From Newsweek.com:
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Separating the jobs of chairman and CEO is not the answer to Disney's woes
WEB EXCLUSIVE
By Allan Sloan
Newsweek
March 6 - One of America’s great fantasies is that all we have to do to make problems go away is to adopt a new magical practice. Top corporate leaders are acting badly? Separate the jobs of chairman and chief executive officer, and CEOs will instantly become a class act instead of a crass act. You don’t have to change the substance, just the form.
Last week, for instance, the board of Walt Disney Co. trotted out its miracle cure for the problem of Michael Eisner. Instead of firing Eisner or publicly rebuking him or (God forbid) reducing his pay and perks, the board changed his job. Henceforth, he’ll be just the CEO. Former Sen. George Mitchell, previously the “lead director,†became chairman. That puts him in charge of running the board and setting long-term strategy, jobs for which he has no experience and no visible qualifications. It leaves Eisner, notorious for micro-managing and being a buttinsky, free to continue running day-to-day operations and doing what he’s been doing.
Anyone who thinks this switch will solve Disney’s problems is on a trip to Fantasyland. Nothing against Mitchell, but he’s been on Disney’s board since 1995, so he’s not exactly a new broom. Besdies, he’s almost as tainted by shareholder repudiation as Eisner is. Mitchell got a 24 percent “no†vote, which looks good only in comparison with Eisner’s 43 percent.
Sure, you can look at Eisner’s vote as being 57 percent “yes.†If you’ve been raised on the principle of "majority rules," Eisner’s 57 percent is a landslide and Mitchell’s 76 percent is a mega-landslide. But this isn’t a democracy, it’s corporate America. Expectations are different. Corporate board elections are more like an Iraqi referendum under Saddam Hussein than Bush versus Gore. Corporate directors who run unopposed, like Eisner and Mitchell did, routinely get at least 95 percent of the votes cast. A 10 percent “no†is a serious reproach. Get 24 or 43 percent “no,†and you start dusting off your resume.
Steve Case, chairman of AOL Time Warner, didn’t even wait around to do that last year. Seeing that he was likely to get a no-confidence vote in the 20 percent range, he stepped down as chairman months before the stockholder meeting. He was right: he got a 22 percent “no†vote, a stunning rebuke. To Case’s credit, he had the class to be ashamed of such high negatives. Yet the Disney board, in the face of a 24 percent “no†vote for Mitchell, names him chairman. And proclaims it “reform.â€
It’s fine for a company to voluntarily separate the roles of chairman and chief executive. Bill Gates and Michael Dell have done that at Microsoft and Dell, respectively. If they think the company is better served by splitting the top jobs, who can doubt them? But expecting all companies to do that in the name of “good governance†is silly. “One size fits all†doesn’t work any better in governance than in shoes. There’s no evidence that separation makes things better. But it sure makes things more expensive: stockholders have to shell out two pay-and-perks packages instead of one. Rules are all well and good. But do you think that the Mitchell-Eisner duo will run Disney better than Jack Welch ran General Electric when he was served as both chairman and CEO? Somehow, I doubt it.
It comes down to people. In the end, bad or weak executives and board members will do the wrong thing, good executives and board members will do the right thing. Sure, you need laws and structures. But character and courage and a strong moral compass are far more important.
© 2004 Newsweek, Inc.
Link to article
Separating the jobs of chairman and CEO is not the answer to Disney's woes
WEB EXCLUSIVE
By Allan Sloan
Newsweek
March 6 - One of America’s great fantasies is that all we have to do to make problems go away is to adopt a new magical practice. Top corporate leaders are acting badly? Separate the jobs of chairman and chief executive officer, and CEOs will instantly become a class act instead of a crass act. You don’t have to change the substance, just the form.
Last week, for instance, the board of Walt Disney Co. trotted out its miracle cure for the problem of Michael Eisner. Instead of firing Eisner or publicly rebuking him or (God forbid) reducing his pay and perks, the board changed his job. Henceforth, he’ll be just the CEO. Former Sen. George Mitchell, previously the “lead director,†became chairman. That puts him in charge of running the board and setting long-term strategy, jobs for which he has no experience and no visible qualifications. It leaves Eisner, notorious for micro-managing and being a buttinsky, free to continue running day-to-day operations and doing what he’s been doing.
Anyone who thinks this switch will solve Disney’s problems is on a trip to Fantasyland. Nothing against Mitchell, but he’s been on Disney’s board since 1995, so he’s not exactly a new broom. Besdies, he’s almost as tainted by shareholder repudiation as Eisner is. Mitchell got a 24 percent “no†vote, which looks good only in comparison with Eisner’s 43 percent.
Sure, you can look at Eisner’s vote as being 57 percent “yes.†If you’ve been raised on the principle of "majority rules," Eisner’s 57 percent is a landslide and Mitchell’s 76 percent is a mega-landslide. But this isn’t a democracy, it’s corporate America. Expectations are different. Corporate board elections are more like an Iraqi referendum under Saddam Hussein than Bush versus Gore. Corporate directors who run unopposed, like Eisner and Mitchell did, routinely get at least 95 percent of the votes cast. A 10 percent “no†is a serious reproach. Get 24 or 43 percent “no,†and you start dusting off your resume.
Steve Case, chairman of AOL Time Warner, didn’t even wait around to do that last year. Seeing that he was likely to get a no-confidence vote in the 20 percent range, he stepped down as chairman months before the stockholder meeting. He was right: he got a 22 percent “no†vote, a stunning rebuke. To Case’s credit, he had the class to be ashamed of such high negatives. Yet the Disney board, in the face of a 24 percent “no†vote for Mitchell, names him chairman. And proclaims it “reform.â€
It’s fine for a company to voluntarily separate the roles of chairman and chief executive. Bill Gates and Michael Dell have done that at Microsoft and Dell, respectively. If they think the company is better served by splitting the top jobs, who can doubt them? But expecting all companies to do that in the name of “good governance†is silly. “One size fits all†doesn’t work any better in governance than in shoes. There’s no evidence that separation makes things better. But it sure makes things more expensive: stockholders have to shell out two pay-and-perks packages instead of one. Rules are all well and good. But do you think that the Mitchell-Eisner duo will run Disney better than Jack Welch ran General Electric when he was served as both chairman and CEO? Somehow, I doubt it.
It comes down to people. In the end, bad or weak executives and board members will do the wrong thing, good executives and board members will do the right thing. Sure, you need laws and structures. But character and courage and a strong moral compass are far more important.
© 2004 Newsweek, Inc.
