Disney Gets the Message

Corporations seeking guidance on how to govern themselves in the post-Enron world should look at Walt Disney Co. (DIS ) In a dramatic reversal, Disney has gone from having one of the worst boards of directors in Corporate America to having one of the best. Michael Eisner, a reluctant reformer, is now showing other CEOs how to clean up their governance messes while restoring investor trust in the process.

For years, Disney hit the bottom in BusinessWeek's "The Best & the Worst Boards" surveys. The Disney board was invariably packed with Eisner pals, to say nothing of the likes of Robert A.M. Stern and former Senator George J. Mitchell, whose architectural and legal firms did work for Disney. The conflicts of interest pushed Disney onto the Worst list year after year.

With oversight from governance guru Ira Millstein, Disney now restricts key audit and compensation committees to independent directors. Outside directors hold meetings away from management, and they are restricted in the number of other boards they can sit on. Directors must own at least $100,000 in company stock, giving them a direct stake in the company's performance. And Disney is cutting all business relationships between board members and the company.

Disney also is bolstering the credibility of its financial reporting by using different firms for auditing and consulting. Disney is no longer repricing options, either. That forces managers to take the hit when things go wrong--just like other shareholders. Eisner's own rich compensation will be more tightly tied to refurbishing Disney's earnings prospects.

This kind of board should provide much better oversight of Disney's management and more honestly represent the company's shareholders. (One of its first tasks should be to insist that Eisner stop procrastinating and appoint a successor.)

The investor backlash against Enronitis has CEOs and boards everywhere scrambling to avoid liability. What they should be doing is rushing to build credibility. It is entirely possible. Disney just did it. Better late than never.

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