After Eisner, the Disney Board Faces Its Own Deluge
By LAURA M. HOLSON
Published: September 17, 2004
LOS ANGELES, Sept. 16 - Michael D. Eisner may have quelled speculation about his future last week, but the board of Walt Disney will have to answer several tough questions about the company's future in the weeks and months to come.
Directors will start to grapple with the immediate issues of succession when they meet in Burbank, Calif., on Sunday for the first time since Mr. Eisner announced that he would step down as chief executive when his contract expired in 2006. The board is expected to choose an executive search firm to look for the candidates even though Mr. Eisner has endorsed the current president, Robert A. Iger, for the top job, Disney executives said. Directors will also discuss whether Mr. Eisner can be named chairman to succeed George J. Mitchell, who has indicated he wants to serve two more years at the most. And despite Mr. Eisner's assertion that he will remain chief executive until the end of his contract, directors will have to decide whether they want the same thing.
It is unlikely that the board will have answers to all these questions as early as next week. But Mr. Eisner's announcement 10 days ahead of the meeting has shifted the focus of the company's critics from the management suite to the boardroom.
"The board not being able to respond quickly to questions about succession has created a vacuum that allows critics to come up with conspiracy theories," said Pat McGurn, special counsel for the Institutional Shareholder Services, the influential proxy adviser, which recommended that shareholders withhold votes from Mr. Eisner at the last board election, in March. "Each additional day the board does not respond, it takes the heat off Michael and puts it on the board, particularly George Mitchell."
Mr. Mitchell, a former senator and peace negotiator in Ireland, has been meeting with mutual fund managers, institutional investors and others this week. Already, it seems, he is getting an earful. One investor who spoke on the condition of anonymity said he told Mr. Mitchell that the board would not be able to find a willing candidate to succeed Mr. Eisner if he became chairman. In a response to an e-mail message, Mr. Mitchell said he had not heard that from investors. But the notion is being echoed by media executives, executive search professionals and other corporate analysts interviewed this week, including Graef Crystal, a compensation expert who has studied corporate boards.
"Even if Mr. Eisner is a nonexecutive chairman, I don't think anyone will want to come in," Mr. Crystal said. "People when they retire and become chairman tend to meddle."
Mr. Mitchell's intention to step down in two years leaves the door open for Mr. Eisner, many people say. But one former media executive has already expressed interest in the job. Bob Daly, the former co-chairman of Warner Brothers, would like to be chairman, said a media executive who has talked to him.
Mr. Daly had been approached by two of Mr. Eisner's most vocal critics - Roy E. Disney, the nephew of the company's founder, and his financial adviser, Stanley P. Gold - to join an alternate slate of directors. But Mr. Daly turned them down because he did not want to be a hostile candidate, according to three media executives who were informed of the overture.
Unlike many directors on Disney's board, Mr. Daly has entertainment experience. He successfully ran Warner Brothers for two decades along with Terry Semel, the chief executive of Yahoo, and has experience in the film, television and music worlds.
Last week, Mr. Gold declined to discuss whether he talked to Mr. Daly. On Thursday, Mr. Daly declined to publicly discuss Disney. Mr. Mitchell said he was not aware of any interest from Mr. Daly.
Before the board settles on its next chairman it will have to decide what kind of chief executive it wants: a corporate manager or mogul. Two people who have talked to directors said a successor could be named as early as next summer. And almost everyone agrees, even Disney executives, that it will have to conduct a broad independent search even if directors believe Mr. Iger is the best candidate. Otherwise, the board could face even more criticism from opponents and corporate governance advocates.
The problem with Mr. Iger, Mr. McGurn said, is that he is too closely aligned with Mr. Eisner. And Mr. Iger has also been a target of Mr. Disney and Mr. Gold.
"Michael's endorsement is the worst thing for Bob because he becomes a lightning rod for Roy and Stanley," Mr. McGurn said. "Let's face it. It literally forces the board to do a market check and go out and see other people. The board can't be seen as rubber-stamping Bob right now. They can't say, 'Michael is right. Bob is the right guy.' "
Depending on whom the board selects, the job of chief executive could be redefined. The positions of chairman and chief executive are now split, but they do not need to remain that way if Disney is looking to attract the best candidates, analysts and executive search professionals say. Separating the jobs was an expedient way for the board to address the no-confidence vote from shareholders at last March's annual meeting without having to fire Mr. Eisner, Mr. Crystal said.
"But I'm not sure that if they find Mr. or Mrs. Right they wouldn't combine the jobs," he added.
Few candidates, other than Mr. Iger, would want to wait two years before running the company, Mr. Crystal said. "If a person is ready for the job now, why does he want to be an ingénue even for two days?"
As such, he added, Mr. Eisner's announcement has put the board in an awkward situation. According to executive employment experts, a two-year search can be disruptive as employees inside the company jockey for position. The president's position will be vacant if Mr. Iger is promoted or decides to leave when his contract expires next September. And it will be difficult for the board to demand that Mr. Eisner leave sooner because he has already announced his plans to depart, Mr. Crystal said.
According to Mr. Eisner's contract, if he stays until Sept. 30, 2006, he is entitled to a minimum $6 million post-termination bonus for the two following years, as well as remain a consultant and receive the same perquisites he was afforded as chief executive, which includes use of the corporate jet. It is unclear whether he can stay as a consultant and keep the same corporate perks if he leaves earlier.
Of course the Disney board has other things to consider besides Mr. Eisner's successor. The state pension funds are preparing names of potential directors to give to the board for their consideration. While the funds have declined to comment on their suggestions, three people apprised of their talks said that one of those who had been considered was Haim Saban, the Los Angeles media executive, although he was no longer on a short list of candidates. Mr. Saban did not return a call seeking comment. The pension funds are expected to give their lists to Disney's board soon.
