Eisner, Iger, and television executives Braun and Lyne did have genuine reason for optimism after years of crushing disappointment. During the November sweeps period, ABC had its best showing in years, coming in second to NBC in the key eighteen to forty-nine demographic, a dramatic improvement from the prior year’s fourth-place finish. Though “Monday Night Football” and “The Bachelor” accounted for much of the success, the strategy of a block of family comedies won Tuesday night for ABC, with “8 Simple Rules” among the week’s top ten shows. The only cloud on the horizon was the Fox network, which announced the next installment of its surprise summer reality hit, “American Idol.” “Idol” would air on Tuesday nights beginning in January.
Eisner also called attention to the ongoing governance “reforms” that he was pursuing with Ira Millstein’s guidance: “To help make sure that The Walt Disney Company continues to serve the best interests of its shareholders, we are instituting new rules for board governance, which will reduce the number of board members and enhance the independence of the board. This should further enhance accountability and encourage the flow of fresh ideas at the highest levels of our company. The steps we took along these lines earned praise from a number of business analysts, including BusinessWeek. We intend to maintain a leadership position in this all-important area. I am pleased to institute these board governance reforms because, after all, I am a Disney shareholder too. By far, my largest personal holdings are in Disney stock, and I added a considerable amount to these holdings during the past year. I did so quite simply because I believe in this company.”
Still, there were limits to the reforms Eisner would champion, especially when they affected his power and prerogatives. He was furious when Gold, as co-chair of the governance committee, wrote a November 10 letter to board members that proposed splitting the office of chairman and chief executive officer, even though many corporate governance experts—including Millstein, Disney’s own lawyer on the subject—were publicly advocating such a separation of powers. (Millstein had nonetheless exempted Disney from the requirement, saying the matter could be addressed when Eisner retired.) Van de Kamp further alienated Eisner by supporting the motion, on the grounds that she felt Eisner was spending too much time as chairman manipulating the board and not enough time running Disney. But the measure was defeated in committee by a vote of five to two.
Indeed, Eisner had little fear from the governance committee now that Estrin and Lozano had diluted Gold’s influence and Mitchell was co-chairman. At the December board meeting, Eisner proposed that Gold be designated a “nonindependent” director, which would require him to step down from the governance committee. This was not, as originally anticipated, because his daughter worked for Disney (the NYSE never implemented such a rule) but because he was beholden to another board member, Roy, who effectively employed him as chief executive of Shamrock. At the same time, John Bryson was proposed as “independent,” despite his wife’s $1.35 million position at the Disney co-owned Lifetime, which meant Bryson could serve on the committee.
“You must be kidding,” Van de Kamp blurted out. “This makes no sense.” She argued that Bryson and Gold were either both independent, or neither was. “The shareholders won’t accept this,” she maintained.
Nonetheless, the measure to designate Gold as nonindependent and Bryson as independent was put to a vote and easily passed, with only Van de Kamp, Gold, and Roy voting against it. (Robert Stern, Eisner’s architect, was also deemed nonindependent.) Ten minutes later, a typed list of committee assignments was circulated. Bryson was now chairman of the governance committee, and Van de Kamp was dropped.
Eisner didn’t stop there. That same month, he called on Reveta Bowers at her office at the Center for Early Education to explain that it would be improper for any Disney employee to contribute to the Center if she remained on the board. Two of Disney’s top executives—Bob Iger and Tom Staggs—had children at the school and were important potential donors. But if Bowers stayed on Disney’s board, their contributions would be limited to a modest amount. “Now you’re hitting me in my bread box,” Bowers said, stressing her previous decision to step down from the board. When Bowers reported the conversation to others, including Van de Kamp, she was uncharacteristically angry.
At Christmas, Van de Kamp noticed that she didn’t receive the usual Eisner holiday gift—a wheel of Vermont cheddar cheese or apples. She wondered if this was an oversight, and called to ask Patty Disney if she and Roy had received anything.
