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Disney Changes Rules Again

Directors who get no-confidence votes will have their cases reviewed by a special panel.
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Stung by last week's judicial scolding,


(DIS) - Get Walt Disney Company Report

inched Thursday toward further reform of its board practices.

The Burbank, Calif., media company moved to formalize guidelines for handling unpopular directors and set a plan to prohibit so-called greenmail, the practice in which a company buys out a big noisy shareholder in an effort to buy his or her silence.

The news comes just a week after a Delaware judge issued a scathing denunciation of the company's board during the soon-to-end reign of imperial CEO Michael Eisner.

Judge William Chandler referred to Disney's board memebers as Eisner's buddies and chastised them and him for their handling of the hiring and firing of former exec Michael Ovitz. Even so, the episode ended up looking mostly like a victory for Disney, since the board was found not liable for paying back Ovitz's severance check.

The new rules "provide that any director who receives a "withhold" vote representing a majority of the votes cast for his or her election would be required to submit a letter of resignation to the Board's Governance and Nominating Committee which in turn would recommend to the full Board whether the resignation should be accepted," reads a statement from the Burbank company.

Of course, Eisner famously received a 45% no-confidence vote at the 2004 shareholder meeting, forcing the board to finally strip him of his chairmanship. At the time, investors were angry about Disney's poor performance and Eisner's lavish pay, as well as what some observers said was the longtime exec's increasingly blindered view of the media business.

In addition, Disney on Thursday added a provision to its governance rules that "generally prohibits the repurchase of any shares at above-market prices from any holder of more than 2% of Disney's voting securities without shareholder approval." Disney didn't say why it adopted that proposal, though the move comes as activist shareholders like Carl Icahn are increasingly taking aim at big, underperforming companies. Icahn is currently embroiled in a dispute with Disney rival

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The changes come at a mostly prosperous time at Disney, where financial measures have picked up recently after a long slide and Robert Iger is rebuilding bridges long burnt by the imperious Eisner. Iger came to terms with dissident Disney directors Roy Disney and Stanley Gold earlier this summer following a public battle over the CEO election process. Both former directors had a fractious relationship with Eisner and claimed Disney's board had botched the CEO replacement search.

"Today's action is the latest in a series of steps we have taken to further strengthen Disney's corporate governance practices," said board chairman George Mitchell. "The Board remains committed to monitoring evolving best practices and adopting new provisions, as appropriate, to serve the long-term interests of the Company's shareholders."

Last December, Disney settled a

Securities and Exchange Commission

enforcement action arising from charges that Disney failed to disclose certain related-party transactions between the company and its directors, and didn't disclose certain compensation paid to a director.

The settlement carried no fine or other penalty. Disney agreed to cease and desist from violating federal securities laws pertaining to proxy solicitation and periodic reporting.

Nearly all the directors at issue in that matter were no longer on the company's board, and Disney spent much of last year tightening its corporate governance standards. Still, the settlement served to remind investors of the accusations of clubbiness and worse that for many years nipped at the heels of Eisner & Co.

Shares in Disney closed off 22 cents to $26.07 on Thursday.