The Mice on Disney’s Board

Are terms like “accountability,” “transparency” and “independence” merely trendy buzzwords in corporate America, or do they actually stand for something?

These days, it seems to depend on the company. At blue-chip corporations with boards of directors that understand the meaning of good corporate governance, these words are real and translate into action. Take Boeing Co., for example, whose board earlier this month fired an otherwise celebrated CEO because it would not tolerate even the appearance of unethical or inappropriate behavior on his part.

Or Hewlett-Packard Co., where directors showed the door to an equally well-known CEO because her multibillion-dollar acquisition strategy had fallen short of projected results.

Or American International Group Inc., where just this week, amid allegations of questionable business practices, the longtime CEO was forced out of the job by a board acting in what one member described as “the best interest of [company] shareholders, customers and employees.”

Then there is the board of the Walt Disney Co.

For all of Disney Chairman George Mitchell’s bleating about his board’s dedication to transparency and good corporate governance, his conduct and that of his colleagues in the just-concluded search for a new Disney CEO have been nothing short of disgraceful. Their evasions, cover-ups and distortions set a new standard for how a corporate board ought not to act.

When Michael Eisner announced last September that he intended to step down as CEO, Disney directors promised shareholders “a thorough, careful and reasoned process to select as the next CEO the best person for the company” -- a process, they added, that “should include full consideration of external candidates.” And when doubts were raised about how objective and inclusive the search really was, Mitchell piously insisted that he and his fellow directors were conducting it “in good faith, with open minds and without any prior determination or preconditions.”

Of course, we’ve since learned that the search involved only one real candidate -- Eisner’s handpicked heir apparent, Disney President Robert Iger. By caving in to Eisner’s demand that he be allowed to sit in on interviews of potential successors, by not even attempting to interview a single outside candidate until after its annual meeting in February, by refusing to insist that Eisner commit to leaving the company as soon as the new CEO was named, and by not objecting to the aggressive public relations campaign Eisner had his minions wage on Iger’s behalf, the board effectively endorsed the notion that “the fix was in” and virtually guaranteed that no serious outside executive would be willing to be considered for the job.

And when it was confronted by one serious outside candidate (EBay’s Meg Whitman), Mitchell and his fellow directors made sure to drive her away by refusing to respond to her reasonable request for a prompt decision and not even bothering to try to keep her interested when she decided to bail out of the process.

To add insult to injury, when this search for a CEO finally reached its predictable end, Mitchell and his colleagues proceeded to obfuscate and dissemble about what they had done. Mitchell’s comments were particularly reprehensible. Not only did he make a big deal of emphasizing that Eisner had sat in on only part of only one outside candidate’s interview, he also refused to disclose how many outside candidates the board had interviewed. In fact, it’s been widely reported that the entire board interviewed only one outside candidate, Whitman, and Eisner was there for virtually all of that exchange. So much for transparency and accountability, not to mention candor.

This is hardly the first time that Eisner manipulated and cowed Disney directors into doing precisely what he wanted them to do. Their willingness to be led around by the nose would be amusing if there weren’t so much at stake. To be sure, we are pleased that our campaign succeeded in forcing Eisner’s imminent departure as both CEO and company director -- an event that on its own will immeasurably improve Disney’s future prospects. Yet at the same time, we are deeply troubled by the utter lack of respect for shareholders displayed by the rest of the board -- in particular, its chairman.