Disney Proxy Advisers Urge Rejection of Combined Top Job

Walt Disney Co. (DIS) faces opposition to its combined chairman-chief executive officer roles as two proxy advisers urge shareholders to vote next week in favor of splitting the positions.

Institutional Shareholder Services Inc. and Glass Lewis & Co. both recommend investors back a proposal by Connecticut Retirement Plans & Trust Funds to separate the jobs in the future that are now held by Robert Iger. Shareholders will vote on the non-binding proposal at the March 6 annual meeting in Phoenix, Disney said in a January proxy filing.

Iger, CEO since 2005, was named to the added role of chairman last year, overcoming opposition from some proxy advisers and the California State Teachers’ Retirement System, the second-largest U.S. public pension fund. Nine years ago, Disney, the world’s biggest entertainment company, separated the posts to improve corporate governance during a shareholder revolt against then Chairman and CEO Michael Eisner.

“Disney’s performance during Mr. Iger’s tenure has been nothing short of spectacular,” the Burbank, California-based company said in a statement yesterday, citing a 76 percent shareholder return in the fiscal year that ended in September. “Disney has delivered results that speak for themselves.”

Iger, 62, plans to step down as CEO in March 2015 and serve as chairman until June 2016. Disney drew support from Egan-Jones Proxy Services, which opposes splitting the roles and backs the company’s pay and bonus plans.

Board Makeup

The pressure to split the top job at Disney comes as more companies embrace independent board leadership. According to the 2012 Spencer Stuart Board Index Report, 57 percent of S&P 500 companies have one person in the role of chairman and CEO, down from 75 percent in 2002.

Connecticut Retirement’s proposal for separating the roles would “apply prospectively so as not to violate any company contractual obligation” at the time it is adopted, according to Disney’s proxy filing.

This year, ahead of the annual meeting, Calstrs, ISS and Glass Lewis all say they support Connecticut Retirement’s proposal. ISS, in a Feb. 15 report, said it backs splitting the jobs and opposes the company’s executive compensation plan. Glass Lewis in a report to clients on Feb. 20 recommends separating the posts and voting against the company’s executive bonus plan as well as its overall executive compensation.

Splitting Roles

Calstrs, which holds 5.28 million Disney shares, said on Feb. 14 it favors splitting the chairman and CEO roles and opposes the election of six Disney directors, including Iger. The $161 billion fund will also vote against Disney’s executive pay plan.

The pension fund generated a 1.8 percent return for the fiscal year ended June 30, below its 7.5 percent target. The three-year return was 12 percent, the fund said in a statement last year.

Disney’s earnings rose 24 percent to $3.13 a share in fiscal 2012. Over Iger’s eight years as CEO, earnings have risen at a 15 percent average annual rate, the company said.

While Disney’s profit and share price performance have been strong, discussions over company stewardship and executive pay should be held by shareholders, said David Lewin, a professor of management at the University of California Los Angeles.

“One worries about excessive power in the executive rank,” Lewin said in a telephone interview.

‘Clear’ Standards

Disney said in a January filing that its standards for selecting a chairman are “clear and workable,” calling any suggestion that the process led to a poor decision on Iger “unfounded.”

The company made changes to Iger’s compensation based on investor feedback, according to the filing. Ninety-two percent of the target value of Iger’s compensation is contingent on financial results and the stock’s performance. He received $40.2 million in total compensation last year.

Connecticut Retirement is responsible for managing pension funds for about 190,000 teachers, state, and municipal employees, according to its website.

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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