DisneyWar

by James B. Stewart

  Not just Roy and Gold, but numerous experts in governance and executive recruitment complained that Eisner’s two-year plan was seriously flawed, since no serious outside candidate for the chief executive job would come forward with Eisner planning to stay for two more years, and possibly longer as chairman. As the furor grew, Eisner gave an interview to Fortune magazine, which released the results just as the Disney board convened in Burbank for its crucial September meeting. In a critical exchange, the Fortune reporter asked Eisner if he wanted to remain on the board or be chairman after the end of his current contract. Eisner replied:

  “I have not asked the board to stay on the board or be chairman after the end of my contract. My assumption is that I would not continue on the board or as chairman. I have a full business life ahead of me. Clearly I’m not the type to retire, particularly after I’ve heard all these lectures from medical experts about how an active mind is good for the body. But as far as continuing on the board or as chairman, it’s just not in my mind at this time.”

  The answer was widely reported to mean that Eisner would not remain as a board member or as chairman.

  The board gathered on Sunday evening, September 20, and continued through lunch on Tuesday. While several items were on the agenda, the critical discussion of succession took place on Monday afternoon. In a clear signal that Eisner’s influence had waned, most of the discussion was held in executive session, with Eisner excluded. The critical issues were whether the board would hire a professional search firm and how long and in what capacity Eisner would stay at Disney. Hiring a search firm, as Roy and Gold clearly understood, was in itself a repudiation of Eisner’s “master plan,” since it shifted the power to influence the board from Eisner to professional outsiders. And it was a blow to Iger’s chances. Had it wished to, the board could simply have designated Iger as Eisner’s successor, as the General Electric board did with Jeffrey Immelt, Jack Welch’s choice to succeed him.

  Eisner was readmitted only at the end of the session. By then, it was clear that Eisner had lost his grip on the board. The board not only decided to hire a search firm, but also included in the press release a statement that the independent directors had concluded that Eisner would not remain as chairman after 2006. Eisner argued furiously that the language denying him the chairman’s title be dropped from the release, and ultimately he succeeded.

  The press release began: “The Board reaffirmed its strong support for Michael Eisner, Bob Iger, and the entire management team…. The Board took special note of the fact that today marks the 20th anniversary of Michael Eisner’s service as Chief Executive Officer. The Board formally acknowledges Michael’s recent decision regarding the CEO position, thanked him for his outstanding creative leadership, and looks forward to his continued leadership through the rest of his tenure.”

  At the same time, the statement made clear that a new era had begun. “The Board will engage in a thorough, careful, and reasoned process to select as the next CEO the best person for the company, its shareholders, employees, customers, and for the many millions of others who care so much about The Walt Disney Company. The Board is keenly aware of the special place our company holds in the hearts of people all over the world and the importance of its responsibility in choosing a CEO.”

  Despite the carefully worded praise for Eisner and the management team, the statement was the equivalent of the board’s declaration of independence. In a press briefing after the meeting, to which I listened, Mitchell seemed to make explicit what Eisner hadn’t wanted in the press release. In response to a question about whether Eisner would step down if a new CEO was appointed and if Eisner would remain as chariman, Mitchell said, “Michael has made his statement on that and we take him at his word. As far as the board is concerned, that’s the end of it.” When a questioner noted that Eisner’s statement wasn’t definite on those points, Mitchell referred to news accounts of the Fortune interview reporting that Eisner wouldn’t stay as chairman. “I read several newspapers and there was nothing indefinite about it. It was definite as far as we were concerned.”

  Though the board’s action stopped short of meeting Save Disney’s demand that Eisner be out by the 2005 annual meeting—it promised a decision on a new chief executive by June 2005—it was almost everything that Roy and Gold had been asking for. After pondering the implications for a few days, on September 28, Roy and Gold declared a qualified victory. “In announcing that it will be retaining a qualified executive search firm to help select a new CEO…the Board displayed precisely the kind of leadership and independence which we and the vast number of shareholders who share our concerns had been requesting…. We are willing to take Chairman George Mitchell at his word that Mr. Eisner will step down as both CEO and a member of the Disney board as soon as his replacement is installed.

