PHILADELPHIA - The Walt Disney Co.'s board voted to strip Michael Eisner of his chairman's post Wednesday while retaining him as CEO, only hours after shareholders delivered a stinging rebuke by withholding 43 percent of their votes for his re-election to the board.
Disney directors voted unanimously to split the chairman and chief executive duties and make board member George Mitchell the company's new chairman, even as they voiced their continuing approval of Eisner's management and the company's strategy.
The change is effective immediately.
The board also rejected a renewed overture from cable television giant Comcast Corp., saying it would serve no purpose to reconsider an offer already dismissed as too low.
"Our belief in the company's strategy, financial results over the last several quarters, and the level of earnings and improved returns we expect going forward make us confident that results will validate our judgment on the quality of our management team," the board said in a statement.
Although the action curbs Eisner's control of the company and satisfies the concerns of corporate governance groups who had called for the change, it won't satisfy the company's most vocal critics - ex-board members Stanley Gold and Roy E. Disney - who have vowed to continue their fight to oust Eisner.
In an interview with ABC's "Nightline" program Wednesday, Eisner said much of his critics' campaign is based on false information and that he intends to serve out the rest of his contract, which runs through 2006.
"The fact of the matter is, although the critics - there's always things, and reasonable things, to criticize and I do not belittle a large withhold vote," he said. "But the fact of the matter is our returns, our growth, our performance, our performance in movies, theme parks, ESPN is blazing."
Mitchell, a former senator from Maine, may also prove to be a controversial choice. Shareholders withheld 24 percent of their votes from his re-election Wednesday - the second highest total after Eisner.
Mitchell has been criticized by Gold and Roy Disney as being too close to Eisner and not independent enough because his law firm had worked for Disney in the past.
In its statement, the board said it understood that investors were concerned about more than just the issue of separating the chairman and CEO positions.
"We are aware that some voted for an immediate change in management and in the board," the statement said. "However, taking all these factors into account, we believe the action we have taken today is in the best long-term interest of the shareholders of the company."
"It's not a surprise," said David Miller, an analyst at Sanders Morris Harris, who earlier in the day said the board would make such a move within 24 hours.
"It should satisfy at least a portion of the 42 percent of those who voted against Eisner."
Institutional Shareholder Services, a proxy advisory firm that had recommended its large investor clients withhold their votes from Eisner, said the Disney board's change was welcome, but not enough.
"If the Disney board believes this is the silver bullet to fix all the problems, they are sort of mistaken," said Cheryl Gustitus, an ISS spokeswoman. "The level of the vote makes it clear that investors have a lot of more on their minds than just the splitting of the position."
Earlier Wednesday, the nation's largest public pension fund, which withheld its 9.9 million votes from Eisner, called for his resignation.
"This discontent is too wide and way too deep in the marketplace, and it has led us to believe that Eisner should go and the board should get quickly to work on planning for an orderly transition," said Sean Harrigan, president of the board of administration of the California Public Employees Retirement System.
The board's action follows a nearly five-hour shareholders meeting marked by cheers and standing ovations for former board members Gold and Roy Disney, who have waged a bitter three-month campaign to oust Eisner.
The two hailed the vote and said it was a clear indication that Eisner should go.
Shareholders, following the advice of Roy Disney and Gold, also withheld more than 20 percent of their votes from two other board members: Judith Estrin and John Bryson.
Analysts had said that in the face of the votes, Disney's board either had to split the chairman and CEO jobs, do nothing, or fire Eisner, who has served as Disney's chairman and CEO since 1984.
The 61-year-old Eisner, who chaired the meeting, showed little emotion, even as Gold and Roy Disney took the stage and called for his firing.
His voice a bit hoarse, Eisner briefly defended himself and his fellow managers, saying he enjoyed an "excellent relationship" with the dissident board members until they disagreed with his handling of the company after the Sept. 11 terrorist attacks.
"Stanley felt we weren't listening," Eisner said. "We felt we were listening and not agreeing."
"I love this company," Eisner said. "The board loves this company. And we are all passionate about the output of this company."
Eisner acknowledged that the performance of Disney's ABC network was "disappointing," but he also told shareholders that Disney has "the management skills and creative talent to continue its growth path."
Gold and Disney went slightly over the 15 minutes they were allotted at the meeting to present their case against Eisner, saying it was not sufficient for the company simply to split the roles of chairman and CEO.
"Michael Eisner must leave now," Gold said. "We see today's meeting as a first step toward saving the company. ... We are seeking real and meaningful change."
Eisner defended his management team: "The criticisms you have just heard are fundamentally wrong," he said to applause. "I believe you have just heard rhetoric from our critics that frankly replaces reason. It's a disservice to cast members as well as shareholders."
Shareholders nearly emptied the hall during nearly three hours of presentations from Disney executives designed to show the strength of the company's operations and management team.
Shares of Disney fell 11 cents to $26.65 Wednesday on the New York Stock Exchange.