DISNEY SPLITS TOP JOB IN SHARP EISNER REBUKE PIXAR, CALPERS AND COMCAST DRAMAS TRIGGER DEMOTION ACTION.

Byline: Greg Hernandez Staff Writer

After a devastating show of no confidence in Michael D. Eisner's leadership by shareholders, The Walt Disney Co.'s board of directors voted Wednesday night to immediately strip him of his dual role as chairman and chief executive officer.

Eisner will remain as CEO, while former U.S. Sen. George Mitchell will take over as chairman of the board - moves intended to stop, or at least slow, the rising tide of criticism against Eisner, who has held a powerful grip on the corporate and creative sides of the Burbank-based media and entertainment conglomerate for nearly two decades.

The board's unanimous decision to replace Eisner with Mitchell came after 43 percent of the company's shareholders voted against re-electing Eisner to the board. The unprecedented shareholder rebellion - sparked by dissident former board members Roy E. Disney and Stanley Gold - rocked Disney's annual shareholders meeting in Philadelphia.

The withholding of support for Eisner and several other directors was initially seen as a symbolic action, since they were running unopposed. But the extraordinary level of opposition - far exceeding the 30 percent predicted prior to the meeting - forced the board to take action and split the jobs of chairman and CEO.

In a statement released late Wednesday, the board said that, ``while there appear to have been a number of different forces at work in the shareholder vote,'' the results conveyed a strong message about corporate governance and a demand that the chairman and CEO not be the same person.

But the board stopped short of removing Eisner from the executive ranks, as Disney, Gold and some major shareholders had demanded.

``We are aware that some voted for an immediate change in management and in the board,'' the board stated. ``However, taking all of these factors into account, we believe the action we have taken today is in the best long-term interest of the shareholders of the company.''

During the 5 1/2-hour meeting inside the Pennsylvania Convention Center, broadcast live on the Internet, Disney and Gold stepped up their three- month campaign to oust Eisner by urging shareholders to join numerous public employee pension funds in withholding their support.

Approximately 771 million out of 1.8 billion shares were withheld from Eisner being retained on the board, while there were about 1 billion votes in support of him. A protest vote higher than even 20 percent is normally seen by Wall Street as a mandate for change.

After the shareholder vote, Philadelphia-based cable television giant Comcast Corp. seized the moment to renew its unsolicited bid for Disney and asked to meet immediately with Disney's independent directors to discuss its offer, suggesting that Eisner and others ``haven't properly represented shareholders' interests in a variety of ways.''

But the board stated that it did not believe Comcast's reiteration of its previous proposal would be ``would lead to a transaction beneficial to Disney shareholders.''

The board's decision was seen as a major victory for Disney and Gold.

``Michael Eisner must leave now,'' Gold said while addressing shareholders. ``We see (this) meeting as a first step toward saving the company. ... We are seeking real and meaningful change.''

Disney, 74, nephew of the company founder, added that more than a new chairman was needed. He and Gold had been adamant that it was not enough for the board simply to split the roles of chairman and CEO.

``We need to install a new management team, one that understands and believes in the enormously valuable legacy that's been entrusted to us,'' Disney said to shareholders.

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

``This discontent is too wide and way too deep in the marketplace, and it has led us to believe that Eisner should go,'' said Sean Harrigan, president of CalPERS' board of administration.

Similar funds in New York, North Carolina, New York, Florida and Ohio had called for changes as well.

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

Disney and Gold said they believed the overwhelming shareholder vote validated their concerns about Eisner's performance and the long-term future of the Burbank-based media and entertainment conglomerate.

But, during the meeting, Eisner called Gold and Disney's conclusions ``fundamentally wrong.''

``I believe you have just heard rhetoric from our critics that, frankly, replaces reason,'' he said. ``Disney's record of creating value is really indisputable as evidenced by our performance, by the love of our products, by our stock growth over the last year.''

Eisner has been under especially heavy fire since Feb. 11, when Comcast made a hostile takeover bid for Disney. This came just weeks after Pixar Animation Studios called off talks to extend its lucrative partnership with Disney, placing 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 the Comcast offer seemed to cast light on some of the company's perceived weaknesses even after it enjoyed an earnings turnaround in recent quarters. Pension funds and investment houses picked up on that theme.

``(Wednesday's) vote is a wake-up call to Disney management that the company's performance has been inadequate,'' New York Comptroller Alan Hevesi said in a statement. ``There have been too many failures, and as a result, Disney's stock has been stagnant.''

Eisner and 10 other directors, including Mitchell, had received varying degrees of shareholder opposition but were still elected to one-year terms on the board.

Eisner, who used humor at times while presiding over a tense meeting, said there might even be some bright side for him to the shareholder revolt.

``It may end up even being a good process that we're able to analyze what we hear, address what we hear and react to what we hear,'' he said.

The company's stock was relatively unchanged Wednesday, closing down 11 cents at $26.65 per share on the New York Stock Exchange.

Greg Hernandez, [phone]

greg.hernandez(at)dailynews.com

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2 photos

Photo:

(1 -- color) MITCHELL

(2 -- color) EISNER