prosecutor to its board.
A copy of the Disney shareholder proposal follows:
RESOLVED, that shareholders of The Walt Disney Company ("Disney") ask that Disney become subject to the shareholder right of access to the company proxy statement afforded in the SEC’s proposed Rule 14a-11 (the "Rule"), which would (a) allow a shareholder or group that has held over 5% of Disney’s outstanding common shares for over two years ("Nominating Shareholder") to nominate up to a specified number of candidates ("Nominees") who are independent from both the Nominating Shareholder and Disney for election to Disney’s board of directors and (b) require Disney to allow shareholders to vote for Nominees on Disney’s proxy card and to make certain disclosures regarding Nominees in Disney’s proxy statement.
In the case of Disney, the Rule would allow a Nominating Shareholder to nominate up to two Nominees, because Disney’s board currently has 11 members. However, Disney’s bylaws set the board size as a range from nine to 21. In the event that Disney’s board is expanded to 20 or more directors, the Rule would allow nomination of up to three Nominees.
SUPPORTING STATEMENT
Currently, the process for nominating and electing directors is a closed system, with incumbent boards determining whom to nominate and shareholders ratifying those choices through their proxy ballots. Although shareholders may use their own proxy materials to advance director candidacies, the expense and difficulty of doing so means that such challenges are rare outside the hostile takeover context.
The SEC has proposed to provide shareholders with the opportunity to nominate director candidates to appear in the company proxy statement under certain circumstances. One circumstance is when holders of a majority of shares voting approve a shareholder proposal asking that the company provide such shareholder access. The proponents of this proposal do not own 1% of Disney’s stock. Thus, adoption of this proposal would not automatically lead to the inclusion of candidates nominated by 5% of Disney’s shareholders.
We believe that Disney’s corporate governance will benefit if shareholders are empowered to nominate director candidates, and that now is an appropriate time to move in the direction of greater accountability to shareholders. Last year, holders of 45% of shares withheld their votes from CEO Michael Eisner for his reelection to Disney’s board in a protest against Disney’s unsatisfactory performance and the lack of independent leadership on the part of Disney’s board. Subsequently, the board separated the positions of CEO and Chairman, and more recently, Mr. Eisner announced he would step down from his position as CEO, but not until 2006.
In our opinion, giving shareholders the ability to nominate director candidates on Disney’s proxy statement will make Disney’s board more responsive to shareholder interests. Such responsiveness is especially important now, in the context of a search for Mr. Eisner’s successor. We also believe that allowing shareholders access to Disney’s proxy materials may help strengthen the board’s monitoring ability.
We urge shareholders to vote for this proposal.
