CRITICS JEER DISNEY MOVE BOARDROOM SHUFFLE CALLED 'LAUGHABLE'.

Byline: Greg Hernandez Staff Writer

BURBANK - The Walt Disney Co.'s board of directors was blasted Thursday by critics who said stripping Michael D. Eisner of his title as board chairman and replacing him with former Sen. George Mitchell is not near enough and essentially ignores the results of this week's unprecedented shareholder vote of no confidence in Disney's leadership.

By allowing Eisner to remain CEO, many believe the board is merely shuffling chairs in the boardroom to placate their critics who had demanded that the jobs of chairman and CEO be split instead of Eisner holding both of them.

``It's not a surprise that he's still CEO because the board has already proven that they love him and I don't see that changing anytime soon,'' said media analyst David Joyce of Guzman & Co. in Miami.

``But by not making any further moves, what it does is make Eisner's job much more difficult,'' Joyce said. ``He really has to accelerate major growth and major improvements across all business lines.''

Eisner received a stunning 43 percent vote of no confidence Wednesday during a stormy shareholders meeting in Philadelphia. Confidence in Mitchell was also low, with 24 percent of shareholders withholding their votes to re-elect him to the board.

Approximately 771 million out of 1.8 billion shares were voted against Eisner being retained on the board. A protest vote higher than even 20 percent is widely viewed by Wall Street as a mandate for change.

While the Disney company offered no comment Thursday, Eisner, 61, has made clear he plans to remain as CEO until his contract runs out in 2006.

But he will continue to face a spirited campaign led by chief critics Roy E. Disney and Stanley Gold, dissident former board members who want Eisner to resign from the company completely. They are demanding that the board seek a new chairman who they believe is more independent than they perceive Mitchell to be.

``The board is thumbing their nose at shareholders,'' Greg Taxin, chief executive of Glass, Lewis & Co., one of the institutional investment research firms that had recommended withholding support from Eisner and Mitchell, told The Associated Press. ``The notion that someone with a 24 percent withhold vote should be elevated to the role of chairman is a sad and laughable result.''

Media analyst Tom Wolzein of Sanford Bernstein & Co. in New York said it may take awhile to know whether the board's splitting of the two jobs is enough to quell the dissension.

``Media companies kill for sport,'' Wolzein said. ``If someone is weakened, they go after them. But it's going to take awhile to see how this plays through.''

Gold and Disney have made clear that they are going for the kill. They called Mitchell's appointment ``a blatant rejection of shareholder will, a betrayal of trust and a significant step backward for substantive governance reform...

``For the board to endorse a lame duck CEO that shareholders have repudiated is untenable for the company, its shareholders, its employees and its business partners,'' Disney and Gold said in a statement.

Some of their sentiments were echoed by others Thursday.

``We're happy with the board's action to split the chairman and CEO positions, but we are not happy with their second step - the one we feel is most important - and that is to recruit a new, independent chair,'' said Cynthia Richson, corporate governance officer for the Ohio Public Employees Retirement System.

``We don't question Mr. Mitchell's skills as a senator and a diplomat but that is completely different from having business expertise,'' she said.

``Publicly, our position is that the appointment of CEO is within the board's discretion,'' Richson added. ``But if they don't start to find a different chairman, we question the board's judgment for CEO as well.''

Gold called Mitchell's history as a corporate director ``checkered'' and complained that he lacks ``business acumen, independence and credibility to serve as chairman of The Walt Disney Company.''

The California Public Employees' Retirement System suggested that Eisner step down as CEO by the end of the year and urged the board to immediately begin forming a succession plan.

North Carolina State Treasurer Richard Moore, who had instructed money managers of the state's retirement systems to withhold support of Eisner, stuck to his position that the main issue was the splitting of the CEO and chairman jobs.

``As an investor I do not reach down into corporations and tell them how to run their business,'' Moore stated. ``I have always held the board of directors responsible for good corporate governance and will continue to focus my efforts at that level.''

The pension fund revolt came after influential Wall Street players Institutional Shareholder Services and Glass, Lewis & Co. called for Eisner's ouster from the board.

Eisner has been under especially heavy fire since Feb. 11 when Comcast Corp. made a hostile takeover bid for Disney. The offer came just weeks after Pixar Animation Studios called off talks to extend its lucrative partnership with Disney and placed the blame squarely on Eisner.

Eisner and the company appeared to have weathered the Comcast bid, which was rejected two weeks ago by the board. But after the vote Wednesday, Comcast urged the Disney board to take a new look at their offer considering such heavy anti-Eisner sentiment.

The Comcast offer seemed to cast light on some of the company's perceived weaknesses even after Disney saw an earnings turnaround in recent quarters. A number of shareholders, including several state pension funds with major stakes in Disney, dropped their support of Eisner last week.

Gold and Disney vow to continue their campaign by speaking to and meeting with the company's shareholders in the coming days.

``These issues are just too important for Disney and the overall credibility of our capital markets. We can't stop or slow down now,'' Roy Disney said.

Greg Hernandez, [phone]

greg.hernandez(at)dailynews.com