By: Greg Hernandez

May 10, 2005, Los Angeles Daily News

BURBANK - As The Walt Disney Co. celebrates the 50th anniversary of Disneyland, the nephew of the company's founder and another former member of the board of directors sued the entertainment and media conglomerate Monday to overturn the selection of Robert Iger as replacement for outgoing CEO Michael D. Eisner.

In the lawsuit filed in Delaware Chancery Court, Roy E. Disney and Stanley F. Gold allege fraud and breach of the duty of disclosure in connection for a replacement for Eisner charging that the selection process "precluded serious and effective consideration of external candidates."

"Defendants delayed their selection of Robert Iger until shortly after the 2005 annual meeting, used company resources to promote Iger's candidacy and did not in good faith seriously consider any other candidate," the lawsuit alleges.

It was Disney and Gold who engineered a shareholder revolt in February 2004 that resulted in Eisner being stripped of his job as board chairman, although he remains CEO of the company. In March, the board selected Disney President and Chief Operations Officer Iger to be Eisner's replacement when he steps down later this year.

Disney and Gold had decided against running an alternate slate of directors at company's annual meeting the month prior.

"Had Disney and Gold known that the company and a majority of the board did not intend to stand by their public statements about engaging in a bona fide CEO selection process, they would have run an alternate slate of directors at the 2005 annual stockholders meeting," the lawsuit states.

The lawsuit comes at a time when the stock of the entertainment and media conglomerate is 20 percent higher than it was a year ago. The company is set to announce its second-quarter earnings Wednesday.

"The record of strong performance of The Walt Disney Co. speaks for itself, and this frivolous and baseless lawsuit reflects the mean-spirited, self-serving interest of two ex-board members," the Disney company said in a prepared statement.

Northwestern University professor Thomas Lys, who teaches courses on corporate governance, said it is unlikely Monday's legal action would affect the company's financial performance.

"I don't think it can impact the stock price very much," said Lys. "To impact, it would have to distract management so badly that they can't focus or function. But if, in fact, the lawsuit succeeds and the board is forced to redo the election or whatever the remedy, those would be circumstances under which there could be far-reaching effects."

Disney and Gold are asking the court to void the 2005 election of Disney directors and to force the company to hold another election. They also ask that the company and the board be prevented from changing either Eisner's or Iger's compensation or employment contracts.

Their frequent public battles against Eisner began when Roy Disney was dropped from the board in 2003 when he reached the mandatory retirement age.

Shares of Disney stock closed at $27.06 Monday, up 17 cents on the New York Stock Exchange.