  “As we have stated all along, our effort was never about Roy Disney and Stanley Gold. It was about the importance of shareholder democracy and need for change at the Disney Company…. To George Mitchell and the Board: we are most supportive of this encouraging beginning to what we trust will be the revitalization of the Walt Disney Company—once the happiest place on earth!”

  Roy and Gold put their ambitious plans for a proxy fight on hold. At the same time, they pledged to remain vigilant, and to hold the board to its promises. In a letter to Save Disney supporters in October, Roy reminded them that “eight or nine months ago, I had been informed that I was no longer wanted or needed as a member of the Disney board, and with that, I had, along with Stanley Gold, resigned from that body. Michael Eisner probably thought we might make a little public fuss that would soon die away, that the board would obediently renew his contract into eternity, and life would go on as ‘normal.’

  “That is all quite different now. Eisner has ‘decided’ to end his imperial reign in some foreseeable future, as soon as a new CEO has been found and installed…. While we would all love to think of this as a victory, it is in fact only a step along the way, and there is still much to do, many things to watch over. Stay with us as we go forward and together we can give this tale the happy ending it deserves. No matter what…we’ll be watching.”

  On September 29, 2004, less than a month after his resignation letter, I met with Eisner at his office at ABC headquarters in New York. He was in town for the Four-square media conference I’d attended the year before, as well as several other events. As I walk into his office he’s standing behind his desk, talking on the phone. That morning I’d read a full-page ad in The New York Times touting the success of “Lost,” which had debuted the previous week to glowing reviews and strong ratings. After so many years, it looked like ABC might have a hit. Simply as a pleasantry, I mention seeing the “Lost” ad.

  To my surprise, Eisner seems annoyed. “That New York Times ad was a total waste of seventy-five or a hundred thousand dollars,” he says angrily. “It’s all about ego, impressing the so-called New York intelligentsia. Let me tell you, that ad isn’t going to get one more viewer. Maybe if it had been in USA Today…” His voice trails off, but it turns out he is just warming to the subject. “ ‘Lost’ is terrible,” he says. “The pilot was two hours; it was broken into two one-hour episodes. Then the show goes off a cliff. There’s no more plane crash! Who cares about these people on a desert island?”

  Eisner’s reaction baffles me. Why would Eisner attack his own show?

  (Later, I made some inquiries, and only then did I learn that “Lost” was Lloyd Braun’s project, and that both Eisner and Iger had disliked it. Braun, of course, had been fired. The following Sunday, “Desperate Housewives” debuted to even stronger ratings, and ABC beat both CBS and NBC during the first two weeks of the new season among young adults. “Housewives” was Susan Lyne’s special project, which didn’t stop Variety from fawning over Anne Sweeney and Steve McPherson, who “have shown what a difference regime change can make.”)

  I was there to discuss Eisner’s resignation, not the new ABC season. Eisner says he drafted
his letter on the company plane two weeks before submitting it and discussed it only with his wife and his lawyer, Irwin Russell. “I like the letter,” he says. “I put twenty years of performance into two sentences. I like the ending.” (“I’m going to Disneyland.”) His main motivation, he says, was “Do the right thing.” Eisner tells me he knew eight years before, when he signed a ten-year contract, that it would be his last at Disney. “I wanted to be young enough to have another career,” he says.

  Eisner says he realized he’d made the right decision at a dinner on Tuesday evening, September 7, where the featured speaker was Dr. Mehmet Oz, the head of the Columbia-Presbyterian Hospital cardiovascular surgery department. Dr. Oz spoke about the effects of an unhealthy lifestyle and stress on the body, which naturally brought back memories of Eisner’s own heart surgery, not to mention thoughts of former president Bill Clinton, who just had a bypass operation at Columbia-Presbyterian. “This was a wake-up call to our mortality,” Eisner explains. “It made me think about what’s important and what’s not important. I’ll have done this job for twenty-two years when I step down.” He reminds me that in twenty-eight years in the entertainment industry, he has taken only one week off.

