How Eisner’s Style Came Back to Haunt Him

During his nearly 20-year reign as head of Walt Disney Co., Michael Eisner has left his imprint in a way that few company chieftains do.

Disney’s California Adventure in Anaheim includes a 10,000-car parking garage Eisner helped design, a water ride whose slope he influenced and hotel rooms with drapes he picked. Adding a new National Hockey League franchise -- the Mighty Ducks of Anaheim -- was a natural to the father of two hockey-playing boys.

Recently unsealed court documents suggest that when Eisner decided to hire close friend and then-Hollywood power agent Michael Ovitz as Disney’s president, he did so without first consulting his board of directors. When Eisner decided to fire Ovitz, he negotiated a cash-and-stock payout then valued at about $100 million “without much input or oversight of the board,” court records allege.

That largely unchecked, freewheeling management style -- and a reputation for ruling with sharp words and elbows -- is coming back to haunt the Disney chairman and chief executive.

At the Pennsylvania Convention Center here today, as many as 30% or more of Disney stockholders are expected to oppose Eisner’s reelection to the board in a bid to hasten his retirement.

Regardless of the outcome of the vote, Eisner’s grip on the Burbank entertainment giant will never be as strong.

“This is the end of the imperial CEO-chairman,” said Patrick McGurn, senior vice president of Institutional Shareholder Services, a proxy firm that is advising clients to withhold their votes from Eisner. “It’s one of those last remaining dinosaurs walking across the plain. He didn’t see the Ice Age coming, but it’s already here.”

Eisner is running unopposed, so his reelection is guaranteed. However, critics hope that a sizable protest vote could trigger his ouster.

At the very least, a substantial vote against Eisner would almost certainly force directors to rein him in -- possibly stripping him of his chairman’s title and putting him under the kind of microscope he has escaped until now.

“The Magic Kingdom was [Eisner’s] kingdom,” said longtime Disney watcher Harold Vogel, head of Vogel Capital Management in New York, who is among those who believe critics aren’t giving enough credit to Eisner’s accomplishments. “That’s no longer the case. No matter what happens on Wednesday, he’s going to be more contained and he’ll have to go to the board for almost everything he does for their approval.”

The board itself also could be facing new realities as it wrestles not only with Eisner’s future but also with an unsolicited takeover bid by the nation’s biggest cable operator, Comcast Corp. Each move the directors make will be dissected by Wall Street analysts and media pundits who, in the past, have accused the board of being Eisner’s lapdogs.

Already, board members are looking for ways to defuse the controversy, including discussing whether Eisner should relinquish his role as chairman and continue as CEO. Critics say that won’t go far enough -- that Eisner must go.

Eisner was unavailable for comment, and Disney spokeswoman Zenia Mucha declined to address concerns about Eisner’s future. But the company offered testimonials to Eisner’s sound management from six of his top subordinates, including studio chief Dick Cook and ABC Entertainment President Susan Lyne.

Although some producers and agents have complained that network executives are second-guessed by Eisner and others at the top, Lyne said her experience had proved otherwise.

“At no time have I felt like Michael was stymieing the work we needed to do. He has been nothing but supportive,” said Lyne, who was hired two years ago to give some creative focus to the struggling network.

Disney theme park chief Jay Rasulo also disputed the complaint by some that Eisner is difficult to work for.

“I’ve worked with Michael for 18 years ... and to the extent to which people think he’s hard to work with, it’s only people who do not like to be driven to produce uncompromising, great creative product,” Rasulo said. “I’ve read for years about micromanagement. I think it’s preposterous. I’ve never experienced it; I’ve never seen it.”

Unlike with other media moguls, such as Rupert Murdoch and Sumner Redstone, Eisner’s power doesn’t stem from owning enough shares to control his company. Indeed, Eisner holds less than 2% of Disney’s stock.

Instead, he exerts influence by sheer force of personality.

“He’s an enormously charismatic and charming man, and he’s incredibly convincing in one-on-one conversations and in just about anything he says,” said Dean Valentine, former head of Walt Disney Television, who worked at the firm for a decade. “He’s extremely deft at telling you what you need to hear. He’s a pretty formidable guy.”

Part of Eisner’s ability to manage so freely for so long also comes from the goodwill he built up in the first half of his tenure. Teaming with President Frank G. Wells, who answered directly to Disney’s board, Eisner turned around a moribund company starting in 1984 and made it one of the biggest stars on Wall Street. Wells died in a helicopter crash in 1994.

In the years since, Disney has seen its fortunes slide.

The latest criticisms, centering on Disney’s sluggish long-term stock performance, poor ratings at ABC and the breakup of the studio’s relationship with Pixar Animation Studios, are being bolstered by revelations in court documents released last week.

Critics say they show a pattern of decisions made by Eisner -- and Eisner alone -- pointing to an autocratic management style unacceptable in an era when shareholders are demanding more accountability.

“He has acted as if the buck stops with him, not with the board,” said Sarah Teslik, executive director of the Council of Institutional Investors, which represents 130 public and private pension funds.

Other documents suggest that Eisner doesn’t treat all Disney directors equally.

In a report filed in a Delaware shareholder lawsuit regarding Ovitz’s severance package, Duke University law professor Deborah A. DeMott said depositions show that Eisner viewed the Disney board as “two concentric circles of directors.”

The inner circle he briefed first, she wrote, and the outer one he briefed on “a need-to-know basis.”

Documents also show a bare-knuckles side of the CEO in managing directors and executives, in contrast to the gregarious image Eisner forged when he became a household name in the late 1980s cavorting with Mickey Mouse as host of Disney’s Sunday-night movie.

In a confidential memo to Disney’s governance committee, then-director Andrea L. Van de Kamp accused Eisner of employing “threatening and ‘bullying’ ” tactics to force her from the board last year because she had been siding against him on key issues. Eisner has denied that charge, saying Van de Kamp was removed because the board was being reduced in size, not because of her views.

In her memo, Van de Kamp wrote that Eisner’s behavior hurt efforts to strengthen the board’s independence and “gives the appearance that rubber-stamping Michael’s decisions is an unwritten prerequisite for continued board membership.”

Eisner’s management style also has been blamed for thinning the company’s executive ranks, leading to what Eisner’s two harshest critics, former directors Stanley P. Gold and Roy E. Disney, call a company “brain drain.”

Although senior executives left for myriad reasons, several have said they had difficulty working for the chairman.

“His real talent was to stir the creative pot and good things would emerge,” Valentine said. “But for that to work you need really good and talented executives. As more people got frustrated with the peculiarities of Michael’s management, they left.”