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Investor's Business Daily
Board Remake At Disney Keeps Eisner Critics At Bay - For Now
Thursday December 12, 10:33 am ET
By Doug Tsuruoka
Media mogul Michael Eisner is taking a page from a Hollywood Western.
The Walt Disney (NYSE
IS - News) chairman and CEO is circling the wagons as pressure mounts to improve the company's performance.
Eisner, 60, has been Disney's chief for 18 years and is the longest-serving CEO of any company in the Dow Jones industrial average. He produced stellar growth and returns for investors for 13 years.
But the last five have been weak, marked by declining profit, flat revenue, a stumbling share price and Eisner's failure to spell out a clear succession plan.
The result has been criticism from Wall Street and from within Disney - in particular Disney board member and longtime ally Stanley Gold.
For now, at least, Eisner appears to be keeping critics at bay.
Gold lost his status as a powerful "independent" director and was bumped off Disney's audit, nominating and other committees.
More Independent
Still a director, Gold is personal financial adviser to Vice Chairman Roy Disney, the single largest shareholder. Both helped recruit Eisner to lead Disney in 1984.
The board shuffle was required under new federal rules to make directors more "independent."
"Implementing improved corporate governance means Disney receives more investor approval. That's got to be good for Eisner too," said Alan Cleveland, a lawyer specializing in corporate governance at Sheehan, Phinney, Bass and Green. The firm advises institutional investors.
Still, Gold's demotion follows his growing criticism of Eisner. Roy Disney, who's lost millions in the stock slide, is said to share Gold's unhappiness with Eisner.
Gold didn't return phone calls or an e-mail sent to his office.
Disney spokesman John Spelich rebuffs the idea Gold was exiled.
All Aboard
"The board approved the new guidelines unanimously," Spelich said, meaning Gold and other members voted for them.
One of the biggest gripes about Eisner is he's packed Disney's board with people who let him run the animated film powerhouse like Captain Hook.
The mandated board changes, while seeming to address that issue, may protect Eisner.
Under the new setup, Disney has appointed two directors for special roles. One is George Mitchell, a lawyer and ex-U.S. senator who's been elevated to a new "presiding director" post.
Mitchell's law firm had a business relationship with Disney until recently, when it was severed under the new corporate governance guidelines.
His new role is to oversee two or more board meetings a year where Eisner isn't present.
The other new board member is Robert Matschullat. He's a former chief financial officer at Seagram Co. and an investor. Matschullat will chair Disney's audit committee, where Gold used to sit.
Other Duties
Some analysts say Mitchell and Matschullat don't do much to convince investors of the board's new independence.
Mitchell has many public and private posts. His latest is serving on a national committee probing the 9-11 attack. He doesn't have a great deal of business experience.
Others question Mitchell's former ties to Disney.
"Sen. Mitchell would not be considered an 'independent' director (by us) because his law firm has provided services to Disney in the past," said Ann Yerger, research director of the Council of Institutional Investors, which represents funds that hold Disney stock.
"I understand the relationship has been severed, but we have a five-year look-back on our definition of independence," she said.
Matschullat, meanwhile, coming from Seagram, is little more than a question mark for now. "He's a new face," said Yerger.
And analysts say Eisner's latest moves show he's more worried about keeping his job than ever and is digging in.
As for his succession, Eisner has taken an approach that's unconventional to say the least. He's reportedly drafted a secret letter naming a successor.
But the sealed letter is to be opened by the board only in the event Eisner is incapacitated.
In other words, even those independent directors don't get to know who Eisner would want to fill his shoes.
Published reports say he's named Disney's President Bob Iger to replace him.
But the letter isn't winning points with analysts.
"I think there's a fair amount of substance in Disney's new rules on corporate governance. However, there are elements of it which are less than ideal, and (the letter) is one of them," Cleveland said.
Meanwhile, Disney's results and share price (down 65%) continue to disappoint.
Eisner's big liability over the last few years has been profit disappointments. He passed off 1998's flat results as a "twice a decade problem" and 1999's drop of 27% as a "short-term earnings hiccup."
In 2001, he wrote, the company faced a number of challenges. In the year just ended, when profit fell 43%, Eisner vowed earnings would recover at least 20% to 1999 levels.
Helping 2003 look better will be a 2002 write-off on a film that's flopping at the box office right now: "Treasure Planet," a space-based version of Robert Louis Stevenson's Treasure Island.
The film took in just a fraction of what Disney hoped when it opened over the five-day Thanksgiving weekend. It grossed $16.6 million at the box office after costing $140 million to make - joining a list of Disney films that fell short of expected box office takes.