  Over the course of our interviews, Eisner has mentioned to me several times the need to reduce stress. But always, in the next breath, he says that work is what keeps him healthy. He does this again, telling me that his public relations adviser, Gershon Kekst, has just told him that the key to longevity is to keep working into one’s nineties.

  Finally I ask him why, if he was resigning as CEO and planning to leave Disney, he waited two weeks to indicate that he didn’t want to remain as chairman or as a board member. “I didn’t realize it would be an issue,” he said. Then he adds, “Besides, I didn’t say I didn’t want to be chairman. Zenia has been saying that,” indicating Zenia Mucha, who is sitting with us. “I don’t want to be irrelevant. I’m not going to ask the board to be named chairman. I’m not going to beg for it. But the board might come to me. Then I’d have to consider it. Will I continue to play a creative role?” He ponders this for a moment. “That’s up to Disney.” (Later, when I check Eisner’s quoted remarks in Fortune and other media, I see he’s technically correct: all he has said is that he won’t ask the board to name him chairman and doesn’t “expect” to remain as a board member. He also said that Mitchell has assured him that the board will consider keeping him as chairman.)

  “Anyway, talking about the future is counterproductive. I’m looking forward to the next two years. I’m going to be even more involved in the creative process.” It dawns on me that for Eisner, this war is hardly over. Unlike the long-ago boxing match at Camp Keewaydin, he is still standing. No wonder Roy Disney is wary.

  “I intend to create content forever,” Eisner tells me. “Or at least for as long as I can.”

  *Eisner denied this, saying it was John Bryson who insisted on Mitchell’s being chairman and that he never threatened to exercise his contract provision.

  *Eisner is incorrect that this ruling was a “defeat” for Fields. He and his firm withdrew from the case in June 2003, nine months before this ruling.

  *Many people can recount similar anecdotes in which Eisner discusses the similarity between his name and that of Walt Disney’s French ancestors. When I asked him about this, he said he meant the comment in jest. He told me that the similarity was brought to his attention in 1989 by a projectionist at the studio, who had even written out the names in Disney script. “He thought this was a celestial event!” Eisner told me. “He said, ‘You’re genetically attached to the company!’ It was hysterical. But this is a joke. I do not think I’m genetically attached.” For the record, Roy Disney notes that the ancestral family name is “d’Isigny,” after the French village, which is not an anagram of Eisner.

  Epilogue

  No matter when or how Michael Eisner leaves Disney—even if he’s carried out on his shield, as Stanley Gold predicted—nothing will erase his record of extraordinary achievement. There are the many animated hits destined to be classics; the extensive film library, which grew from 158 to 900 theatrical releases during Eisner’s tenure; the 140 Academy Awards; the acquisition of ABC; the explosive growth of the cable channels, especially ESPN and the Disney channel; the Broadway shows and restored New Amsterdam Theatre; the acclaimed architecture at the theme parks and at Disney’s Burbank headquarters. Despite Roy’s quibbles about maintenance and cleanliness standards at Disneyland and Disney World, the strong and unique culture of the theme parks endures.

  So does the Disney brand, even though Roy finds the notion of “branding” to be distasteful. Indeed, the Disney brand is so strong that it’s often a constraint, despite Disney’s efforts to develop independent brands under the Disney umbrella. Nor has Eisner been on a mission to impose traditional Disney values on the nation’s culture. Disney during the Eisner years has tried to produce entertainment products that sell, and to do so has been willing to push the limits of the Disney brand. As Eisner put it in his film manifesto, “We have no obligation to make art…. We have no obligation to make a statement.” Disney is as much a mirror of American culture as it is an influence on it.

  Eisner can also boast a remarkable financial record. When Eisner arrived in 1984, Disney’s operating income was $100 million; for 2004 it was projected to be $4.5 billion. Revenue was $1.6 billion in 1984; in 2004 it was a projected $30 billion. Adjusted for splits, the stock price was $1.33 in 1984; twenty years later it was $25. And Disney’s performance was strong in 2004, with cash flow hitting a record high. Eisner’s own personal wealth has also soared; in 2003 he was ranked 385 in the list of Forbes magazine’s 400 wealthiest Americans, with an estimated net worth of $630 million (in the same year, Roy was ranked 294, with an estimated net worth of $900 million. Eisner dropped from the list in 2004, while Roy climbed to 278 with an estimated worth of $1 billion). Eisner has earned his place among Hollywood’s creative and business legends—Jack Warner, Louis B. Mayer, Cecil B. DeMille.