“Yeah, the aged cheddar,” Patty replied. “Do you want one? I have several years’ worth in the refrigerator.” Van de Kamp demurred, but sent Eisner and Jane a thank-you note anyway, as she did every year, just in case the gift had gone astray. She heard nothing in reply.
After the New Year, Eisner phoned and asked Van de Kamp if she could meet with him in his office on January 20, 2003, which happened to be the Martin Luther King Jr. holiday. After the absence of a Christmas gift, and after hearing about his meeting with Reveta Bowers, she was somewhat apprehensive. Still, she was hardly prepared for the outburst from Eisner that ensued.
“You’re a terrible director,” he said. “You come late to meetings; you’re not prepared; you’re too busy.” Van de Kamp was shocked. She’d been a conscientious director and not once in four years had Eisner or anyone else complained. “You are so loyal to Stanley it’s like you’ve carried his babies,” Eisner said.
Van de Kamp’s mind reeled. What was Eisner suggesting? That she had occasionally voted with Gold because she was having an affair with him?
Van de Kamp reached over and put her hand on Eisner’s arm, looking directly at him. “Michael, stop this right now. The best thing I have in my life is my marriage.” She paused, but he said nothing further, so she continued. “What you’re really upset about is that I don’t always vote with you. That’s the real issue.”
“It’s not that you haven’t always voted with me,” he said, but then proceeded to cite every instance in which she had voted against him. She was amazed that the chief executive of a multi-billion-dollar corporation could remember each and every vote; she’d even forgotten some of them. And he’d always gotten what he wanted, her occasional votes to the contrary notwithstanding.
This struck her as petty and vindictive, and she said something that she knew would wound him. “Why don’t you show you can lead this company without Frank Wells?”
Eisner flushed in anger. “It’s a done deal. The nominating committee has met and has decided not to renominate you,” Eisner said. “I want you to go on the Disney Foundation Board and I want it to be your idea,” he continued, urging her to “resign” from the Disney board to take up the new post. “If not, this will be embarrassing to you and to me.”
Van de Kamp felt her anger rising. Had Eisner simply said he wanted her to leave, she would have stepped down. But he had badly misjudged her if he thought she could be threatened and intimidated. “I’m not embarrassed,” she said sharply, rising to leave.
“I don’t want you talking about this to anyone, including other directors,” he warned her. “If you do talk to anyone, I request that you call me.”
When she reached her office in Beverly Hills, Van de Kamp was still shaken by the encounter. Despite Eisner’s injunction, she sat down and typed an email describing what had just happened and sent it to all her fellow directors. Apart from Roy and Gold, only Bowers responded, calling to say that she was “horrified” by Eisner’s pressure tactics.
Van de Kamp contacted a lawyer to see if she had any grounds to sue Eisner, but he couldn’t find any. As the January 28 meeting approached, there was a flurry of calls among directors concerned that Van de Kamp was being purged as a warning to any director who dared question Eisner or sometimes vote against him. Bowers, in particular, lobbied other directors on Van de Kamp’s behalf. Tom Murphy, Ray Watson, Sidney Poitier, and Gary Wilson expressed some sympathy for Van de Kamp’s plight. But no one else did, or, if they were sym
pathetic, they didn’t dare speak up.
Other than telling her she was a “terrible director,” Eisner never told Van de Kamp why she wasn’t being renominated. But others told her the reason Eisner volunteered was that she faced a conflict of interest since Disney had given money to the Walt Disney Concert Hall, and she was chairman of the Music Center. Van de Kamp was amazed. The Disney gift predated her service on the board, and there had been no Disney gifts since then. Indeed, it was because of her skill in securing the donation that Eisner had asked her to join the board. Even Ira Millstein had conceded when the issue arose in December that she was “independent” and some of her recent votes certainly confirmed that. Van de Kamp had a legal opinion confirming that she was “independent” within the meaning of proposed rule changes.
