RW - Shareholder Initiatives: Disney 2002

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Status

Annual meeting held Feb. 19, 2002

% voting YES: 6.9%

Shareholder resolutions face a variety of obstacles. For this reason, it is considered significant if a resolution garners at least 5% of the vote. Votes over 10% indicate exceptional shareholder support for an issue.

Filers of "social-issue" resolutions generally don't expect their resolution to receive a majority vote and be adopted by management. Rather, filers use these resolutions to get management's attention, and to raise the issue with other shareholders. They hope to achieve a vote sufficient to allow them to return the next year.

According to SEC rules, a resolution must receive 3% of the vote the first year it is filed, 6% in year two and 10% thereafter in order to be included on the proxy the following year.

Disney

Broader Distribution of Stock Options

WHEREAS, Disney’s compensation policies concentrate large amounts of stock options in the hands of small numbers of executives. According to Disney’s SEC filings, the company’s top five officers (0.004% of Disney’s workforce), control 18.6% of outstanding options;

WHEREAS, in 1996, Disney granted CEO Michael Eisner 24 million stock options (split adjusted) in order to align the interests of Mr. Eisner and shareholders. This option grant represented 26.2% of the total options granted by Disney that year.

WHEREAS, while Mr. Eisner personally has seen the value of his stock options rise by hundreds of millions of dollars since1996, Disney shareholders have seen the value of their investment perform poorly compared to the overall stock market. From September 30, 1996 (the date of Eisner’s 24 million share grant) through August 31, 2001, the total return of Disney’s stock was 24.1%, compared with a 77.0% rise in the Standard & Poors 500 index and a 97.5% rise in the S&P Entertainment Index;

WHEREAS, Over the 1998-2000 period, Business Week ranked Mr. Eisner the second worst CEO in terms of delivering shareholder value relative to the size of his $699 million pay package. (Business Week, April 16, 2001);

WHEREAS, there is a growing body of research confirming that firms with broad-based employee ownership grow faster, create more jobs, and retain higher quality employees than firms with narrowly concentrated ownership. According to "Unleashing the Power of Employee Ownership," a 1999 report by Northwestern’s Kellogg School of Management and the management consulting firm Hewitt Associates, firms with broad-based stock ownership delivered superior stock market performance and profitability relative to peer firms without employee ownership. Kellogg/Hewitt studied all 380 public firms that established employee stock ownership plans (ESOPs) between 1971 and 1991 and found that in the four years following the adoption of an ESOP firms saw their stock price cumulatively outperform peer firms without widespread employee ownership by 7%. In addition, the return on average assets of firms with broad-based ownership exceeded concentrated ownership firms by 3% per year;

WHEREAS, research confirms that sustained superior performance is due to contributions across a broad range of employee skills, along with shared values within a firm, and not to the efforts of a single employee;

RESOLVED, that the Board limit the stock options received: 1) by any single executive officer to no more 5% of the total options granted in a single year, and 2) by the group of executive officers to no more than 10% of the total options granted in a single year.

SUPPORTING STATEMENT
Disney’s executive compensation policies have failed to deliver their promise of enhanced shareholder returns. While executives have become rich, shareholders have suffered mediocre returns over the last six years. It is time for the company to try a different approach. The financial benefits of broad-based employee ownership are well documented and offer an attractive alternative to the current failed policies of concentrating stock ownership in the hands of a few corporate leaders.

Last year, 9.8% of shareholders supported this resolution.

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