The web-based Save Disney campaign humbled an immovable board by turning the company's annual meeting into a public referendum on the effectiveness of the board and CEO.

It did so in the space of three months and was spearheaded by two dissident directors — Roy Disney and Stanley Gold — who relied almost entirely on the Web to get their message out.

To us the Save Disney campaign will go down in history as a symbol of how the Web can be a powerful communications tool and a democratizing force in the capital markets.

The Save Disney campaign will also serve as an effective blueprint for other shareholders and activists for how to use the Internet to challenge companies on governance and other issues. If companies wish to ensure that their message is equally accessible on the Web, they must learn to harness the medium in their communications plans and programs.

For companies, the stakes of being outflanked on the Internet are high. Management can lose credibility, employee morale can be damaged and customers can lose trust. Shareholders might even win the opportunity to nominate their own representatives to companies' boards, as is being proposed by the U.S. Securities and Exchange Commission.

This article looks at how shareholders are using the Web as a tool in their campaigns. It also offers some suggestions for how companies might more effectively present their side of the story to investors and other stakeholders using the Internet as part of their broader public communications.

Tackling a corporate giant by reaching out to the little guy.
The Save Disney campaign is an outstanding (or scary, if you were on the Disney board) example of how almost anyone these days can campaign against companies and attract an audience.

The Save Disney campaign homepage a week prior to the historic vote. The site was squarely directed to the broader public as opposed to big fund investors. As it transpired, this strategy paid off by making it difficult for funds to back management in the face of overwhelming support for the dissidents.

The campaign was waged primarily on the Web and in the media, with the dissidents far outgunning the company in the Web department. The savedisney.com site, built after directors Roy E. Disney and Stanley Gold quit the company's board last December, provides a model for how to wage a proxy battle online. Although it was not the first, www.savedisney.com is certainly the best example of a proxy campaign site we have seen so far.

In the lead up to Disney's crucial March 3, 2004 vote, the site successfully reached out to individual shareholders and was a valuable resource for the media and others with an interest. Trying to engage retail shareholders is a challenge because many are apathetic or unfamiliar with the proxy process. However, it turned out to be a highly effective strategy for 72-year-old Disney and Gold.

For one thing, 20% of Disney shares had typically been voted by brokerage firms on behalf of their clients in favor of the board nominees. Disney and Gold wanted those brokerage clients to personally vote their shares otherwise they would count as "broker non-votes" in favor of reelecting Eisner and other directors.

To prompt their participation, the Save Disney site made a superb effort to explain in plain language how investors could "Vote No." The site included demonstrations and instructions for both registered and street name shareholders on how to complete a proxy form, something many individuals would not have done before.

And it provided links to the proxy voting sites so that shareholders could immediately and easily cast their votes. This kind of "Dummies Guide" approach is absolutely essential if companies and shareholder campaigners hope to win support from the silent constituency of non-voters.

The anti-Eisner campaign went to great lengths to help retail shareholders understand the proxy voting process, including offering detailed instructions and voting demonstrations.

Making it hard for fund managers to go against popular opinion
However, the true genius of the Save Disney campaigners was how they leveraged popular opinion to make it hard for fund managers to support the company's position without alienating many of their own clients.

The anti-Eisner group understood that to win their battle they needed to get their message out to the public at large, including employees, consumers and suppliers. While these audiences might not have a direct say in the Disney vote, they exert a much more powerful influence in an indirect way.

And here's why: A new rule that came into effect in August 2004 forced money managers to disclose how they vote at annual meetings. For fund companies, which rely on their public image and marketing to sell their funds to millions of ordinary citizens, this disclosure involves a lot of PR risk at a time when there is general antipathy towards big corporations and their generously compensated CEOs.

Fund managers who back the wrong horse on issues where there is significant interest from Main Street, risk losing customers to other fund companies who vote the "right way." Start talking about people potentially moving their money out of funds, and fund managers start paying much more attention to the optics of how they vote.

Consequently, companies should no longer expect institutional money managers to be as willing as they were in the past to throw the benefit of the doubt to management. The PR risk is highest for big fund complexes like Fidelity Investments, Vanguard Group and Barclays Global Investors, which often are the biggest single holders of companies' stock.

These large institutions' voting practices are more likely to attract media attention and Web-based coverage than smaller fund firms'. Consequently, it's reasonable to expect these firms to be more careful about who they back on proxy issues, expecially index funds since they tend to attract a more clued-in, activistic brand of customer.

The campaign offered to forward fund investors' expressions of support to fund managers.

Companies should not underestimate the importance of public opinion on fund managers. No fund manager is going to back a company on an issue which they cannot defend to the people invested in their funds. If companies want fund managers' support, they are going to have to make a strong argument, not only to the fund manager, but also to that manager's clients -- the average mutual fund and pension plan member.

Indeed, this sentiment was expressed by Christy Wood, head of global equity at the California Public Employees Retirement System (Calpers), when explaining why the U.S.'s biggest institutional investor had voted against Eisner.

"With all the press it makes it a difficult environment to vote for management," she told Reuters.

Company relies on traditional channels but ignores the Web
Unfortunately for the executives, directors and IR and PR folks at The Walt Disney Company, they completely lost the battle for hearts and minds on the Web. In fact, they were never in the running.

While the Save Disney campaign was out collecting names of mutual fund investors online, the company itself was still relying on old-style private diplomacy and expensive advertising and media.

On the company's website there never was a competent response about the issue. The site made no mention of the raging governance struggle. Nothing on the company's homepage, on the IR homepage or in the Governance section.

