March 23, 2004

Mr. Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Re: File No. S7-19-03
Security Holder Director Nominations

Dear Mr. Katz,

Speaking as someone who has recently been through the process of challenging the senior management and board of a large public company through the annual director election process, I strongly support the SEC proposed new proxy rules (the "SEC Proposal") that would allow shareholders, under certain circumstances, to include a limited number of their nominees in a company's proxy. Accordingly, I would like to expand upon the statements I made in my December 21, 2003 letter supporting the SEC Proposal, using examples from our recent Disney campaign to point out how, under current rules, the cards are stacked inordinately high against shareholders' effective opposition to entrenched management, making acute the need for a leveling mechanism like the SEC Proposal.

As you are aware, Roy E. Disney and I recently sponsored a campaign asking shareholders to withhold their vote on The Walt Disney Company Board members Michael Eisner, John Bryson, Judith Estrin and George Mitchell at the Company's annual meeting. We conducted our campaign as an exempt solicitation and did not put forward an alternative slate of directors. Instead, we urged shareholders to withhold their votes on the re-election of Mr. Eisner and the other three directors. As an exempt solicitation, we were not subject to some of the proxy rules regarding mailings, filings and disclosure, but even without these obligations, the battle to reach shareholders with our message and create change was an uphill one in which Company management had a number of systemic advantages, among them:

  • Nominating Committee. Although the NYSE requires nominating committees to consist solely of "independent" directors, based on my experience at The Walt Disney Company, I believe this formality alone is insufficient to insure the integrity of the nomination process. Unfortunately, nominating committees tend to be dominated by those supportive of current management, and such committees do not always use their powers to ensure the independence of the board. During my term as a director of the Company, I was often an outspoken critic of senior management, and yet the Board determined I was not independent. Instead, John Bryson, whose wife was earning millions at Lifetime, a 50% Company-owned subsidiary, was deemed independent. As head of the Company's nominating committee, Mr. Bryson, in concert with the Company's CEO, used his position to remove from the slate those directors who had challenged senior management, including Andrea Van de Kamp and, most recently, Roy E. Disney.
  • In addition, the timing of nominating decisions can make it difficult for a dissenting director to challenge a slate. At the Company, the nominating committee chooses the slate very close to the Company's advance notice bylaw deadline, giving directors who find they have been excluded from the slate little time and opportunity to find alternative candidates to mount a separate proxy contest before the deadline mandated in these advance notice bylaw provisions.

  • Broker Non-votes. The NYSE does not characterize exempt solicitations as counter-solicitations subject to NYSE Rule 452. If brokers do not receive voting instructions from beneficial holders, then the brokers may cast those votes as they choose. As you know, the long-time industry practice of brokers is to cast these broker non-votes with management. This has the effect of artificially skewing the tabulation results - failure by a beneficial shareholder to vote is misleadingly reported as a vote in favor of management. This also creates a perverse incentive for an embattled management to prevent beneficial holders from actually voting -- management has everything to lose and nothing to gain from beneficial holder votes. In the case of our campaign, had the brokers been prohibited from voting shares for which they did not receive instructions, Mr. Eisner would have received less than a majority of the votes cast, an even more resounding vote of no-confidence that is obscured by the broker non-votes.
  • The NYSE's refusal to recognize exempt solicitations as counter-solicitations under Rule 452 has the curious effect of prohibiting broker non-votes on a precatory proposal by a shareholder who spent 37 cents to mail in a request to the Company, which precatory proposal may generate little or no shareholder interest, while at the same time permitting brokers to make discretionary voting decisions with respect to hotly contested withhold campaigns on director elections. The election of directors is one of the most crucial decisions shareholders make about their investment in a corporation, and where an exempt solicitation has been mounted in opposition to management's slate, uninstructed brokers should not be permitted to weigh in.

  • Cost. Our campaign was entirely self-funded, whereas Company management had the much deeper pockets of The Walt Disney Company at its disposal. The large number of shareholders of The Walt Disney Company exacerbated the difference in resources by making the costs of each mailing to shareholders even higher. Although as a technical matter this was an election in which management's director nominees would be re-elected because there was no alternative slate, Company management spent a prodigious amount of Company funds, including, by way of example, retaining multiple outside legal counsel, holding a two-day investor conference, sending out multiple shareholder mailings (including one via Federal Express just a few days before the annual meeting) and taking out full-page color advertisements in newspapers nationwide on a number of occasions.
  • Time and Personnel. In addition to cost, the demands on time and personnel involved in conducting a challenge to management are considerable. While the use of our Internet site,, helped us reach more people than was possible a decade ago, we had nothing approaching the full-time corps of trained public relations and other staff at Company management's disposal. Company management has the advantage of being able to promote itself through its existing and established channels of communication, including to Company employees who are also shareholders through Company 401(k) plans and other equity plans.
  • No Proxy Card. Under the exempt solicitation rules, we were not permitted to include our own proxy card in our materials to shareholders. Instead, we could only urge shareholders to vote via management's proxy card, which the Company delayed sending out until unusually late in the process. We had no control over the timing of the proxy card mailing, and I believe Company management attempted to use the timing of the proxy card mailing to its advantage, understanding that it was in management's best interest to manage the process so that as few shareholders voted as possible. I think it was more than just coincidence that the proxy card (mailed out by third class mail) was sent closer to the annual meeting this year than last year. This tactic gave shareholders two weeks less than the previous year to cast their vote.
  • Limited Access to Voting Results. As outsiders, we did not, and as of the date of this letter, do not, have access to the detailed voting results, whereas the Company began receiving preliminary voting information weeks before the meeting and has had the revised results since shortly after the annual meeting. We have repeatedly requested this information from the Company, to no avail. Without access to the detailed voting results, insurgents have a limited ability to analyze the vote, seek to sway shareholders that have previously voted, identify which shareholders have not voted and publicize meaningful statistics, such as the size of the broker non-vote or the vote of important constituencies like the 401(k) participants. This lack of access makes it difficult to respond to public statements made by management about the voting results and makes it easier for management to obscure from shareholders and the board the real meaning behind the voting results.

