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Storytelling In The News: #75

The competing stories of Michael Eisner at Disney

March 1, 2004

The lead business story in the world this morning is a set of competing stories about a storyteller. The New York Times, the Wall Street Journal and the Financial Times all focus on the plight of Michael Eisner, the beleaguered chairman and CEO of the Walt Disney Company as he faces a potential shareholder revolt at the shareholders' meeting due to take place this coming week on Wednesday March 3 in Philadelphia.

Only ten days ago, it was thought that if as many as 20% of shareholders withheld endorsement of Eisner as chairman there would be :a problem". Now it appears that as many as a third of shareholder votes - and maybe more - will be withheld from Eisner, who is running unopposed for re-election to the board.

Competing stories about the past

Eisner's story

According to Eisner's story, if you look at things in a broad perspective, things at Disney are on the up and up. Disney's current troubles, he suggests, are the result of temporary factors like 9/11 which devastated returns from Disney's theme parks. Eisner claims a record of success over decades. He rescued Disney from a near-death state in the early 1980s. Disney's earnings, while still below 1999 levels, have stabilized, and its stock price is up, though it was still trading at the level of six years ago until Comcast revealed its takeover offer.

Eisner has shaken up Disney's sleepy culture with his forceful management style, which was necessary to get anything done. Since arriving in 1984, his formula worked. He had the charisma to jump-start Disney's sleepy culture and the wisdom to surround himself with convention-busting creative forces such as former studio chief Jeffrey Katzenberg, Miramax Films Co-Chairman Harvey Weinstein and Pixar's Mr. Jobs.

Inevitably as with any strong leader, there is malcontents. As he recently told CNN: "I've had people complaining that they couldn't become Cinderella in our parade, to all sorts of much more international issues that are real. We've had shareholders concerned about employee benefits. We've had questions about insurance for same sex partners . . . they will see presentations that will show how strong the company is."

Eisner has survived challenges before. Seven years ago, about 12,000 Walt Disney Co. shareholders jammed a hockey rink in Anaheim, Calif., to dress down the company's longtime chairman and chief executive, Michael Eisner. A long parade of angry Disney holders decried the multimillion-dollar severance package awarded to Michael Ovitz after a 14-month stint as company president, the lavish 10-year contract Mr. Eisner had just been given, and a board of directors that corporate-governance experts complained was too beholden to Mr. Eisner.

After fielding criticism for a couple of hours, a visibly irritated Mr. Eisner exited the stage with questioners still lined up at microphones around the arena. Eisner, one of the business world's great escape artists, had sidestepped another of the seemingly endless controversies that have dogged him for the past decade. According to Eisner, he took the tough decisions, and both he and Disney survived.

Now he is doing the same thing again - taking the tough decisions needed to survive. He broke off relations with Pixar because they were too greedy and because they wanted to venture into risky new projects, rather than exploit already existing properties. He rejected the offer from Comcast, because it was too low and because they don't know how to run an entertainment company.

The story against Eisner

Eisner's opponents argue his current predicament is the culmination of nearly a decade of mistakes under his reign. Distinctive even in an era of imperial CEOs, the egocentric Eisner made the vast Disney entertainment empire the instrument of his own will, lasering in on the tiniest details to fix problems he saw in Disney's animated movies, Broadway plays or theme parks.

His rich options-laden contracts became a lightning rod in the debate over executive compensation. He stifled innovation: his interactions with Disney's creative forces backfired when some of them felt he was meddling in their business. His board was packed with cronies.

The immediate source of Mr. Eisner's troubles was his and the board's decision in November to enforce a mandatory retirement policy that would force out Director Roy E. Disney, nephew of the late Walt Disney. Mr. Disney, 74, turned the tables by quitting as both a board member and an executive, and issuing a stinging call for Mr. Eisner to resign as well. Stanley Gold, Mr. Disney's longtime business partner, subsequently quit the board as well. Together they have waged a bitter three-month campaign, urging Disney shareholders to withhold support from Mr. Eisner and three other directors at this week's meeting.

The dissidents didn't initially get much traction, but their efforts gained momentum when other Eisner opponents used the moment for their own purposes. Pixar Animation Studios Chief Executive Steve Jobs, for example, pulled the plug on important negotiations to extend the lucrative deal under which Disney distributed and co-financed a string of Pixar hits such as "Finding Nemo." Then Comcast complicated the situation further in mid-February by making its unsolicited all-stock takeover offer, which Disney has rejected.

Shareholders are worried because the blows from Pixar and Comcast have drawn attention to how poorly performing and vulnerable Disney "really" is.

What will be the future story of Eisner and Disney?

Which story should be believed? Now the board of Disney has to decide what to do. On the one hand, the failure of a significant portion of shareholders withholding endorsement of Eisner has no legal consequences, since he is running for re-election unopposed. But on the other hand, if the board takes no action in the face of a sizable uprising, they may be considered to have neglected their responsibilities.

The New York Times is sympathetic to the board's situation: "the least envied job in corporate America this week may be board member of the Walt Disney Company. The directors are bracing for a large group of disgruntled shareholders that is expected to make its presence felt at the company's annual meeting in Philadelphia on Wednesday."

The New York Times predicts that they will move cautiously. The board is not expected to split the jobs before 2006. But if Mr. receives a no-confidence vote "materially higher" than the one-third or so now being projected, the board could act sooner. There are several possible routes

* One option would be having Mr. Eisner remain chief executive and the board's appointing a new chairman.

* Another would be to leave Mr. Eisner in the chairman's seat, while giving the chief executive job to Robert A. Iger, Disney's president, or another candidate.

* Another would be for Eisner to leave, which he might do if if the two jobs were split.

* And there is the possibility that a corporate suitor could take over the company and install its own management. That is what the Comcast Corporation had hoped to do with its recent $54 billion unsolicited stock offer, which Disney's board rejected as too low. Many investors are waiting to see if Comcast, the cable company, comes back with a new bid, perhaps sweetening it with some cash.

* Then there is board's option of do nothing at all until autumn 2006, and maybe even renewing Mr. Eisner's contract at that point - depending on the success of the projected turnaround.

The meaning of the Disney story

Why is the story at Disney of such widespread interest? After all, Disney is just one of many large companies where there is an ongoing struggle for the leadership. Why make the Disney story special?

The answer according to Deborah Solomon is that the Walt Disney Company is not just another company. It's not just a lucrative film studio or creator of theme parks; Disney is an essential part of the American imagination. Since its founding in 1923, it has asked us to wish upon a star, to whistle while we work, to believe that our prince will someday come. It practically invented the idea of happy endings.

So everyone wants a happy ending for Disney, even though at this point, it isn't easy to envisage one. Whatever happens, the outcome will be - a story.

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