Consequently, people going online to learn more about the proxy fight only got one side of the story -- and it wasn't the company's.

The company failed to take account of the fact that the Web supports other media and is often where people interested in an issue will turn for additional information. By ignoring the online channel, the company squandered an important opportunity to provide critical reinforcement for its expensive advertising, media relations and institutional relationship efforts.

Furthermore, by ignoring the issue on the Web, the company gave the impression of being either completely inept at online communications, out of touch with what was going on around them, or simply uninterested.

Many of those who had known the company from its past battles with shareholders probably read the company's failure to provide a complete response as a sign of arrogance, which in turn just fueled their resolve to cut the company down to size.

A year earlier at the 2003 annual meeting Disney's board had boasted rather bluntly of its victory over several less-publicized shareholder proposals. The all-capital letters headline for that release read: DISNEY SHAREHOLDERS RETURN 13 DIRECTORS TO OFFICE, SOUNDLY REJECT FOUR SHAREHOLDER PROPOSALS.

One year later, on the evening of the board's very public defeat, the tone was a little more subdued. Announcing Eisner was being stripped of his chairman title, the headline for the release read simply: Statement From the Board of Directors of The Walt Disney Company.

At the time of writing, the negative press continues unabated, Save Disney is still online, many are calling for Eisner to go, and all are waiting to see if a CEO who is so disliked by shareholders can effectively lead and represent the company. (Update: October 2005 -- Eisner is thoroughly gone from Disney.)

How a lone shareholder is taking on an industrial giant — and winning
Another shareholder campaign, this one in Canada, shows that even a single individual with resolve and a small budget can cause significant trouble for companies. Industrial giant Bombardier, a maker of aircraft, locomotives and other machinery is under attack from a disgruntled customer — and it too is losing on the Web.

Millionaire US businessman and ex-congressman Michael Huffington is pushing a proposal for the company to adopt a "customer code of ethics and satisfaction" at its June 2004 annual meeting. He took action after experiencing what he says is poor customer service from the company's aircraft division when they delivered a plane to him that had been damaged by lightning.

His website, www.savethecorporation.com (Editor's Note: it no longer exists), has been widely advertised in Canada's print media. And while nowhere near as elaborate as that of the Save Disney campaign, it nonetheless presents a credible face for his proposal, including a television interview with him on the country's main business news channel, Report on Business Television.

Huffington's campaign against Bombardier was fought in both the media and on the Web. However, it is the website that has the greatest impact because it stands in stark contrast to the complete lack of acknowledgment of the issue on the company's website.

Huffington's central argument is that shareholders should be concerned by the company's poor customer relations because it can undermine sales and profits.

Bombardier's online response to Huffington's campaign has been weak to say the least. At the time of writing this, there was no acknowledgment of the issue on the company's homepage, on its IR homepage, Media homepage or in its corporate governance section. Despite a fancy Web presence, the lack of a response leaves an impression that the company is indeed unresponsive to customers and other stakeholders.

Here again, the issue is no longer a governance one. The results of the vote are now irrelevant. It is a business issue, an issue of management's agility in a crisis and the quality of its stakeholder relations. And in that sense, what might seem like a minor squabble may yet affect the willingness of customers to buy the company's products and investors to buy its shares.

Responding to shareholder campaigns on the Web
Clearly, ignoring the Web in important communications efforts does not help companies and denies stakeholders the chance to obtain a better appreciation for the facts from both sides.

While each proxy battle or communication crisis has its own peculiar character, the following general guidelines are fundamental to an effective Web-based response:

Plan ahead. Don't wait for a shareholder to launch a Web campaign before trying to formulate a response. Companies should have a formal plan of action on call at any time. Develop templates for Web pages that can be populated and published at short notice.

Bulletproof your existing Website. Every company should have in place a formal program of auditing its online presence for credibility relative to that of peer companies. It's too late to do this when a reputation crisis strikes. Because Web standards and practices change frequently, audits should be conducted at least annually.

Respond Quickly. Provide as much information as you can at any point, even if it’s a “standby” statement on the IR homepage when the issue first breaks. At minimum, you can acknowledge the challenge/issue and say that new information will appear as the process unfolds, providing a contact name and number and e-mail address for stakeholders to use to share their thoughts to demonstrate responsiveness and that you are in control of the issue. The longer you don’t address the issue, the more damage you do to your reputation. To not address the issue on the web has the same effect as a corporate spokesperson saying “No comment,” in a media interview.

Be Believable. No one is perfect so don't pretend that your company is because no one will believe you. Be willing to concede mistakes or inadequacies, but explain what you are doing to fix them and make sure they don't happen again. Be factual in your arguments, avoid personalizing issues and offer independent perspectives from reputable third-parties.

Encourage Feedback. Demonstrate respect for other viewpoints and opinions, by encouraging them rather than ignoring them. If the company has a different perspective on an issue, explain why. Always demonstrate how seriously you take the issue and how it is going to be fixed, and how it will never happen again. Never be dismissive because it makes companies look arrogant online.

Own the Debate. You want your website to to be the primary source for information on the issue, not the other guy's. To achieve prominence, your site must be comprehensive, credible and a source of constant new information. Offer email alerts on the issue to push information out to the audience. Link to the challenger’s website from your own to demonstrate that you have nothing to hide and welcome all views.

The Internet plays an important supporting role to companies' off-line communications. Companies shouldn't wait for a crisis to start thinking about it. They should constantly be monitoring, tweaking and improving their practices to ensure that their sites are competitive and credible.