Wednesday, January 17, 2007

Danger Signs

Poor Robert Iger. Being CEO of The Walt Disney Company (DIS) sounds like fun, but it can’t be nice to have so many enemies that your company spent nearly $600,000 on security for you last year. Your proxy statement, filed last Friday, doesn't disclose who's out to get you. I'm guessing it’s either Michael Eisner, still mad that you have his job, or some young parents who’ve been forced by their toddler to watch The Lion King movie sixteen times in one week and feel that in your case the “Circle of Life” should look more like a period.

Either way, the security perk attracted a fair amount of notice in the press. But here at Proxyland we are instead transfixed by a tiny nit in the company's Amended and Restated 2005 Stock Incentive Plan. (The plan was attached to the proxy because after two years Disney feels constrained by the limit on how much stock it can use and wants to more than double the number.)

As adopted in 2005 – before options "misdating" became as tiresome as Gilbert Gottfried playing that godawful Iago Parrot in Aladdin – the plan says:

"Date of Grant" means the date on which an Award under the Plan is granted by the Committee, or such later date as the Committee may specify to be the effective date of an Award.

At this point I’m a little creeped out by any clause in a stock option plan that defines a date as either (1) the date something really happened or (2) some other date we like. There’s a perfectly innocuous explanation for this definition, which is that it’s there for administrative convenience so the Compensation Committee can meet on a day that doesn't conflict with their golf schedules and award options that will be effective on some future date. This could even be a good thing; locking yourself into a future grant date, as we have pointed out, pretty much makes you a Boy Scout. If that's what they wanted to accomplish, however, they should smack their expensive lawyers around for bad drafting.

In the wrong hands the definition provides a possible loophole: The Committee could grant options today and then, if sales of Aladdin’s Math Quest plummet and the stock price falls, decide they granted them later. It's nice to read in the proxy that "the price of any stock option granted may not be less than the fair market value of the Disney common stock on the date the option is granted," but maybe they should also tell us what the meaning of "date" is.

For now we’ll just have to keep our fingers crossed and hope that evil Iago Parrot stays away from Disney Comp Committee meetings. Though if he flies into Mr. Iger's yard, he'll no doubt be shot on sight.