CASE DESCRIPTION Topics addressed in this case include management conflict, corporate governance, shareholder value, and

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CASE DESCRIPTION
Topics addressed in this case include management conflict,
corporate governance, shareholder value, and CEO succession. It may
be used in an undergraduate, upper-level classroom, and is
particularly appropriate for a capstone course in strategic
management. It will also work well in any number of graduate
business courses, including general management, leadership , and
organizational behavior. Prerequisites for this case include some
understanding of prevailing corporate governance topics, as well as
familiarity with The Walt Disney Company's diversified portfolio of
businesses. As a result, no outside readings should be necessary to
understand the case, but some outside research will be necessary in
order to address the assigned questions. The case should prove to
be an easy read, taking no more than 20 to 30 minutes and then
allowing 1 1/2 to 2 hours to address the questions that follow.
The case begins with a description of the situation facing
Eisner at the close of 2003. Two long-standing Disney board members
had called for his resignation from both positions, in letters rife
with criticism of Eisner and his management team. Eisner's many
options are presented and revisited later in the case.
In order to help the reader analyze Eisner's situation, the case
provides a brief history of The Walt Disney Company, as well as
biographical descriptions of the CEO and the two dissenting board
members, Roy Disney and Stanley Gold. Coverage includes company
milestones under Eisner's leadership, and comparisons are made
between the company's financial performance and Eisner's highly
criticized compensation package. We then describe the conflict that
arose between the parties and offer some discussion of the
governance practices that come under attack in the letters.
As there are usually two sides to every story, voices in favor
of Eisner's management are also heard. The case then discusses what
transpired as shareholders met and voted on a key governance issue
with clear implications for the future--both for Eisner and for the
company and its shareholders.
EISNER'S SITUATION
At the start of the Christmas season in 2003, Michael Eisner had
more to think about than yuletide treasures. Roy E. Disney, founder
Walt Disney's nephew, and his financial advisor Stanley Gold, had
called for Eisner's replacement as both CEO and Chairman of the
Board. After 20 years of managing the entertainment giant, Eisner
had to make a decision that would affect not only the world's
largest entertainment company, but his own destiny as well. Given
the reasons that Mr. Disney and Mr. Gold allege for his ouster,
should he leave, either by resigning or retiring? Alternatively,
should he wait for a response from the board regarding his removal?
He could also consider resigning one post but not the other,
eliminating any concerns associated with filling the dual roles.
Might it be time to retire and enjoy the fruits of his labors?
There may also be other alternatives available to Eisner, which may
serve to minimize dissention at the top of the organization and
restore confidence in investors and other stakeholders alike. With
the annual shareholder's meeting coming up in March, Michael Eisner
and Disney shareholders had less than four months to contemplate
their options. Regardless of the decision, this era would prove to
be one of strain at The Walt Disney Corporation.
Issues that may have led to the dissention include a board of
directors allegedly packed with cronies or individuals otherwise
beholden to Michael Eisner. This lack of independence has
manifested itself in several conflicts of interest. For example,
Father Leo O'Donovan, currently serving on the board, is President
Emeritus of Georgetown University, the alma mater of one of
Eisner's sons and recipient of more than $1 million from Eisner.
And Reveta Bowers, who served on the Board from 1993 to 2003, runs
the school attended by another of his sons. Further, Mrs. Bowers,
along with directors Stanley Gold and Raymond Watson, had children
employed by The Walt Disney Company within one year of their
directorships, and thus were not to be considered independent board
members according to the NYSE's new governance recommendations. In
2001, Craig Bowers worked for Disney's internet operations, earning
$81,863. Jennifer Gold worked for the consumer products division,
earning $85,111. And David Watson worked for Disney Channel, where
he earned $152,608.
As evidenced in their full resignation letters, both Disney and
Gold also blame Eisner for debauched relationships with both
internal and external studio heads. Although The Walt Disney
Company acquired Miramax in 1993, Eisner continues to butt heads
with founders Bob and Harvey Weinstein, who maintain creative
control over the studio. Historically, large budget projects and
pay scales had been at the heart of these disagreements. Most
recently, however, Eisner refused to distribute Michael Moore's
Farenheit 9/11 but did sell the film to the Wiensteins, who then
formed a separate company in order to distribute the film. Further,
while Eisner claimed that Miramax had been unprofitable, he was not
willing to sell the studio back to its original owners. Externally,
Eisner is said to have clashed with Pixar Animation Studios CEO
Steve Jobs, and in 2004, Pixar walked away from the negotiating
table. In particular, the computer animation powerhouse felt that
the existing contract--whereby the two companies co-finance movies,
split the profits, and Disney distributes the films in exchange for
12.5 percent of the box office gross ticket sales--is tilted
heavily in Disney's favor.
