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Eisner Stays in the Picture


Patrick McGurn can "count on one hand" the number of CEOs who have stopped by his Rockville (Md.) office in recent years for a chat. Now McGurn, senior counsel of shareholder rights group Institutional Shareholder Services, can add Michael D. Eisner to the list. In late September, the Walt Disney Co. (DIS) chairman made the 45-minute trek from Washington, D.C., a DVD of Disney's The Rookie in hand, to lobby McGurn, whose group has been a vocal critic of Eisner's tight grip on his board. "He scored points just by making the trip," says McGurn.

The hour-long sit-down is part of 60-year-old Eisner's campaign to boost his company and to keep his job, say those close to the company. Since mid-September, the Disney CEO, under pressure to improve performance, has crisscrossed the country like a politician running for re- election, setting down the corporate jet to press the flesh with investors in New York, Boston, and Washington, D.C. His stump speech hammers home two big points: The ABC network is on the rebound, and all the theme parks need is for the depressed post-September 11 travel economy to improve. "The past five years have been disappointing in terms of earnings and stock price, and I take responsibility," Eisner said in one well-rehearsed line at a Goldman Sachs investment conference in early October. "But this has also been a period of investmentthat I am confident will pay off well in the years ahead." Eisner declined to comment for this story.

There's little evidence that Eisner has completely won over investors' hearts and minds. But the buzz about his imminent departure has largely quieted, indicating he has weathered the storm for now. "He's a brilliant in-fighter," says Porter Bibb, a managing partner with merchant bank Technology Partners Holdings, which is considering buying Disney shares after staying on the sidelines for months. And a few larger investors are starting to buy, encouraged as much by the firming TV ad market as anything that Eisner may be pitching. Two of Disney's larger shareholders, Southeastern Asset Management Inc. and State Street Research & Management Co. said in September Securities & Exchange Commission filings that they had increased their stakes in the Mouse House. That has helped boost Disney's stock price by 22%, to $18.23, since mid-September. "The worst may be over for him, and the economy will help this company," says State Street fund manager Larry Haverty Jr., who figures Disney's stock could pass $21 in the coming year.

Eisner is carrying out his self-preservation crusade on several fronts, say insiders. Besides stepping up his public appearances, he ran to the head of the corporate-governance parade in April, hiring well-known governance attorney Ira M. Millstein, a partner at law firm Weil, Gotshal & Manges LLP, and agreeing to make substantial changes to a board often decried for its close ties to the CEO. As many as four board members are expected to leave, cutting the 16-person board to 12, as suggested by Millstein. Among them: Reveta F. Bowers, who runs the school Eisner's sons attended. The Disney board is also contemplating Millstein's suggestion to appoint a "lead director" to speak for Disney's independent board members.

Eisner's biggest score, however, was in quieting his most vocal in-house critic, board member Stanley P. Gold, the 59-year-old business partner of founder Walt's nephew, Roy. At a contentious meeting in late September, board members lined up with Eisner, accusing Gold of fanning disparaging press stories. Over Gold's objections, the board then effectively demoted him, naming former U.S. Senator George J. Mitchell to co-head with Gold the board's important Governance & Nominating Committee. Gold, who was lining up support among Disney board members to pressure Eisner, has now "stood down," says a Gold associate. Gold declined to comment.

Even before the Gold challenge, Eisner was stepping up his campaign. Disney's public-relations executives began zipping off daily e-mails to the press, ballyhooing small successes at ABC even while overall ratings continue to decline. Among the high points: Households tuning in are up 4% for Monday Night Football, and viewers aged 18 to 34 on Tuesday nights, anchored by the John Ritter comedy 8 Simple Rules for Dating My Teenage Daughter, have increased by 36% over the past year.

Eisner and his Team Disney are promoting film successes, too, like the low-budget Reese Witherspoon comedy Sweet Home Alabama and this summer's Lilo & Stitch, the biggest Disney-made animated hit in three years. The studio and better-than-anticipated theme park attendance increased Disney's fiscal fourth-quarter earnings to $222 million, up from $53 million last year. The company now projects 20% earnings growth for next year. "We have things that are going well, and we want to get the word out," says Disney Chief Financial Officer Thomas O. Staggs. Execs talked of putting Eisner in front of more shareholders two years back, says Staggs, but he is only now increasing his appearances.

The Eisner campaign took off in mid-September, when the Disney CEO held three New York meetings in 24 hours, talking to analysts and investors. "He looked beat up. But he wasn't in his bunker, and that's a plus," says John Tinker, an analyst at Blaylock & Partners LP. Tinker and other analysts chowed down on burritos at ABC's Times Square studios as Eisner pitched the network lineup. Two weeks later, when theme park chief Paul Pressler quit, Eisner was back in New York for a conference and to chat up analysts. Warding off concerns about defections among Disney's upper management, Eisner boasted of his company's "deep bench," wrote J.P. Morgan Chase & Co. analyst Spencer Wang following a private dinner with the CEO.

Wang, who rates Disney "neutral," isn't ready to declare Eisner the victor yet. Not a lot of folks are. The company still has possible potholes ahead. Sales of Disney consumer products are still off, and the company likely will have to give up more profits when it renegotiates its deal with Toy Story creator Pixar Animation Studios. Higher than expected sports program costs have cut into its usually reliable ESPN channel, prompting some analysts to lower first-quarter projections. ABC and the theme parks, of course, are still big question marks.

But for now, Eisner's biggest critics are largely cooling their heels. Just listen to Bert Denton, whose Providence Capital Inc. unit earlier this year tried to drum up support among dissatisfied Disney shareholders to overhaul the company's board policies and who chatted on the phone on Nov. 14 with Disney brass. "Disney's stronger stock price took some of the wind out of our investors' sails," concedes Denton. But he says he still intends to press Disney to consult shareholders when it brings on new board members. "Let's see where Eisner is in a year if this company hasn't improved," he says. Until then, Eisner is certain to stay on the campaign trail. By Ronald Grover in Los Angeles


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