Disney Is Plagued by Lack of Succession Plan
Moments before he underwent heart bypass surgery in 1994, Walt Disney Co. Chief Executive Michael Eisner summoned his wife, Jane, and two of their sons, Breck and Eric, to his hospital gurney.
“If it becomes an issue,” Eisner said, according to an account in his autobiography, “I think that either Ovitz or Diller would be good choices to succeed me.”
He was referring to Michael Ovitz, the high-profile Hollywood agent who became Disney’s president but lasted only one year in the job, and longtime media mogul Barry Diller, who has since chosen the path of Internet entrepreneur.
Nine years after Eisner’s successful operation, the question of who will replace him is no closer to being answered than it was that evening in a Cedars-Sinai operating room.
The resignations last week of influential board members Roy Disney and Stanley Gold have again cast the spotlight on an issue that has long been a concern among investors: Who is in line to fill Eisner’s shoes?
In their resignations, both Gold and Disney called for Eisner’s ouster and criticized the Disney board and Eisner for, among other things, failing to develop an adequate succession plan. Eisner has been at the helm of Disney for more than 19 years and is by far the longest-serving CEO of the 30 companies making up the Dow Jones industrial average.
Disney investors share the concern about the ambiguity surrounding a succession plan for Eisner, whose contract runs through 2006.
The 61-year-old chairman has suggested to board members that Disney President Robert Iger replace him in the event of an emergency. But few people inside or outside the company view Iger as the heir apparent.
“It’s always been an issue that’s never been adequately answered, and that’s why it has been so high on the list of concerns among investors,” said Patrick S. McGurn, special counsel for Institutional Shareholder Services, a Rockville, Md., proxy advisory service, whose clients include several major investors in Disney.
“The pressure is not going to relent on Disney regardless of how many changes they make in corporate governance until there’s something on paper to deal with the succession issue.”
Disney says it has a succession plan in place, one that details how the board should proceed when the time comes to replace Eisner.
The process also calls for “input from management and a systematic evaluation by the board of the company’s capable and talented senior executives,” former U.S. Sen. George Mitchell, presiding director of the board, said in a statement. “When the need arises, the directors are confident that we are in a position to make an informed decision about succession.”
Ira Millstein, corporate governance counsel to the board and a well-known expert in the field, said the board was taking the succession issue seriously. “It’s on the agenda for discussion,” he said. “This board does know what its responsibilities are.”
But some of Disney’s former directors complain that the board and Eisner have not done enough to identify and groom potential CEO candidates from inside and outside the company.
“There have been requests by Roy and me and some other directors for the last four, five, six years for a proper succession plan,” Gold said in an interview Friday. “Michael has said he’ll get to it one day but he doesn’t have a plan.”
Andrea Van de Kamp, another former dissident director, echoed Gold’s criticism.
“One of the responsibilities of the board of directors is to plan for the future,” said Van de Kamp, who said she was forced off the board this year for her stern criticisms of Eisner’s management, a charge that Eisner denies. “That clearly entails developing very talented young managers that the board feels could run the company.”
To be sure, Disney is not alone.
Other large public companies such as Citigroup Inc. have faced pressure from shareholders to develop clear succession plans. But the issue has been magnified at Disney, in part because Eisner has been such a fixture at the company for so many years and because scores of top-level executives have left over the last decade, limiting the pool of possible successors.
Indeed, many have departed to pursue successful careers elsewhere. They include Stephen F. Bollenbach, the company’s former chief financial officer, who became CEO of Hilton Hotels Corp.; Stephen Burke, former president of ABC Broadcasting and now president of Comcast Corp.; and Paul Pressler, the theme park chief who resigned last year to become chief executive of Gap Inc.
In his resignation, Roy Disney said the rate of turnover had created a “brain drain” of talent at the company that made the succession question all the more pressing. Some pin the blame squarely on Eisner.
“Michael Eisner has a transition problem because he will not tolerate having competitive talent in the same building with him,” said Robert A.G. Monks, founder of law firm Lens Governance Advisors, specializing in corporate governance. His firm is advising investors who have sued Disney over its decision to grant Ovitz a golden parachute that at the time was worth more than $100 million.
Disney maintains that its turnover rate is not unusually high by industry standards.
“It’s a Hollywood myth that there is a high turnover rate,” said Disney spokeswoman Zenia Mucha. “Disney is no different than any other major company. The only difference is that we are constantly being raided for talent. Most leave on good terms with a fondness for the company and the people they work with.”
Eisner, who declined to comment for this article, has not publicly said whom he would choose to succeed him. Instead, he has placed the name of an individual who would replace him in a sealed envelope that only would be opened in the event of an emergency, said a source close to the board.
Governance experts say that falls well short of a proper succession plan. There’s a big difference, they say, between having an emergency plan for replacing an executive in an accident or death, and developing a comprehensive process for grooming future leaders.