Those in Favor of Eisner
The Board of directors responded in support of Michael Eisner,
categorically rejecting the requests made by Disney and Gold. In
fact, the board credited Michael Eisner with changes in corporate
governance that resulted in a board dominated by independent
directors, one of which involved renaming the Nominating Committee
to what is now the Governance and Nominating Committee. While the
process by which directors are named to the board remains the same,
the committee is now charged with monitoring Disney's Corporate
Governance Guidelines, which was adopted in 1996. The board
continues to allow shareholders, as well as the board itself, to
nominate candidates deemed qualified. Shareholders must submit
their recommendations in writing to the Company's Secretary and
must provide confirmation that the nominee is willing to serve.
Elections for board membership take place at the annual
shareholders' meeting, at which time directors are elected or
re-elected for one-year terms. Shareholders are granted one vote
for each board candidate. This is in contrast to cumulative voting,
whereby a shareholder is given a number of votes consistent with
the number of candidates on the roster and then has the option of
casting all of his or her votes for a single director or
apportioning the votes among the candidates. When voting is
cumulative, minority stockholders could gain representation on the
board, even at the objection of powerful investors. Without
cumulative voting, Disney's board is likely to persist as it was
assembled under Eisner's leadership.
The board cited Eisner's commitment to governance and
transparency, which has led to the company exceeding the corporate
governance guidelines set by the NYSE. A guest column, written by
independent producer David Kirkpatrick, appeared in Variety
magazine and began with, "I am writing today to celebrate a man's
creativity and managerial skill. This man has gotten a bit banged
up lately, and I am saddened by all the cascading public and media
assassination of Michael Eisner, especially when so much of it has
been coming from our own creative community." Kirkpatrick praised
the Eisner's accomplishments while underscoring his mistreatment at
the hands of Stanley Gold and Roy Disney.
It is with a considerable amount of satisfaction and even pride
that I approach the end of my term as CEO of this company. By every
financial and creative measure, Disney is performing at its peak. I
have enjoyed virtually every moment of my tenure and want to
express my appreciation to the phenomenal colleagues with whom I
have been privileged to work. I believe Disney is now poised for
its brightest days in the years ahead under the able and insightful
leadership of Bob, who has not only the qualities to succeed, but
also has a keen sense of the Disney brand and how to maintain its
leadership position and grow it on a worldwide scale.
This is the Case Study
Read the case study
Downes, M., Russ, G. S., & Ryan, P. A. (2007). Michael
Eisner and his reign at Disney. Journal of the
International Academy for Case Studies, 13(3),
71+. Retrieved from
http://bi.galegroup.com.ezproxy.library ... rkeleycoll
Questions
3. Evaluate the options that were available to Eisner. What
factors do you think he considered when weighing his
alternatives?
4. Compare Michael Eisner's current compensation package to the
company's recent performance. Was his pay justified? Why or why
not? In answering this question, consider the following:
a. How have other CEO's been compensated in relation to their
company's performance? Look at CEO's of competitor companies or of
similarly diversified firms.
b. Based on your finding for (a) above, would you say that there
is some minimum level of compensation that is necessary to attract
and retain high-quality corporate leadership?
5. Evaluate the conflict among the board members from a
shareholder's perspective. What impact might the conflict have on
investor confidence?
6. Evaluate the conflict among the board members from a
stakeholder perspective. What impact might the conflict have on
claimants other than the shareholders?
7. Describe the leadership characteristics of Robert Iger,
Michael Eisner's successor. How might certain stakeholders view
Iger, as compared to the long-reigning Eisner? (HINT: Consider
relationships with the Walt Disney Company that may have
deteriorated during Eisner's tenure).
8. Roy Disney and Stanley Gold criticized Michael Eisner for his
lack of a clear succession plan. Under Iger, has one been
established? If so, what does it state?
Case is Trouble in the magic kingdom- governance problems at
disney