One Ear Down ...

By Daren Fonda

How seriously did the Walt Disney Co. take the message that a large chunk of shareholders wanted CEO Michael Eisner to return his keys to the Magic Kingdom?

Eisner received the smackdown of his career at Disney's annual shareholder meeting in Philadelphia last week, suffering a 43% vote of no confidence from investors. You would think it would have prompted the board to take a long, hard look at whether he was more liability than asset. But its response, while swift, was largely unsatisfying to critics: the board let Eisner retain his role as chief executive but tapped director George Mitchell to replace him as chairman--even though Mitchell himself received a 24% no-confidence vote.

It turns out Disney had been floating the idea of splitting the top jobs to quell shareholder grumbling even before the votes were in. Sources tell TIME that Disney made an overture to an influential shareholder advisory group to gauge its support for the idea even before the full magnitude of the revolt was known. Twelve days before the vote count was announced, a lawyer for Disney called Institutional Shareholder Services (ISS), the proxy advisory group, to see if ISS would change its no-confidence recommendation if the board split the jobs. The conversation ended in seconds. "We didn't even entertain the idea," says an ISS spokeswoman. Too bad for Eisner, who could have used ISS in his camp. About 60% of its 750 institutional clients voted their shares against him.

Disney insists the measure addressed the issues: "The directors feel they absolutely did listen" to shareholders' concerns, says a source close to Disney's board. But many Eisner critics--including several large pension funds--say the large vote against Eisner should have led to his ouster. "Disney needs to do more than say it changed the titles on the doors," says Pat Macht of the California Public Employees' Retirement System, which owns 9.9 million shares of the company. Roy Disney, one of the chief dissident shareholders, believes the Philly split amounted to another Eisner coup: "Knowing Michael as I do, I don't think he had any intention--no matter what the vote was--to go."

--By Daren Fonda. With reporting by Jeffrey Ressner and Sonja Steptoe

With reporting by Jeffrey Ressner and Sonja Steptoe