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Disney Brass Get Two More 'No' Votes

Updated from Feb. 25

The movement against Disney (DIS - Get Report) CEO Michael Eisner has gained two high-profile supporters.

Investors welcomed the opposition, bidding up the stock 60 cents, or 2.3%, to $26.90 on the Instinet premarket session.

The California Public Employees' Retirement System -- the nation's largest public pension fund and one of Disney's 30 largest shareholders -- said Wednesday it would withhold votes for Eisner and three other company directors at Disney's shareholder meeting next week. CalPERS cited the company's "dismal performance" over the past five years, among other issues.

Separately, the proxy advisory firm Glass, Lewis & Co. recommend Wednesday that clients withhold votes for board chairman Eisner and director George Mitchell, who as presiding director is the lead independent director at Disney.

The announcements add to the snowballing criticism of Eisner and the Disney board. Disgruntled former directors Roy Disney and Stanley Gold have been stoking this opposition since departing from the board last fall, and the discord promises to make for a tense annual meeting next week, when Disney shareholders gather in Philadelphia.

"We have lost complete confidence in Mr. Eisner's strategic vision and leadership in creating shareholder value in the company," said Sean Harrigan, president of the CalPERS Board of Administration, in a statement Wednesday. "The company has lost more than 23 percent for the five-year period -- nearly five times more than the losses incurred by the S&P 500 index for the comparable period. We believe shareholders should send the message loudly and strongly that it is time for Disney to get a more focused strategy that will improve shareholders return on invested capital."

CalPERS said it intended to withhold votes for directors Monica Lozano, Robert Matshllat and Leo J. O'Donovan -- the three board members who constitute the company's audit committee -- "because the committee has authorized the auditor to perform an unquantifiable amount of nonaudit services such as tax examination assistance and other services regarding internal controls," CalPERS said.

"If we learned anything from recent corporate scandals, it is that audits must be beyond reproach," said Harrigan in the statement. "An auditing firm that receives money for other work beyond the audit just raises the risks for questionable audits."

In its report, Glass, Lewis is critical of Eisner and the board. "In our view, Disney's board has come a long way, but not far enough," the firm writes. Glass, Lewis says shareholders should not forget Disney's many past indiscretions.

"Here, those past faults are many. The Disney board has been notoriously insular, famously gullible and blindly loyal to Mr. Eisner. New blood on the board may finally be changing all that; we think, nevertheless, while the corporate world is watching carefully the fate of the Disney directors, investors should be heard to say in unison: we will hold directors' feet to the fire for present and past transgressions," Glass, Lewis says.

In advising investors to withhold votes for Mitchell and another board member, Gary Wilson, Glass, Lewis alluded to recently released documents related to company litigation. Mitchell and Wilson, says Glass, Lewis, "failed to take any action (or apparently even notice) when Mr. Eisner brashly and near unilaterally hired and then fired an executive officer, costing the Company more than $140 million. In addition, Mr. Mitchell serves as the presiding director, a role we believe should be filled by a director of unquestionable independence. Mr. Mitchell is not that, and his decisions in that role reflect as much."

Earlier this month, proxy advisory firm Institutional Shareholder Services advised withholding votes for Eisner.

More recently, Disney raised concerns last week when Mitchell and Eisner -- on a conference call led by Glass, Lewis -- indicated that the board had expected an unsolicited takeover bid from cable giant Comcast (CMCSA - Get Report), and had scripted a rejection message that Eisner repeated to Comcast CEO Brian Roberts upon receiving an informal expression of interest from Roberts in early February.

In a research note issued Tuesday, Fulcrum Global Partners analyst Richard Greenfield issued a note that also criticized Disney's tactics in rebuffing Comcast. "We find it curious that the Disney board would instruct Mr. Eisner to read a 'canned' rejection of Comcast's solicitation ... without the board at least entertaining a discussion with Comcast and understanding a potential deal's pricing, terms, synergy arguments, etc...."

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