December 4, 2002 --
Michael Eisner has dropped a double bombshell on Walt Disney's shares by announcing a federal probe of its boardroom and a surprise earnings reversal.
The company last night said profits would be about 20 percent lower than it announced four weeks earlier, blaming a box office flop of its new holiday flick, "Treasure Planet."
The company also revealed that the Securities and Exchange Commission is investigating the cozy relationship among four directors who put their relatives in key jobs within the Disney empire, some paying up to $1.3 million a year.
Ironically, Eisner himself divulged the corporate nepotism months ago to the SEC - primarily to neutralize the four outside directors who had been heading a board revolt to oust him.
Although the bad news came after trading closed, the disclosures sent Disney shares skidding by more than five percent in just minutes of after-hours trading, losing 99 cents to $17.55.
Eisner also suffered a setback yesterday in his struggle over corporate reform.
The board yesterday established a new position of presiding director to carry the flag of corporate reform on the Disney board, which has been criticized for cronyism.
Named to the post was former U.S. senator George Mitchell, who already held a seat on the board.
Disney also named Robert Matschullat, former vice chairman of Seagram Co. Ltd., as a new independent director.
Another reform step taken by the board was to set up two meetings per year in which the management would not be present.
Leading the revolt was director Stanley Gold, head of Shamrock Holdings.
Gold's daughter Jennifer Gold earned $85,111 as an employee of Disney's consumer products division. Director Revita Bowers' son Craig Bowers held an Internet job at Disney, paying $81,863, and director John Bryson's wife Louise earned $1.35 million in a top post at Disney's half-owned Lifetime Entertainment Television.
Disney said it was lowering its 2002 profit by $47 million after taxes to 60 cents a share from a previously reported 63 cents a share.
The company's fiscal fourth-quarter earnings, initially reported Nov. 7, were lowered to $175 million, or 9 cents a share, from a previously reported $222 million, or 11 cents a share.