Despite these obstacles, we achieved an unprecedented withhold vote on Mr. Eisner of 43% of the outstanding shares, which withhold vote constituted over half of the votes actually cast by investors (disregarding, for these purposes, broker non-votes). Under the SEC Proposal, the success of our campaign would have opened the path for a shareholder nominee on next year's ballot. Under current rules, although the shareholder vote was a clear mandate for substantive change, Company shareholders were still dependent on the responsiveness of the Board to effect that change. And the Disney Board responded with half-measures and lip service, contenting themselves with the mere transfer of the title of Chairman from Mr. Eisner to Mr. Mitchell, who himself had received a 24% withhold vote. I believe the increased access to the board afforded to shareholder nominees by the SEC Proposal would assist in ensuring that, in the future, management and boards will be less likely to downplay the votes of its shareholders and will be less prone to mischaracterize the source of shareholder discontent and to make only formalistic change. Instead, I believe boards and management would be more likely to respond in meaningful ways to address the source of shareholder dissatisfaction.

I was disappointed that Martin Lipton called the SEC Proposal "an extreme overreaction" to corporate scandals at Enron Corp., WorldCom Inc. and elsewhere. For shareholders whose savings (pension or otherwise) are dependent on the success of their investments, I believe that the unfortunate events at Enron and other companies highlight the need to vigilantly monitor boards and hold them accountable for failure to oversee management. The SEC Proposal would provide a much-needed tool to enforce accountability, providing an independent voice for shareholders on the Board only under the very limited conditions outlined in the SEC Proposal. A director who is not beholden to company management for his or her nomination would have the freedom to ask management the tough questions without fear of being muzzled or removed from management's slate, as was our experience at The Walt Disney Company.

Although the SEC Proposal is a good start, I believe it would be a more effective tool to provide shareholders a meaningful voice in the governance of their company if certain of its provisions were modified. First, the 5% threshold is too high for investors who wish to place candidates on the ballot. For a corporation like The Walt Disney Company, the 5% threshold would mean that shareholders holding over 100 million shares, with a market price of $2.5 billion, would have to coordinate and agree on a candidate for the slate. I believe a more appropriate test would be a minimum ownership threshold set on a sliding scale based on the company's market capitalization.

Second, the proposed rule inappropriately excludes shareholder nominees who are affiliated with nominating security holders. Based on my experience at The Walt Disney Company, I believe the real issue is independence from management, not independence from shareholders. For instance, the Company's two new "independent" directors were appointed by a Board dominated by the CEO. Both new directors declined our request to discuss our concerns about senior management and governance - the letters sent by Mr. Chen and Mr. Lewis rejecting our request were nearly identical - and, based on Company management's recent announcements about obtaining unanimous Board approval, have fallen into lock-step with the other directors in their support of senior management despite the resounding no confidence vote for both Messrs. Eisner and Mitchell at the Company's annual meeting. A director nominated by a shareholder would not necessarily be less independent or less protective of the general welfare of shareholders. Just because a director meets a definition of independence, however that may change over time, does not mean that the director will act independently. I believe a director not beholden to the incumbent Board for his or her position, would be far more likely to provide that constructive tension that leads to good governance and the protection of shareholder interests. I have seen all too often how dissent on a board is stifled under the ruse of collegiality and for other less flattering reasons. Opening up the process by allowing shareholders access to the board under the narrow circumstances set forth in the SEC Proposal should facilitate true independence in the boardroom.

As illustrated above, our campaign against Mr. Eisner and his team has been far from quick and easy, and, as long as Mr. Eisner remains at the Company, it is far from over. Unfortunately, the current proxy rules are so weighted in favor of incumbent management and directors that it is unreasonably difficult for shareholders to make change at the board level. I welcome alternatives that will help to secure shareholders a voice against ineffective management and passive boards. By opening up the director election process to empower shareholders, I believe the SEC Proposal is a step in the right direction.

Very truly yours,


Stanley P. Gold