Risk & Compliance

Disney Settles over Nepotism Deals

In April 2002, the media giant announced reforms within its corporate governance guidelines, but Disney did not disclose many of the arrangements i...
Stephen TaubDecember 22, 2004

The Securities and Exchange Commission has settled charges that between 1999 and 2001, The Walt Disney Co. failed to disclose certain deals between the company and its directors and failed to disclose certain compensation paid to a director.

The SEC seemed especially irked by these arrangements because in April 2002, Disney announced reforms within its corporate governance guidelines, but the media giant did not disclose many of the arrangements in question until months later.

According to the commission, Disney failed to disclose:

• that it employed adult children of three directors — Reveta Bowers, Stanley Gold, and Raymond Watson — and paid them annual compensation between $60,000 and more than $150,000;

• that the spouse of another director, John Bryson, was employed by a subsidiary half-owned by Disney and received annual compensation of more than $1 million;

• that it made payments to Air Shamrock Inc., a corporation owned by director Roy Disney on which he flew for Disney-related business purposes; the payments exceeded 5 percent of Air Shamrock’s gross revenues;

• that it provided office space, secretarial services, a leased car, and a driver — services valued by the company at more than $200,000 annually — to former director Thomas Murphy.

In settling with the SEC, Disney agreed to cease and desist from violating the proxy solicitation and periodic reporting provisions of the federal securities laws.

“Shareholders have a significant interest in information regarding relationships between the company and its directors,” said Linda Chatman Thomsen, deputy director of the commission’s Division of Enforcement. “Failure to comply with the SEC’s disclosure rules in this area impedes shareholders’ ability to evaluate the objectivity and independence of directors.”

In a separate case, shareholders are alleging in Delaware Chancery Court that Disney directors “blindly” approved an employment agreement with former president Michael Ovitz without following a process or showing a “good faith effort” to fulfill their fiduciary responsibilities.