Disney Remains Eisner’s Kingdom

Speaking as someone who lived and worked for years in a string of petty Third World dictatorships, I believe I’m well qualified to predict the behavior of the regime of the recently declared Republic of Eisneria.

Like other dynasties that rule by fiat and deception (self- and otherwise), Walt Disney Co. management is likely to engage in the reinterpretation of reality, the misrepresentation of electoral results, the lionization of dupes and the execration of dissidents. Disasters will be rationalized away and victories exaggerated. Truth will no longer be an objective thing, but will emanate by diktat from members of a small, insular circle devoted to the glorification of the Big Man, to whose reputation and authority their own will be inextricably tied.

Some of these phenomena are already evident at Disney, where Chief Executive and ex-Chairman Michael Eisner continues to hold on to his chair with what George Orwell would have called a “prehensile bottom.”

Last week, Eisner and his board received an unmistakable signal of shareholder discontent -- a 43% no-confidence vote against Eisner as chairman, along with more than 20% against “presiding director” George J. Mitchell and two other board members. Instead of snapping to attention, they took the cosmetic step of stripping Eisner of his chairmanship but keeping him in the CEO’s job, from which he will continue to direct the affairs of the company. Mitchell, who should properly have resigned from the board given the strong vote against him, instead accepted the post of chairman.

The company justified these actions by pretending that the vote was merely a referendum on abstract principles of corporate governance, rather than a judgment on the fitness of Eisner and other directors to continue in office. Appearing that night on ABC’s “Nightline” with Ted Koppel, Eisner dismissed the tally as “not unprecedented in today’s world,” explaining further that “many, many” companies with corporate governance issues average similar protest votes.

This was a distortion of the truth on a Stalinist scale. A 43% vote against a corporate chairman is unprecedented at a major company, according to the Investor Responsibility Research Center, which calls it a record by a wide margin. (The previous record was a 28% protest vote against Lockheed Martin Corp. Director Frank Savage, who was under fire for serving on Enron Corp.’s board during its scandal.) It’s true that votes on shareholder resolutions protesting specific corporate policies often do reach the level of 40% or higher. But Eisner understood, as perhaps Koppel did not, that this was an entirely different kind of vote.

Such distortion has become routine at Disney. Eisner engaged, for example, in a slick rhetorical shuffle regarding former Sen. Mitchell’s qualifications for his new job. A retired politician with a laudable record of mediating peace talks in distressed corners of the globe, Mitchell carries a troubling resume of complacent service on the boards of such scandal-plagued companies as Xerox Corp. and U.S. Technologies Inc. His record at Disney is one of sedulous support for the incumbent CEO.

Asked during an interview with The Times last week about critics who maintain that those factors, plus the negative shareholder vote, will compromise Mitchell’s effectiveness as chairman, Eisner responded indignantly: “It’s outrageous that they would belittle George Mitchell after what he has done for the country, and not accept the fact that this is a great man,” etc., etc.

The real issue, of course, isn’t whether Mitchell deserves respect as a geopolitical statesman, but whether he is up to the very different job of managing Michael Eisner. As it happens, Eisner left no doubt that he would remain in day-to-day charge of the company, delegating to Mitchell such tasks as “the entire representation of the board and the board meetings” and acting as his “sounding board.” Does this seem a balanced partnership?

Eisner’s strategy to survive as CEO has now become obvious. He plans to hang on through the year in the hope that Disney’s strong financial results in the last quarter -- driven in part by the success of DVDs of “Pirates of the Caribbean” and “Finding Nemo” -- will continue.

If he can point to a powerful improvement in profit and a sharply higher stock price a year from now, he figures, the appeal of the anti-Eisner campaign mounted by former board members Roy E. Disney and Stanley P. Gold will fade away, along with the concerns of institutional investors. “They will go away because the performance will make them go away,” he told The Times.

Is this plausible? Sure it is. A rising economy might lift all Disney’s boats. The management might even get its hands around some lasting problems, such as the black hole that is ABC’s television ratings. There could be an unheralded hit lurking somewhere in the movie studio’s upcoming slate. Wall Street, which cares for little beyond the most recent results, might fall into line.

But consider the risks. If the movie studio unloads a string of bombs over the next nine months; if the ABC network still ranks a weak fourth; if attendance at the theme parks doesn’t snap back as smartly as Eisner is predicting, hostility toward his regime would build. What if Disney’s only genuine movie hit in 2004 is “The Impossibles,” a product of the late-lamented partnership with Pixar Animation Studios, which Eisner allowed to break down?

For the next year, every development at Disney will be viewed through the prism of Eisner’s fate. Expect a steady stream of headlines such as: “In another blow to Michael Eisner’s future, the expensive blockbuster ‘Hidalgo’ opened in third place at the box office this weekend....” (Or, alternatively, “Michael Eisner’s tenure received a boost from ‘Hidalgo’s’ strong third-place showing....”)

Every abrupt change in strategy -- whether a rescheduled movie premiere, a sitcom cancellation or a corporate acquisition or divestiture -- will be presumed to be a tactic in the campaign to save his job. All profit reports will be suspect, on the grounds that Eisner will have a huge personal interest in producing the glossiest results imaginable.

The pressure on operating executives, who I’m sure don’t need more things to think about, could become insupportable. And if the financial results fuel, rather than quell, shareholder dissent and generate a major proxy fight, by this time next year Disney will find itself in total chaos.

At that point all blame will belong to the board of directors. After the shareholder vote last week, they could have shown that they heard a wake-up call. It wouldn’t have taken much: announcing a committee to consider a CEO succession plan, starting a search for an independent outside chairman, a display of public humility -- any signal that they knew they were confronting something red-hot would have sufficed.

Instead they continued to pledge fealty to Michael Eisner while congratulating themselves on their independent spirit. Nothing in history says that leaderships like this can’t continue in power indefinitely, but the lands they govern are seldom very prosperous.

Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at golden.state@latimes.com and read his previous columns at latimes.com/hiltzik.