What does an annual report REALLY tell us about a corporation—Walt Disney Co., to be specific? I reviewed the 2003 Walt Disney Co. annual report in my March newsletter (No. 247)—after years of lambasting Disney's clodhopperish CEO with the massive ego and poor judgment in dealing with human-beings (notice, I didn't say, "in dealing with other human-beings...). In light of the unprecedented opposition Michael Eisner met earlier this week (43% of the stockholders opposing his remaining CEO in this, Disney's 75th year of existence), an advisor suggested I evaluate the unpopular Eisner as I've done, previously—from the standpoint of his annual report. Those standards—from the view of a beleaguered CEO, at odds with his board and Disney stockholders—are different, of course, than those used to evaluate annuals in this, our third decade at this stand. That said...I maintain a good CEO won't produce a bad annual report; that his annual reflects directly, irrevocably on the boss' quality and attributes, among other things. Okay, how's Eisner's report indicate what he's doing right, and wrong, with stockholders and/or the board of directors? First off, his annual report year after year isn't very attractive. It's poorly organized—actually, it's among the very few worldwide to be disorganized. Among other faults, it's jammed to the rafters with color photographs from the Disney archives; nary has a one appeared to have been taken especially for the company's key corporate communiqué. (Have to have some outlet for all those copious photos taken at Disney's vast enterprises.) The report, year after year as well, does poorly against our 15 copyrighted (more than 20 years) criteria on what makes a good annual report. (The word we got in Orange County a decade ago, whether true or not, is that Disney marches to its own drummer, doesn't need "that clown, Cato" telling us how to do our annual report.) Of a potential 135 points, Eisner's current opus warranted a measly 64 points. At least 100 points are required to achieve what we refer to as "world-class" status. World-class Disney definitely isn't. Financial disclosure, of special interest to stockholders, of course? It's meager: seven items up front, but with no percentage-change column. The average worldwide is double Disney's seven; one in three corporations worldwide includes a percentage-change column. Not Disney, though. To be sure, Disney is the only company that comes to mind that attempts to flesh out its financial highlights listing with the element "Borrowings," both "Total" and "Net." Shareholders' equity was a smidgeon higher year to year: $23,791 million vs. $23,445 million—lower, to be precise, than its $24,100 million in 2000. Indicative of a company's CEO who's not terribly concerned about his stockholders, and/or his image, is that "Management's Responsibility for the Financials" bears no signature(s) whatsoever, let alone the boss'. Already this year, among early-arriving 2003 books, nearly 41% bear the signoff encouraged by the Securities and Exchange Commission. But not Eisner. Management's acceptance of its rightful share of responsibility was 41% among 2002 books, same as a year prior. A decade ago, he did accept that responsibility—in Disney's 1992, 1993 and 1994 reports (no '95 received), and again in its 1996 book as well as in its 1999 and year-later book. No annual received for 2001, but its 2002 annual report did, once again, contain management's assumption. So this is his first time in more than a decade to eschew the advocated management's acceptance of responsibility for the financials. His timing couldn't be worse. Both last year and this, his letter rambled over an excessive seven pages—vs. half that many worldwide. That indicates to at least one observer no restraints have been placed on him (or, better yet, he knows no restraint). In other words, he has surrounded himself with naught but "yea"-sayers (nary a naysayer among the palace guard.). (A more-modest five pages back in its '92 book, one more a year later, back to five in its '94 book, an out-of-control 10 pages in his 1996 book, when the Disney report scored but 32 points.) Eisner fails, too, with the bottom line three: no mission statement, glossary of terms or anything that could be construed as a special section. No biographical data on officers or directors...for more than a decade. What that says to at least one observer is that Eisner views the board basically as a required-by-law necessity. Not that he wants or needs directors, their counsel and advice; only that the Disney listing agreement, among other items, mandates a board of directors. What's surprising to at least one observer isn't that there's a move to oust the ex-ABC usher from his cushy post...but that the entire board of directors hasn't long since united in revolt, an all-out uprising. (Full disclosure: My wife's son owns—a single share of Disney stock.) Addendum: Cover of the October 1993 issue of Chief Executive Magazine contains a quote that to this observer is apropos the topic at hand: "You can recover from a financial loss, but you can never recover from a loss of reputation." Another addendum: From a Disney shareholder, on Michael Eisner's performance at the March 4 annual meeting in Philadelpha; Eisner lost his title as chairman: "It was like he was trying to be a host of a party and all the guests wanted him to leave."

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