Big Pension Funds Ask Disney for a Meeting

Six of the nation’s largest pension funds, worried about the safety of their multibillion-dollar holdings in Walt Disney Co., want to meet with the company’s board of directors.

In an open letter Monday to Disney’s new chairman, George Mitchell, the pension funds -- led by the powerful California Public Employees’ Retirement System -- said they remained “deeply concerned that our investments and the future of this company are in jeopardy.”

Citing a stock decline of more than 20% over the last five years, the funds requested “an immediate meeting” with the directors, saying it “would send a necessary signal to the marketplace” that Disney was “willing to engage in a constructive dialogue.”

Such a request from funds with combined assets of $500 billion is rare, experts said, a reflection of the extraordinary circumstances surrounding the Burbank-based entertainment giant.

“To me, this signals a level of frustration on the part of those funds vis-a-vis what has occurred,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “It would be wise for the Disney board to sit down with them.”

In a statement, Mitchell said the board welcomed the proposed meeting. While acknowledging that Disney had “faced a number of challenges in the last several years,” he defended the company’s “record of creating shareholder value” and touted its strong earnings outlook.

This month, shareholders delivered an unprecedented blow to Michael Eisner’s credibility and management of the company. He was stripped of the chairmanship title he held for nearly two decades after 43% of shares cast during the annual meeting were withheld for his reelection to the board. He remains chief executive. His replacement as chairman, Mitchell, also was undercut, receiving a 24% vote of no-confidence.

But those changes at the top have not allayed the concerns of many institutional investors, who wanted Eisner to resign after the surprising shareholder vote. CalPERS, the nation’s largest pension fund, has openly called for the executive’s ouster.

CalPERS recently helped oust New York Stock Exchange CEO Richard Grasso after disclosures of his multimillion-dollar compensation package. Sources said CalPERS, which holds nearly 9 million Disney shares, was the impetus behind Monday’s letter. It was joined by the California State Teachers’ Retirement System and by funds from Ohio, North Carolina, New York and Connecticut.

The funds applauded the board’s decision to split the roles of chairman and CEO but said it was only a first step.

“We remain extremely concerned about the high negative vote that most of the Disney board members received from shareholders, and it is time that every board member hear directly from large shareholders why we are so concerned,” said Sean Harrigan, president of the CalPERS board.

Added Connecticut’s fund chief, Denise L. Nappier: “We need to see, up close and personal, how the board plans to address the serious and substantial issues at their doorstep.”

The funds want to know how Disney plans to fix problems in several key divisions, including ABC television, consumer products and feature animation. They also are concerned about the lack of a comprehensive succession plan for Eisner, 62, whose contract expires in 2006.

Eisner received some welcome news Monday when New York State Comptroller Alan Hevesi, who last month called for his dismissal, changed course.

“We have explicitly agreed to give the company some time to improve its performance and not to ask for Eisner to be replaced at this time,” Hevesi said.

Eisner and other top Disney executives have promised strong double-digit growth during the next several years. They are trying not only to ease concerns in the investment community but to thwart cable giant Comcast Corp., which has made an unsolicited bid for Disney valued now at about $47 billion. Should Disney’s financial performance falter, the company could become more vulnerable to a takeover.

Disney shares fell 49 cents to $24.90 on the New York Stock Exchange.