DISNEY BOARD FIGHTS BACK SUIT OVER SEARCH FOR CEO DRAWS FIRE.

Byline: Greg Hernandez Staff Writer

BURBANK - The usually reticent Walt Disney Co. Board of Directors fired back Thursday at a lawsuit filed this week by dissident former members Roy E. Disney and Stanley F. Gold over the hiring of Robert Iger to succeed Michael D. Eisner as Disney CEO later this year.

In a lawsuit filed in Delaware Chancery Court, Disney and Gold allege fraud and breach of the duty of disclosure in connection with choosing a replacement for Eisner. They charge that the selection process ``precluded serious and effective consideration of external candidates.''

The board's nonmanagement directors said in a statement that they ``categorically reject'' the allegations challenging their good faith, calling them ``baseless and inaccurate.''

Aided by the executive search firm Heidrick & Struggles, the board said they committed to a careful and reasoned six-month process in September when Eisner announced he would be stepping down. They said they identified Iger as the only internal candidate and opened up consideration of external candidates.

``At the end of the process, we unanimously concluded that Bob Iger, was the best choice to lead the company forward as CEO,'' they stated. ``The performance of the company in the period leading up to the selection and since that time only underscores our confidence in the selection we made.''

The Walt Disney Co. on Wednesday reported a second-quarter profit that was up by 30 percent over a year ago fueled by strong DVD sales for ``The Incredibles,'' a resurgent ABC television network, and increased theme park attendance in Florida.

It was Disney and Gold who engineered a shareholder revolt in February 2004 that resulted in Eisner being stripped of his job as board chairman although he remains CEO of the company. In March, the board selected Disney President and Chief Operating Officer Iger to be Eisner's replacement when he steps down later this year.

During an earnings call with analysts this week, Iger said the lawsuit ``is completely without merit.''

``I, for one, will not allow myself to be deterred or distracted,'' he said.

Veteran trial lawyer Michael P. Kelly, managing partner of the Wilmington, Del., office of McCarter and English, said the board may have been advised to engage in a public war of words in order to put out both sides of the story.

While Gold and Disney have had considerable impact on the company's direction in the past, Kelly is doubtful their lawsuit will go anywhere.

``Delaware gives a lot of deference to the business judgment rule,'' he said. ``If the board is informed and acts in good faith in the best interest of the corporation, they are usually insulated from any such lawsuits. It's usually a tough hurdle to cross.''

Greg Hernandez, [phone]

greg.hernandez(at)dailynews.com