Power shift under way at Eisner's kingdom

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Power shift under way at Eisner's kingdom
By James Bates and Richard Verrier
Sentinel Staff Writers

August 14, 2002

Few companies have answered to the wishes and whims of a chief executive like the Walt Disney Co. during Michael Eisner's 18-year tenure.

Disney's $1.4 billion California Adventure theme park sprouted from notes he scratched on a legal pad. It was Eisner who chose to duke it out in court with former Disney studio chief Jeffrey Katzenberg, costing the company a $270 million settlement. "Pomp & Circumstance" made its way into the movie Fantasia 2000 after Eisner heard it played at his son's high-school graduation.

But now the unfettered, freewheeling management style Eisner has enjoyed for nearly two decades appears likely to end, partly from his own doing. Eisner is overseeing the biggest revamping of the company's 16-member board of directors since he took over in 1984. Long criticized as a lightweight group unwilling to challenge him, Eisner promises the board will be more independent.

What makes the changes significant is that they coincide with pressure that has escalated in the past two weeks from two key directors, Vice Chairman Roy E. Disney and his chief lieutenant, Stanley Gold. They are unhappy with Disney's sagging stock price, Eisner's failure to stem losses at ABC and a bleak forecast issued last week for Disney's pivotal theme-park business.

Neither side is talking about the other publicly, but both sides are privately sniping at each other.

Sources close to Gold and Roy Disney suggest that other members of the board are growing uneasy as well. Disney sources counter by painting Gold and Roy Disney as isolated malcontents whose views don't reflect the majority of the board.

Roy Disney, nephew of Walt Disney, is the company's largest individual shareholder. He and Gold engineered the coup that brought Eisner in to lead what became one of the biggest corporate turnarounds in U.S. history. A spokesman for the two men would not comment.

Disney spokeswoman Zenia Mucha said: "Michael has throughout the years worked very closely with the board and will continue to do so. He has and will continue to operate in ways that grow our assets and benefit our shareholders."

For Eisner, the good news is that he appears in no immediate danger of losing his job, sources close to both sides agree, in part because there is a dearth of executives who could do the job. But with ABC's critical fall season launching next month, when directors next meet, Eisner is under particular pressure.

Eisner now finds himself in the unusual position of facing more scrutiny from directors, Disney watchers say, especially with the company's stock hovering at an eight-year low. The stock closed Tuesday at $13.77 a share, down 46 cents.

"Eisner is going to be on a shorter leash," said corporate governance expert Nell Minow, editor of the Corporate Library. "The era of the imperial CEO is over. That means he, like every other CEO in America, works for shareholders and that the board is their representative."

The prospect of a more activist Disney board comes amid heightened concerns following a wave of corporate scandals at Enron, WorldCom and other companies laying blame on lax directors. It also comes as media executives such as AOL Time Warner chief executive Gerald Levin and Vivendi Universal Chairman Jean-Marie Messier quit under pressure or were fired this year.

The board's responsiveness to shareholders and its independence from management have been a persistent complaint among leading institutional investors over the years. BusinessWeek named Disney's board the worst in America in 1999 and 2000. Critics cited Eisner's numerous personal ties to directors including his personal lawyer, his architect, the president of the college one of his son's attended and the principal of the elementary school once attended by his children.

"A lot of big institutional investors are upset with the lack of performance and what has been felt to be too cozy a board," said Richard Koppes, a lawyer who advises companies on corporate governance.

Underscoring those criticisms again was Disney's disclosure Friday that four of its independent board members had relatives who were employed by the company in the past year. The practice might not be allowed under rules proposed by the New York Stock Exchange for independent directors.

"These latest revelations don't come as a shock to me given the company's history in this area," said Charles Elson, director for the Center for Corporate Governance at Delaware University.

But during the past two years, Eisner has successfully taken steps to transform the image of Disney's board. Just last week, he disclosed that Disney will shrink its board, reduce the size of its committees and strengthen its independence -- moves that are expected to give directors more clout.

Other reforms have included requiring directors to own at least $100,000 in company stock, and having outside directors hold meetings away from management and barring business relationships with board members. That included $2.2 million Disney has paid the law firm of former U.S. Sen. George Mitchell and $1.2 million in consulting fees paid to architect Robert A.M. Stern's firm.

Eisner also tapped respected corporate governance guru Ira Millstein to evaluate the company's board structure. "It would appear that structurally many aspects of Disney's governance are within the parameters of what observers would consider 'best practice,' " he concluded in a letter to Disney.

Although calling him a "reluctant reformer," BusinessWeek lauded Eisner this year, saying that he "is now showing other CEOs how to clean up their governance messes while restoring investor trust in the process."

Eisner's actions could presage similar moves by many other Fortune 500 companies that also are re-examining their boards to ensure members are up to the task, corporate governance experts say.

Still, Disney observers note that changing Disney's board is only the half of it. Eisner will have to adapt as well, they say, to a job that may not afford the kind of unwavering board support and independence he has come to enjoy.

"That's up to him now," Minow said. "He has what it takes to do the job right, but he has to make some changes."

James Bates is a reporter for the Los Angeles Times, a Tribune Publishing newspaper. Richard Verrier is a staff writer for the Orlando Sentinel and the Times. He can be reached at 1-800-528-4637, Ext. 77936, or richard.verrier@latimes.com.
Copyright © 2002, Orlando Sentinel



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Another article



Eisner Critics May Demand a Revived Disney by November
By LAURA M. HOLSON


OS ANGELES, Aug. 13 — The dissatisfaction with Michael D. Eisner by members of the Walt Disney Company's board may be broader than previously realized, but few in Hollywood think Mr. Eisner is in imminent danger of losing his job.