The night before the board meeting, Gold called Van de Kamp. “This is going to get ugly tomorrow,” he warned. “You can still avoid this if you take the bribe of the Foundation job and go quietly.” Van de Kamp looked over at her twenty-two-year-old daughter. What kind of example did she want to set? She felt she was being attacked for trying to do the right thing. Someone had to stand up to Eisner’s bullying. “I can’t do it, Stanley,” she said.
For Van de Kamp, the next day began with a 7:30 breakfast meeting of the finance committee. No one said anything to her. Then she met alone with George Mitchell. He apologized for not responding sooner to her request for a meeting, explaining that he had just attended the Super Bowl in San Diego as Eisner’s guest and they’d gotten in late the night before. She noticed that he wouldn’t make eye contact. She asked him to reconsider her expulsion, arguing that she was being purged for speaking out and daring to question Eisner. She was being used as an example to the rest of the board. “Well, I don’t know enough about the situation,” Mitchell said. Van de Kamp wondered: What didn’t he know? But it was clear Mitchell wouldn’t come to her rescue.
Afterward she bumped into Tom Murphy, who’d also been at the Super Bowl with Eisner. “This is terrible, Andrea,” he said. “I spent two days trying to talk Michael out of this. It’s no use.”
Then she met with the nominating committee, now chaired by Bryson. Estrin, Lozano, and Wilson were also present. “The way I’ve been treated is an abomination,” she said. “You should be ashamed of yourselves. Speaking as a former member of this committee, I want you to know that I would never have done this to you.” No one said anything.
Next, Eisner spoke to the committee and argued for Van de Kamp’s ouster. Besides generalized claims that she wasn’t a good director, he claimed that she leaked to the press and had allied herself with Gold against him. He didn’t place any emphasis on an alleged conflict of interest over Disney Hall.
“This isn’t right,” Wilson said as soon as Eisner left. He argued for keeping Van de Kamp, who he thought was a fine director. Eisner’s accusations were inaccurate—there was no evidence that she had leaked to the press—and unfair. But he thought the committee should be unanimous. He was prepared to support Van de Kamp, but not if the other members of the committee wouldn’t back him. Bryson, Estrin, and Lozano immediately lined up behind Eisner and voted to eject Van de Kamp. Wilson reluctantly went along with the majority.
At the next day’s meeting of the full board, the issue finally came to a vote. Gold moved to reinstate Van de Kamp to the list of directors, a motion that Roy seconded. Sidney Poitier, who rarely spoke at board meetings, spoke in her defense. Then Van de Kamp made an impassioned speech. “I was asked to serve on this board to be an independent director, and now I’m not being renominated because that’s exactly what I am—an independent director,” she began, as she later recalled the speech. “The performance of this company has not been wonderful. I, along with some employees and shareholders, are concerned. Michael Eisner has cost this company a lot of money: $140 million on Michael Ovitz, and this board did nothing; $280 million on Jeffrey Katzenberg—this board did nothing. We have terrible relations with creative people in Hollywood because of Michael Eisner’s arrogance. Many of the best executives have left the company. We’ve just fired all these people, yet Michael Eisner is getting a $5 million bonus. How do those people feel?
“The process which led to my not being renominated has been outrageous and we should all be embarrassed. How we’ve conducted this has been a terrible example, both to ourselves and to the outside world. People look to Disney for leadership, and we have failed them.”
As Van de Kamp sat down, Bowers burst into tears. “How can you do this to this distinguished woman?” she asked once she had collected herself.
Gold, Roy, and Van de Kamp herself raised their hands in favor of the motion to keep Van de Kamp on the board. Bowers started to put up her hand, and Eisner glared at her. She started to lower it, paused, and then defiantly raised it. Poitier, too, looked like he was going to raise his hand, but after seeing Eisner’s reaction to Bowers, he kept his down. He abstained, as did Robert Matschullat, a former vice chairman of the Seagram Company who had just joined the board. “I’m staying out of this,” he said. Leo O’Donovan, the president emeritus of Georgetown University, said he was “concerned” about the process, but wouldn’t vote against the nominating committee’s recommendation. No one else supported Van de Kamp. The vote was twelve to four to defeat Gold’s motion, with two abstentions.