By LAURA M. HOLSON
Published: September 17, 2004
LOS ANGELES, Sept. 16 - Michael D. Eisner may have quelled speculation about his future last week, but the board of Walt Disney will have to answer several tough questions about the company's future in the weeks and months to come.
Directors will start to grapple with the immediate issues of succession when they meet in Burbank, Calif., on Sunday for the first time since Mr. Eisner announced that he would step down as chief executive when his contract expired in 2006. The board is expected to choose an executive search firm to look for the candidates even though Mr. Eisner has endorsed the current president, Robert A. Iger, for the top job, Disney executives said. Directors will also discuss whether Mr. Eisner can be named chairman to succeed George J. Mitchell, who has indicated he wants to serve two more years at the most. And despite Mr. Eisner's assertion that he will remain chief executive until the end of his contract, directors will have to decide whether they want the same thing.
It is unlikely that the board will have answers to all these questions as early as next week. But Mr. Eisner's announcement 10 days ahead of the meeting has shifted the focus of the company's critics from the management suite to the boardroom.
"The board not being able to respond quickly to questions about succession has created a vacuum that allows critics to come up with conspiracy theories," said Pat McGurn, special counsel for the Institutional Shareholder Services, the influential proxy adviser, which recommended that shareholders withhold votes from Mr. Eisner at the last board election, in March. "Each additional day the board does not respond, it takes the heat off Michael and puts it on the board, particularly George Mitchell."
Mr. Mitchell, a former senator and peace negotiator in Ireland, has been meeting with mutual fund managers, institutional investors and others this week. Already, it seems, he is getting an earful. One investor who spoke on the condition of anonymity said he told Mr. Mitchell that the board would not be able to find a willing candidate to succeed Mr. Eisner if he became chairman. In a response to an e-mail message, Mr. Mitchell said he had not heard that from investors. But the notion is being echoed by media executives, executive search professionals and other corporate analysts interviewed this week, including Graef Crystal, a compensation expert who has studied corporate boards.
"Even if Mr. Eisner is a nonexecutive chairman, I don't think anyone will want to come in," Mr. Crystal said. "People when they retire and become chairman tend to meddle."
Mr. Mitchell's intention to step down in two years leaves the door open for Mr. Eisner, many people say. But one former media executive has already expressed interest in the job. Bob Daly, the former co-chairman of Warner Brothers, would like to be chairman, said a media executive who has talked to him.
Mr. Daly had been approached by two of Mr. Eisner's most vocal critics - Roy E. Disney, the nephew of the company's founder, and his financial adviser, Stanley P. Gold - to join an alternate slate of directors. But Mr. Daly turned them down because he did not want to be a hostile candidate, according to three media executives who were informed of the overture.
Unlike many directors on Disney's board, Mr. Daly has entertainment experience. He successfully ran Warner Brothers for two decades along with Terry Semel, the chief executive of Yahoo, and has experience in the film, television and music worlds.
Last week, Mr. Gold declined to discuss whether he talked to Mr. Daly. On Thursday, Mr. Daly declined to publicly discuss Disney. Mr. Mitchell said he was not aware of any interest from Mr. Daly.
Before the board settles on its next chairman it will have to decide what kind of chief executive it wants: a corporate manager or mogul. Two people who have talked to directors said a successor could be named as early as next summer. And almost everyone agrees, even Disney executives, that it will have to conduct a broad independent search even if directors believe Mr. Iger is the best candidate. Otherwise, the board could face even more criticism from opponents and corporate governance advocates.
The problem with Mr. Iger, Mr. McGurn said, is that he is too closely aligned with Mr. Eisner. And Mr. Iger has also been a target of Mr. Disney and Mr. Gold.
"Michael's endorsement is the worst thing for Bob because he becomes a lightning rod for Roy and Stanley," Mr. McGurn said. "Let's face it. It literally forces the board to do a market check and go out and see other people. The board can't be seen as rubber-stamping Bob right now. They can't say, 'Michael is right. Bob is the right guy.' "
Depending on whom the board selects, the job of chief executive could be redefined. The positions of chairman and chief executive are now split, but they do not need to remain that way if Disney is looking to attract the best candidates, analysts and executive search professionals say. Separating the jobs was an expedient way for the board to address the no-confidence vote from shareholders at last March's annual meeting without having to fire Mr. Eisner, Mr. Crystal said.
"But I'm not sure that if they find Mr. or Mrs. Right they wouldn't combine the jobs," he added.
Few candidates, other than Mr. Iger, would want to wait two years before running the company, Mr. Crystal said. "If a person is ready for the job now, why does he want to be an ingénue even for two days?"
As such, he added, Mr. Eisner's announcement has put the board in an awkward situation. According to executive employment experts, a two-year search can be disruptive as employees inside the company jockey for position. The president's position will be vacant if Mr. Iger is promoted or decides to leave when his contract expires next September. And it will be difficult for the board to demand that Mr. Eisner leave sooner because he has already announced his plans to depart, Mr. Crystal said.
According to Mr. Eisner's contract, if he stays until Sept. 30, 2006, he is entitled to a minimum $6 million post-termination bonus for the two following years, as well as remain a consultant and receive the same perquisites he was afforded as chief executive, which includes use of the corporate jet. It is unclear whether he can stay as a consultant and keep the same corporate perks if he leaves earlier.
Of course the Disney board has other things to consider besides Mr. Eisner's successor. The state pension funds are preparing names of potential directors to give to the board for their consideration. While the funds have declined to comment on their suggestions, three people apprised of their talks said that one of those who had been considered was Haim Saban, the Los Angeles media executive, although he was no longer on a short list of candidates. Mr. Saban did not return a call seeking comment. The pension funds are expected to give their lists to Disney's board soon.