  But there’s no denying that the seeds of Disney’s creative and financial renaissance were nearly all planted in the first years of Eisner’s tenure. Stanley Gold and Roy Disney are also correct that by nearly every financial measure, Disney’s performance since 1995 has been weak. While Disney’s stock price climbed to $28 in 2004, it was $42 as recently as 2000. And even Eisner’s vaunted creativity—clearly the attribute that he himself holds most dear—seems to have been in eclipse. There have been some recent successes, such as Pirates of the Caribbean, but even there, Eisner criticized Johnny Depp’s teeth and effeminate demeanor. The animation unit has been devastated and is a shadow of its former self, overshadowed by rivals Pixar and DreamWorks. The film studio has never again duplicated the string of hits during the early years under Eisner and Katzenberg. Eisner dismissed Finding Nemo, and Disney sold off most of the rights to Sixth Sense. Eisner criticized “Lost,” ABC’s first breakout hit in years. Although he insists on being judged only by what he has done, and not what he has failed to do, the hit projects he rejected, from “CSI” to Lord of the Rings and Fahrenheit 9/11, loom large.

  But without benefit of hindsight, creative judgments are notoriously difficult both to make and to evaluate. There are far more objective and damaging measures of Eisner’s performance. Beginning with the lavish, even reckless, overspending on Euro Disney, and continuing with the poorly planned and executed foray into the Internet, and perhaps worst of all, the acquisition of the Fox Family cable network—each of which is a more than $1 billion mistake—Eisner squandered Disney’s assets. Even one blunder of that magnitude, let alone three, might have cost a chief executive his job at any public company that was acting in the interests of its shareholders and had any meaningful board oversight. This is even before considering the exit of Jeffrey Katzenberg, the failure to honor his contract, and the hiring and firing of Michael Ovitz, personnel and judgment errors which, in the cost to Disney and the vitriol and publicity they gene
rated, are without parallel in American business history.

  For all the lip service paid to shareholder value, Disney under Eisner was managed not for all of its shareholders, but primarily for three: Eisner himself, Sid Bass and his family interests, and, until their rupture, the Disney family represented by Roy and Stanley Gold. Nowhere was this more evident than in the makeup of the Disney board, which for most of Eisner’s tenure was riddled with conflicts of interest. Board members were no doubt lulled into complacency by the extraordinary success of Eisner’s early years. Still, Eisner controlled and manipulated the board by keeping members isolated, preferring to communicate one-on-one; selectively doling out information, access, and benefits, like tickets to the Super Bowl; and ruthlessly dispatching anyone who dared challenge him. The most striking example is Eisner’s shameful treatment of Andrea Van de Kamp, a symbolic execution in which other board members sat passively by. Only an elementary school educator, Reveta Bowers, had the courage to speak out—and she, too, was already on her way out.

  Eisner and other executives, especially Tom Staggs, deserve credit for not running seriously afoul of securities laws during a time of rampant corporate scandal. But Disney’s decisions not to revalue the Family channel and seek a substantial tax benefit, and not to take this issue to the board, raise serious questions.

  When did things start to go wrong? Almost everyone who has ever worked at Disney offers the same answer: the sudden and tragic death of Frank Wells in 1994, ten years into Eisner’s reign. They argue that Wells was Eisner’s check and balance, his rudder, his sounding board. Wells—and Wells alone—could question Eisner, disagree with him, get him to change his mind. When anyone had a problem with Eisner, from Katzenberg on down, they could “go to Frank” for redress. Wells was their ombudsman, their court of appeal. He made Disney executives feel valued and appreciated, leavening Eisner’s sometimes harsh demands for ever harder work followed by scant praise.