Van de Kamp stayed for the duration of the meeting. She was a director until the annual meeting in March, and she intended to do her duty. But when the meeting ended and the others started discussing their transportation arrangements for the annual meeting, she got up and left. No one said anything to her then, but the next day she got a call from Gary Wilson, who had been sitting at Eisner’s side and voted to dismiss her. “Your speech was brilliant,” he told her. “I’m sorry I couldn’t support you.” (Curiously, there was no mention of Van de Kamp’s speech in the minutes of the meeting.)
With Van de Kamp gone, the board proceeded to strip Gold of his co-chairmanship and membership on the nominating and governance committee and compensation subcommittee, leaving Eisner loyalists in charge of all key board positions. Judith Estrin replaced Gold as chairman of the compensation committee, which promptly approved the special $5 million bonus for Eisner. Gold was nearly apoplectic. It was bad enough that Staggs and Murphy had gotten $1 million bonuses for the Family channel deal, but now it was becoming abundantly clear that Disney had grossly overpaid for the cable acquisition. Despite his vocal protest, the compensation committee approved the bonus.
Van de Kamp wasn’t the only board member who wasn’t renominated that year. Sidney Poitier was over the retirement age of seventy-two, and Disney declined to waive it, as it had routinely done in the past. As an architect for both Eisner and Disney, Robert Stern had been deemed nonindependent. Bowers had already decided to step down after she was deemed nonindependent. Disney, too, officially ascribed Van de Kamp’s ouster to unspecified “corporate governance” initiatives related to director independence.
But when the New York Stock Exchange actually filed its corporate governance proposal with the SEC later that year tightening the requirements for independent directors, it specifically exempted officers of “charitable organizations.” Under the rules actually enacted, both Bowers and Van de Kamp would have met the new standard for independent directors.
The NYSE also clarified the issue of the employment of directors’ children and spouses. Under the rules enacted, children and spouses had to earn more than $100,000 per year and be living at home with a director. Gold’s daughter earned less than the threshold and no longer lived at home. Ironically, it was John Bryson, whose wife, Louise, earned $1.35 million from the Lifetime channel, who was ultimately deemed nonindependent. Nonetheless, he remained on the board.
The new library for young readers opened at the Center for Early Education the following spring, notwithstanding the absence of any donation from Disney. In place of the planned Winnie-the-Pooh theme, Reveta Bowers contributed her own teddy bear colle
ction to decorate the room.
As Spencer Neumann, Jim Hedges, and Angela Shapiro had warned the previous May, ABC Family wasn’t even coming close to meeting the aggressive financial projections that had been incorporated into the five-year projections presented to the board. But perhaps there was a silver lining to the Family debacle, at least in a purely financial sense. About the same time as the January board meeting, chief financial officer Tom Staggs launched a confidential, high-priority project to determine the net present value of the Family channel. If the value of ABC Family were far less than Disney paid for it, the valuation could be used to generate significant tax savings.
A small group of finance executives from the Family channel and Disney’s tax department began working with an outside consulting firm that specialized in valuation. By this point, no one inside Disney was pretending that the channel and related assets were worth anywhere near the $5.2 billion Disney had paid Murdoch and Saban. Still, even they were startled by the conclusions.
According to the internal valuation report that resulted, the net present value of the cable channel was $1.378 billion. The calculations were complex, but the report estimated that Disney could realize about $400 million in tax savings, which would go directly to the bottom line. Based on this analysis, $3.2 billion of the purchase price was allocated to the channel, the rest to the programming and other assets, which meant that Disney had overpaid by approximately $1.8 billion for the channel alone. (Disney had already written off $308 million of the value of the library.)
Staggs was enthusiastic about the potential tax savings. Another staff member declared that “this is one of the smartest things I’ve ever heard of.” But, he added, “You’re never going to get this. It would mean going to the board and saying our valuation was wrong.” The timing was especially bad, since Gold and Roy were now rigorously criticizing the Family deal.
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