Walt Disney Co. dissidents Roy Disney and Stanley Gold may be irked that Michael Eisner kept his job as chief executive officer, even though he was forced to relinquish the chairmanship in light of the large vote of no confidence he received from shareholders at its annual meeting last week.

But, according to shareholder advocates, the fallout from the Disney developments will boost governance activists lead to more change at corporations.

Separate Roles

SEPARATION RATES

Total number of companies tracked by Institutional Shareholder Services, and their status related to the separation of chairman and CEO titles:

 

Total

Percent

Chairman and CEO are separated

2588

48.1%

Chairman and CEO are not separated but there is a lead director

535

9.9%

Chairman and CEO are not separated and there is no lead director

2258

41.9%

Data courtesy Institutional Shareholder Services

"A huge echo is being heard around the country," insists Jamie Heard, president at Institutional Shareholder Services. "Not only has it impacted Disney, it has shown that shareholders can exercise dissent and force change."

He notes that in the past "No votes" or "withhold votes" for board of director candidates have been all but ignored. Same with non-binding majority votes for shareholder resolutions.

"This won't happen anymore," Heard insists. "Today, directors must pay attention and respond."

One area that the Disney developments will heavily impact is the drive to separate the chairman title from the CEO title. "Splits will now rise to the top of investor engagement agendas," predicted governance expert Stephen Davis in the latest edition of his weekly newsletter, Global Proxy Watch.

And although the Council of Institutional Investors, for example, still does not have an official policy calling for separation of the chairman and the CEO, chairman Sarah Teslik concedes in an email response to questions: "I suspect many members would support this in many settings."

In fact, the day after Disney divided these duties, Dell Computer said founder Michael Dell would transfer the CEO title to Kevin Rollins, currently president and chief operating officer. Rollins will also retain the president title.

And last month, Oracle Corp.'s Larry Ellison relinquished the chairmanship as well.

Other high-profile companies that have separate chairmen and CEOs include Campbell Soup, American Express and General Motors.

Less Than Half

Even so, fewer than half (48.1 percent) of the 5,384 companies in the ISS database have separated the chairman and CEO positions.

About 10 percent of the companies have not separated the positions but have a lead director. But, this still leaves a little more than 41 percent of the total companies that have not split the two roles and also don't have a lead director.

Among the largest companies — those making up the Standard & Poor's 500 — just 118 companies, or fewer than one-quarter, have separate chairman and CEO positions.

Another 192 companies in the S&P 500 have not separated the two top positions, but they do have a lead director.

Looking at a wider universe, just 685 of the companies that are contained in the Russell 3000 have separated the two top posts. Another 122 companies have separated the top jobs, but have a lead director.

Among smaller companies — the S&P 600 — about 45 percent of companies have separated while another 45 percent have not separated and don't have a lead director, leaving about 10 percent that have not divided the two positions but have a lead director.

Disney Momentum?

What's the significance of having a lead director? In January 2003 a special commission of the Conference Board recommended that companies consider splitting the two positions or at least appoint a presiding director.

It recommended that where companies have a non-independent chairman, the lead or presiding director should have ultimate approval over information flow to the board, meeting agendas, and meeting schedules to ensure that the independent directors have sufficient time for discussion of all agenda items.

Meanwhile, the ISS points out that 2003 was the first year that resolutions related to this issue got onto many ballots.

This year, shareholders have filed more than 30 resolutions calling for an independent chairman. Among the targeted companies: Chevron, Coca-Cola, Colgate-Palmolive, Halliburton, J.P. Morgan, Merrill Lynch, PG&E, Texaco, and 3M Corp.

Keep in mind that these are initial filings. Many of them typically fail to make it onto the final ballot, the ISS points out. "In some cases, proponents withdraw their resolutions after reaching an agreement with the company. In other cases, companies win SEC blessing to exclude the proposal from the ballot," it adds in a recent report.

Still, Heard argues the Disney developments "put momentum behind the drive to separate [the two positions]."

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