Stalking a Wily Prey at Disney


By Ronald Grover It seems like déjà vu all over again, in the words of Yogi Berra. Just as he did in 1984, Roy E. Disney, whose Uncle Walt started the fabled company that bears his name, has resigned from the Walt Disney's (DIS) board and called for a change in leadership. Roy Disney's Nov. 30 departure was followed the next day by the resignation of his financial adviser, Stanley P. Gold, who was equally scathing in his attack on Disney management following his departure.

Back in 1984, Roy Disney and Gold launched a takeover battle to win control of the company, which they did with the help of the Bass family of Fort Worth, Tex. The difference is that now the two are trying to unseat CEO Michael Eisner, the very man they brought in to straighten out the Mouse House in 1984. Gold, who masterminded the takeover effort, considers Eisner just as ineffective a leader as the folks he succeeded. "[Under Eisner] you have a lack of leadership, assets that continue to underperform, a loss of creative abilities, and ineffective management," Gold told BusinessWeek Online.

BAD TIMING. How Gold intends to give Eisner the boot is still a little unclear. He says he'll make the rounds to institutional investors to stir them up -- something he couldn't do while a board member. "There's a sense of anger among the shareholders and the employees of this company who have watched this great company run into the ground," says Gold. Within hours submitting his resignation, Gold says he received more than 100 e-mails from Disney employees. "They all say 'we're with you. Go get him,'" says Gold. As for large shareholders, Gold isn't disclosing whether any have responded to his call for Eisner's departure.

The uprising against Eisner, Gold wrote in his resignation letter, has been building for the last three years, but Gold's attempt to force change from within "has only succeeded in creating an insular board of directors serving as a bulwark to shield management from criticism and accountability." The final straw, says Gold, came when the board refused Roy Disney's request to stay on after his 72nd birthday. While board rules have an age limit of 72 for directors, it's less clear whether corporate governance regulations allows the board to waive the requirement for "nonmanagement directors," including Roy Disney, who currently heads the animation unit.

The entertainment giant issued a statement from its independent board members that Gold had misrepresented the age guidelines and that "Mr. Gold and Mr. Disney voted in favor of the very retirement rules to which they now object and which apply to 'all directors.'"

LOST IT? This very public spat couldn't come at a worse time for Disney, which looks to be in the early stages of recovering from its seven-year slump (see BW Online, 11/30/03, "Renovating This Old Mouse"). In late November, it reported a 3% hike in net income, to $1.7 billion, on revenues of $27.1 billion. That still leaves earnings at roughly 1998 levels. The stock is trading at around $23 -- up by 43% this year but well below levels of five years back. Worse, Disney seems to have lost its long-held edge in animation, with its best such flicks coming from Steve Jobs's Pixar Animation Studios (PIXR). And in TV-land, Disney's ABC network is still in a ratings funk.

"Frankly, I don't think Michael has it anymore," says Gold. "We haven't had a new ride at our theme park in years that [Disney didn't copy], he isn't putting anything on the ABC Family Channel that people want to see, and creative people don't want to work for him anymore." Gold continues: "Look, he has been here 20 years, and he just ran out of gas."

Still, even Gold knows it won't be easy to dislodge Eisner. The Disney CEO and chairman has proved to be an adept political infighter. Moreover, Eisner seems to have the allegiance of the board's independent members, including the governance and nominating committee, which decided that Roy Disney should go when he hit 72. So far no major shareholders have publicly jumped into the fight along with Gold and Disney. Indeed, as long as the stock moves upward, shareholders may not want to shuffle management, according to one investor who asked to remain anonymous.

LOW MARKS. Gold's and Disney's complaint isn't solely about corporate performance. They're also asking whether it's right or fair to shareholders for a CEO to have as much sway over a board as Eisner does. "He calls the shots," says Gold, who complains in his letter that he was stripped of his independent board status -- and deprived of chairmanship of the key governance committee -- because he provided financial counsel to Roy Disney, who was a company executive. He points out that the committee's new head, SCE Corp. Chairman John Bryson, is married to a top official at the Lifetime Entertainment cable channel, which is 50%-owned by Disney.

Gold says Eisner "buys off board members with all kinds of things, like tickets to the World Series or to the Super Bowl or to movie premieres." Eisner and Disney declined comment on Gold's allegations of board-member influence. While the level of Eisner's sway may be hard to prove, the board clearly isn't getting high marks from corporate-governance experts. Even bringing on noted governance guru Ira Millstein as special counsel hasn't helped, say experts.

For instance, Bryson "isn't independent in my book," says Patrick McGurn, special counsel to Rockville (Md).-based Institutional Shareholder Services, which advises investors on corporate-governance issues. McGurn also questions the independence of former Maine Senator George Mitchell, whose law firm used to do work for Disney. (The firm severed its ties with Disney prior to Mitchell's becoming the board's presiding director.)

"RAT'S NEST." Gold and Roy Disney clearly intend to make the board's independence a key issue in their fight to unseat Eisner. Gold says he favors splitting the chairmanship job from that of CEO, but he doesn't want Eisner in either job. The University of Delaware's Charles Elson, another leading corporate-governance expert, would go even further. "That board is such a rat's nest of conflicts that the only thing to do is to clean the whole thing out. Let it start all over again."

Such words are likely to strengthen the resolve of Disney's former board members. Grover is BusinessWeek's Los Angeles bureau chief


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