“This is not an Oscar award winner,” said Nell Minow, editor of the Corporate Library, which conducts independent research on corporate governance issues. “This is the next leader of the company. It’s not supposed to be a surprise to the board.”
A succession process, Minow and others say, should entail directors identifying internal candidates, evaluating their compensation levels and performance and holding direct meetings with them without the presence or knowledge of the CEO. In addition, experts say, directors should keep frequent tabs on possible outside candidates, by hiring executive search firms, for example.
Some point to General Electric Co. as the model, where longtime CEO Jack Welch had groomed three potential successors, including the man who eventually replaced him, Jeffrey Immelt.
Eisner has suggested informally to the board that Iger could replace him, but many wonder whether he is up to the task.
They cite Iger’s limited experience in the movie business and the travails of the ABC TV network, which he personally vowed to fix. Despite some modest gains in ratings in the last year, the network has struggled to recapture its glory days when it dominated prime-time television with a string of family comedies in the 1980s and 1990s.
Gold praised Iger as a “gentleman” and “hardworking executive” but said that “many board members have open questions about his ability to succeed Michael.”
One source close the board agreed. “Everyone likes Bob, but the question is, can he be effective?”
Another source close to the board said Iger’s contributions often were overlooked, including his successful efforts to expand the Disney brand internationally and help steer the company’s lucrative cable businesses. “Michael Eisner is a larger-than-life figure, and it’s very difficult for anyone to emerge from his shadow,” the source said.
Iger declined to comment.
The succession question has dogged Eisner ever since the death of Frank Wells, the beloved Disney president and Eisner’s trusted lieutenant until his 1994 death in a helicopter crash.
The topic again resurfaced that year when studio boss Jeffrey Katzenberg -- seen by some as an eventual successor -- quit after a bitter falling out with Eisner. He would go on to form DreamWorks SKG, a key rival to Disney’s animation studio.
Then came the Ovitz debacle. The powerful Hollywood agent who was once seen as an heir apparent to Eisner resigned in 1996 after one tumultuous year as president.
Some directors have said in the past that the company would be hard pressed to find another executive inside or outside the company with Eisner’s skills.
As he prepares to head into his 20th year as Disney’s CEO, Eisner seems more secure than ever, in large part because there is no obvious candidate ready to step in, observers say. The names of possible replacements that have floated about Wall Street in recent years have included Steve Jobs, head of Apple Computer Inc. and Pixar Animation Studios, Viacom Inc. President Mel Karmazin and News Corp. President Peter Chernin.
What’s more, Eisner appears in no hurry to step down and is in no danger of being forced out by the board. The board has rallied behind the company’s management, much to the dismay of critics including Roy Disney and Gold, who say he should step down because of the company’s rocky performance in recent years.
Ultimately, any good succession plan must be driven by the board, not by the CEO, Minow said.
“It’s now up to the company to reassure shareholders that there
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CEOs: The long and short of it
Disney’s Michael Eisner is the longest-serving chief executive within the 30 companies that make up the Dow industrials.
*--* Company CEO Years as CEO Walt Disney Michael Eisner 19 years, 3 months SBC Communications Edward E. Whitacre Jr. 13 years, 11 months Exxon Mobil Lee R. Raymond* 10 years, 8 months United Technologies George David 9 years, 8 months Merck Raymond V. Gilmartin 9 years, 6 months E.I. DuPont de Nemours Charles O. Holliday Jr. 5 years, 10 months Intel Craig R. Barrett 5 years, 8 months Caterpillar Glen A. Barton 4 years, 10 months Alcoa Alain J.P. Belda 4 years, 7 months J.P. Morgan Chase William B. Harrison Jr.* 4 years, 6 months Hewlett-Packard Carly S. Fiorina 4 years, 5 months Eastman Kodak Daniel A. Carp3 years, 11 months Microsoft Steven A. Ballmer 3 years, 11 months Wal-Mart Stores H. Lee Scott Jr. 3 years, 11 months Coca-Cola Douglas N. Daft 3 years, 10 months General Motors G. Richard Wagoner Jr. 3 years, 6 months Procter & Gamble Alan G. Lafley 3 years, 6 months Home Depot Robert L. Nardelli 3 years 3M W. James McNerney Jr. 2 years, 11 months American Express Kenneth I. Chenault 2 years, 11 months General Electric Jeffrey R. Immelt 2 years, 3 months Honeywell International David M. Cote 1 year, 10 months IBM Samuel J. Palmisano 1 year, 9 months Altria Group Louis C. Camilleri 1 year, 8 months Johnson & Johnson William C. Weldon 1 year, 8 months AT&T; David W. Dorman 1 year, 1 month McDonald’s James R. Cantalupo 11 months Citigroup Charles O. Prince 2 months International Paper John V. Faraci 5 weeks Boeing Harry C. Stonecipher 7 days
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The length of time denotes tenure of CEO title only.
*Includes current and predecessor companies.
Sources: Bloomberg News, Times research
