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Questioning Disney Search’s Legitimacy

Times Staff Writers

When he announced that Robert Iger would be Walt Disney Co.'s next chief executive, Chairman George J. Mitchell went to great lengths to deflect criticism that the hiring process was flawed.

In a conference call with reporters, Mitchell emphasized that the search was exhaustive, pointing to the 11 meetings the board convened in recent months to discuss succession and the “large number” of prospective candidates that were “evaluated” before Iger was tapped.

“We definitely had choices and we made the right choice,” Mitchell said.

Yet the Disney chairman refused to disclose just how many candidates were actually interviewed. That number is a yardstick of how seriously a board has hunted for outside prospects, executive recruiters said Sunday -- adding that Mitchell’s failure to divulge the detail raised red flags about the legitimacy of the search while undermining Iger’s credibility.

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“What people needed to know was whether outsiders were interviewed for the job, because you can evaluate candidates all day but that doesn’t mean they’re interested in the job,” said Stephen Mader, vice chairman of Christian & Timbers, a New York-based executive search firm. “One way to show that Iger was the best candidate would have been to have far more disclosure about the number of candidates interviewed.”

In fact, Iger got the CEO job after the only other candidate interviewed by the board withdrew her name on Friday, according to people familiar with the search process. Meg Whitman, a former Disney executive who is currently chief executive of EBay Inc., was interviewed by directors March 6 at a board member’s home in Los Angeles.

“Maybe Iger was just the last man standing,” said Joe D. Goodwin, a corporate consultant based in Atlanta.

The Disney board could be open to renewed shareholder criticism that it has been a rubber stamp for CEO Michael Eisner, who championed Iger and was allowed to play a vital role in the selection process.

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“Typically, there would be six or seven outside candidates and definitely more than two,” said William Simon of Korn/Ferry International Inc., a Century City-based recruitment firm that has worked on projects for dissident Disney shareholders Roy E. Disney and Stanley P. Gold.

The two former Disney directors spearheaded a bitter shareholder revolt last year that essentially stripped Eisner of his chairman title. They were quick to go on the attack Sunday.

“We find it incomprehensible that the board of directors of Disney failed to find a single external candidate interested in the job and thus handed Bob Iger the job by default,” they said in a statement. “We find it very telling that Mr. Mitchell refused to answer repeated questions about whether the entire board had interviewed more than one external candidate.”

Gold and Disney have faulted what they characterized as Eisner’s autocratic and heavy-handed management style for driving out a parade of talented top executives. And they have complained that the board simply does Eisner’s bidding. They have urged Disney to make a clean break from the past by hiring an outsider to succeed Eisner.

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Since the CEO search began six months ago, Gold and Disney have criticized directors for failing to clarify what Eisner’s status would be once his replacement was named.

Other critics said Sunday that the lack of clarity and Eisner’s involvement in the search sent the wrong signal to the candidates. “The process tends to get tainted by having the incumbent and the insider involved in the process,” Goodwin said. “You think, Gee, is the incumbent still going to be involved? Who’s in charge of the ship.”

It wasn’t that the board didn’t develop a list of outside candidates. Sources said Disney wooed Whitman for months and that she was one of five outsiders remaining a month ago on the board’s short list.

Others on the list, according to people familiar with the search: News Corp. President Peter Chernin; Viacom Inc. co-President Tom Freston; Yahoo Inc. CEO Terry Semel; and Jeffrey Bewkes, chairman of Time Warner Inc.'s entertainment and networks group.

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Mitchell and the board’s recruiter, Gerard Roche, senior chairman of Heidrick & Struggles, began reaching out to these candidates in the last three weeks or so.

The sources said that Freston, Bewkes and Semel flatly turned down the opportunity to be interviewed. Chernin met with Mitchell, but refused to be interviewed by the board.

Some candidates worried that their talks would leak to the press and create credibility problems for them with their employees. Others worried that the board had already decided to back Eisner’s top candidate, Iger, and that they were therefore being used to bring legitimacy to the hiring process.

Whitman had been reluctant to be interviewed for the same reason. “She wanted to be a serious candidate or not at all,” said one source familiar with the matter. “She didn’t want to be a stalking horse.”

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Whitman, however, finally relented, with one caveat: She asked the board for a quick response, worried that the process might otherwise drag on.

After her three-hour interview March 6, the board promised to give her an answer early last week. Sources said when she hadn’t received an answer from Mitchell by Friday, she phoned him and removed her name from consideration. He didn’t try to talk her out of her decision, and he didn’t seem particularly upset by it, said one person familiar with the matter.

The Disney board decided Saturday to name Iger as the next CEO.

Corporate governance experts said that backing the status quo wouldn’t mollify disgruntled shareholders who have been pushing for new blood.

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“The problem is that this election will not make shareholder criticism go away,” said Charles Elson of the center for corporate governance at the University of Delaware. “The question is ‘Was the process to find someone new or to validate a decision that had already been made,’ ” to back Iger.

Executive recruiters say one way to send an early signal that the process is legitimate is to name a special search committee of the board to come up with a recommendation that does not include the retiring CEO.

“The finalists would meet with Eisner but he would not be in the initial interview,” said Korn/Ferry’s Simon.

In the conference call Sunday, Mitchell said that Eisner didn’t participate in Iger’s interview with the board and that he had participated in only part of another candidate’s interview.

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Sources familiar with the Whitman interview, however, said Eisner sat in on the entire session with the EBay CEO.

Yet as flawed as the process might have been, many Disney insiders, analysts and investors cheered Iger’s promotion.

“Sometimes good decisions are made for the wrong reasons,” said Los Angeles-based recruiter Stephen Unger. Iger “will be able to hit the ground racing.”

Times staff writer Meg James contributed to this report.

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