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Pressure from institutional investors in 2004 led directly to The Walt Disney Company separating the roles of CEO and Board Chair. That separation was formalized by the Board in January 2005, in response to shareholder concerns on board oversight of the CEO.
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By its actions in October 2011, the Disney Board chose not to honor its 2005 commitment to shareholders to retain a board leadership structure led by an independent director. The company failed to engage in coordinated outreach or give shareholders generally an opportunity to comment on any proposal to recombine the roles of CEO and Board Chair. In fact, just the opposite: the timing of the Board’s decision strongly suggests that shareholder input was intentionally avoided, given that the company’s announcement was made public after Disney’s September 2011 deadline for accepting shareholder proposals.
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The Board’s agreement with Mr. Iger provides for guaranteed target pay opportunities through Fiscal Year 2015 -- the year he will step down as CEO. It also includes a guaranteed long‐term incentive award target of $15.5 million each year, consisting of a mix of stock options and performance stock. Lastly, Mr. Iger’s agreement contains without-cause termination severance payments that ISS estimates to be as much as $100 million.
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Strengthens the threshold that must be met for the Disney Board to depart from the widely accepted best practice of establishing an independent board chair, from “best interests” of the company to the stricter standard of “extraordinary circumstances,” which is utilized by many leading corporations.
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Provides the Board with continued authority to determine whether “extraordinary circumstances” exist and that the threshold has been met to merit a temporarily combined chair/CEO, recognizing the potential wide range of circumstances that the Board may need to address.
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Imposes a six-month time limit on the combined CEO/chair, which reinforces the temporary nature of such an arrangement, underscoring that separate CEO and chair positions is the primary and preferable board oversight structure in the best interests of the company and its shareholders, and the importance of transitioning back to independent Board leadership.
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Allows for flexibility in execution as the provisions of the resolution would take effect in 2016.
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CEO Robert Iger now leads the Disney Board of Directors, which oversees his performance and compensation and the company’s performance and strategy, and is now in the position to recommend the selection of the Chairs of all of the board’s key committees, including the Compensation Committee, responsible for oversight of his performance as CEO.
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In October 2011, the company’s Board entered into a binding contract with Mr. Iger which renewed his position as CEO through March 2015 and Chair through June 30, 2016. The 2011 agreement guarantees Mr. Iger millions in pay through Fiscal Year 2015, the year Iger is scheduled to step down as CEO. This includes a guaranteed long‐term incentive award target of $15.5 million each year.
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The agreement includes without-cause termination severance payments that ISS estimates to be as much as $100 million.
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The positions of CEO and Chair, turning over within 15 months of each other, could lead to uncertainty and instability in the leadership of the company which could adversely impact share value.
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ISS has urged adoption of the shareholder resolution for an independent Board Chair, stating that “in view of certain actions taken by the board as well as the inadequate response to the 2012 pay vote, shareholders would benefit from independent board leadership.”
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Glass Lewis has stated: “[R]egardless of the installation of a lead independent director, we ultimately believe vesting a single person with both executive and board leadership concentrates too much oversight in a single person and inhibits the independent oversight intended to be provided by the board on behalf of shareholders.”
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Neither proxy advisory firm views the combined Chair/CEO structure at the company as a positive development for the company or its shareholders. “Shareholders should be confident that the board will represent their interests and provide oversight over management,” ISS noted. The Board, by its actions, has undermined and shaken that confidence. Proposal 6 aims to reassert and reestablish it in the best interests of the company and its shareholders.
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