The current handicapping, by people close to the company and industry executives and analysts, is that Mr. Eisner, Disney's chairman for the last 18 years, has at least until November to demonstrate that he is addressing the company's problems. It will take at least that long, they say, to see how the fall television season is faring for Disney's ABC network — and for the board to address its own organizational problems and crystallize alliances among Mr. Eisner's opponents and supporters.

But what is clear, according to three people close to the board, is that Mr. Eisner's boardroom critics go beyond the most vocal so far, Roy E. Disney, a nephew of the late Walt Disney, and Stanley P. Gold, the chief executive of Shamrock Holdings, which manages the Disney family fortune. These three people said that Andrea L. Van de Kamp, the chairman of the West Coast unit of the Sotheby auction house, had spoken with Mr. Eisner last month to express her concerns about the lowly state of the ABC network and the seeming lack of planning for his eventual successor.

Ms. Van de Kamp urged Mr. Eisner, 60, to ensure he was hiring the right creative talent, also a concern of Mr. Disney, according to the people close to the board.

Ms. Van de Camp declined to comment about any discussions with Mr. Eisner. Mr. Disney and Mr. Gold also declined to comment, as did Disney executives.

But a person close to the company said "concern does not signal a lack of confidence."

As ABC's prime-time ratings have tumbled, Mr. Eisner has been criticized for relying too long on the former hit "Who Wants to Be a Millionaire" and not developing enough new programs. Disney's animated film division, too, has had few blockbusters on a par with 1994's "The Lion King," despite the success of "Lilo & Stitch" this summer.

Despite some directors' dissatisfaction with Mr. Eisner, many in Hollywood and on Wall Street are questioning whether any one board director has enough power to force Mr. Eisner to make any changes. According to people who have attended board meetings since 1998, when Mr. Eisner first began drawing outside criticism for Disney's ailing stock price, no one on the board has openly expressed dissatisfaction at those formal meetings. Instead, Mr. Disney and Mr. Gold have often expressed their dissatisfaction privately.

"General board culture is you never talk to outsiders about what's going on and all the problems," said Richard Koppes, a lawyer who advises companies on corporate governance. "That is particularly true when you are dealing with an executive like Michael who has a strong personality." But he added, with new scrutiny on board responsibility throughout corporate America, "that is going to have to change."

According to former Disney employees, the only two board members who hold any sway over Mr. Eisner are Mr. Disney and Mr. Gold, who have been more vocal in recent weeks as Disney's stock price has declined and, with it, much of the Disney family fortune.

In April, when the two first started privately pressing Mr. Eisner, the stock was trading around $24 a share. The stock has been trending lower since then, and has fallen precipitously in the last two weeks, after the company warned that fiscal fourth-quarter earnings would be lower than expected because fewer international and local visitors came to its theme parks.

The shares closed today at $13.77, down 46 cents from the previous day.

If a boardroom battle does break out over the future of Disney, it is uncertain which board members would side with whom. "I think Stanley and Roy will have a tough time building a quorum on the board," said one former Disney executive.

Gary L. Wilson, currently the chairman of Northwest Airlines and a Disney director since 1985, when he was hired by Mr. Eisner to be Disney's chief financial officer, is wholly supportive of Mr. Eisner despite some of his concerns about the company's strategic direction, people close to him say.

Thomas S. Murphy, the former chairman and chief executive of Capital Cities/ABC, which Disney acquired in 1996, who is well respected inside and outside the company, is ailing and unlikely to challenge Mr. Eisner unless forced to, said two people who know Mr. Murphy well.

"A lot depends where Tom comes down on these issues," a person close to Mr. Murphy and the company said.

And despite having expressed her concerns directly to Mr. Eisner, Ms. Van de Camp, according to one person who has spoken with her, is undecided on whether she would support or oppose him in a boardroom showdown.

But if Disney's problems continue, directors may be forced to crystallize their alliances this fall.

"I don't think anyone knows what will happen," said Tom Wolzien, a media analyst at Sanford C. Bernstein. "All boards have to be aware of their responsibility to shareholders. The Disney board is no different. They either have to be working with the management to improve the situation or they have to change it."

With many media companies in turmoil these days, there are few executives who could easily step into Mr. Eisner's job, analysts and industry executives acknowledge.

For now, the board has to get its own house in order. The board is set to meet in late September for a crucial discussion over its own structure and governance issues. Ira M. Millstein, a senior partner in the New York law firm of Weil, Gotshal & Manges who advised the board, said in an interview that Disney needed to reduce the number of directors and to ensure that independent directors were indeed independent.

Several people close to Disney suggest that at least three board members could be replaced or voluntarily resign because of their age, including Sidney Poitier, the 75-year-old actor; Raymond L. Watson, a former Disney chairman who is 75 and chairman of the executive committee; and Mr. Murphy, who is 76.

A new independent board member may be added, and Mr. Eisner is also expected to present again the company's five-year growth plan, which confused some board members when he first did so in June, said a person close to the board.

And the structure of the board's committees are also likely to change as it grapples with the fact that four nominally independent directors have relatives who work at Disney or companies related to Disney. "It doesn't matter how many people are present at a meeting," Mr. Millstein said. "It's what happens inside the boardroom that counts."

The question board members need to ask themselves, Mr. Millstein said, is: "Do they really know they have a job that is separate and independent from Michael Eisner?"



http://www.nytimes.com/2002/08/14/business/media/14PLAC.html