The take of "Treasure Planet" was so pitiful, Disney restated results for the Sept. 30 fourth quarter, trimming reported profit by $74 million and cutting EPS to 9 cents from 11.
Attendance also is off at Disney's theme parks since 9-11, and its ABC broadcasting unit needs revamping. While ratings are up, it still lags its two key rivals.
Eisner has kept the CEO's job this long because he led Disney's renaissance from the mid-1980s to the mid-'90s. Its split-adjusted shares rose from under $2 to $43 by 1998. Revenue grew eightfold.
But the Disney chief should draw lessons from another big media shootout.
Former AOL Time Warner CEO Gerald Levin helped chaperone the now troubled merger between Time Warner and America Online in 2001. In the process, he rubbed Ted Turner, one of AOL's largest shareholders, the wrong way.
Turner reportedly retaliated by getting Levin fired after AOL's share price plunged more than 60% after the merger.
Eisner may not be facing exactly the same crisis with investors, but he still has foes on Disney's board.
Gold could still make trouble. Gold's ally and investment client, Roy Disney, though he owns less than 1% of Disney's 2 billion outstanding shares, might still rally angry investors to dump Eisner.
Board Remake At Disney Keeps Eisner Critics At Bay - For Now
Thursday December 12, 10:33 am ET
By Doug Tsuruoka
Media mogul Michael Eisner is taking a page from a Hollywood Western.
The Walt Disney (NYSE
IS - News) chairman and CEO is circling the wagons as pressure mounts to improve the company's performance.Eisner, 60, has been Disney's chief for 18 years and is the longest-serving CEO of any company in the Dow Jones industrial average. He produced stellar growth and returns for investors for 13 years.
But the last five have been weak, marked by declining profit, flat revenue, a stumbling share price and Eisner's failure to spell out a clear succession plan.
The result has been criticism from Wall Street and from within Disney - in particular Disney board member and longtime ally Stanley Gold.
For now, at least, Eisner appears to be keeping critics at bay.
Gold lost his status as a powerful "independent" director and was bumped off Disney's audit, nominating and other committees.
More Independent
Still a director, Gold is personal financial adviser to Vice Chairman Roy Disney, the single largest shareholder. Both helped recruit Eisner to lead Disney in 1984.
The board shuffle was required under new federal rules to make directors more "independent."
"Implementing improved corporate governance means Disney receives more investor approval. That's got to be good for Eisner too," said Alan Cleveland, a lawyer specializing in corporate governance at Sheehan, Phinney, Bass and Green. The firm advises institutional investors.
Still, Gold's demotion follows his growing criticism of Eisner. Roy Disney, who's lost millions in the stock slide, is said to share Gold's unhappiness with Eisner.
Gold didn't return phone calls or an e-mail sent to his office.
Disney spokesman John Spelich rebuffs the idea Gold was exiled.
All Aboard
"The board approved the new guidelines unanimously," Spelich said, meaning Gold and other members voted for them.
One of the biggest gripes about Eisner is he's packed Disney's board with people who let him run the animated film powerhouse like Captain Hook.
The mandated board changes, while seeming to address that issue, may protect Eisner.
Under the new setup, Disney has appointed two directors for special roles. One is George Mitchell, a lawyer and ex-U.S. senator who's been elevated to a new "presiding director" post.
Mitchell's law firm had a business relationship with Disney until recently, when it was severed under the new corporate governance guidelines.
His new role is to oversee two or more board meetings a year where Eisner isn't present.
The other new board member is Robert Matschullat. He's a former chief financial officer at Seagram Co. and an investor. Matschullat will chair Disney's audit committee, where Gold used to sit.
Other Duties
Some analysts say Mitchell and Matschullat don't do much to convince investors of the board's new independence.
Mitchell has many public and private posts. His latest is serving on a national committee probing the 9-11 attack. He doesn't have a great deal of business experience.
Others question Mitchell's former ties to Disney.
"Sen. Mitchell would not be considered an 'independent' director (by us) because his law firm has provided services to Disney in the past," said Ann Yerger, research director of the Council of Institutional Investors, which represents funds that hold Disney stock.
"I understand the relationship has been severed, but we have a five-year look-back on our definition of independence," she said.
Matschullat, meanwhile, coming from Seagram, is little more than a question mark for now. "He's a new face," said Yerger.
And analysts say Eisner's latest moves show he's more worried about keeping his job than ever and is digging in.
As for his succession, Eisner has taken an approach that's unconventional to say the least. He's reportedly drafted a secret letter naming a successor.
But the sealed letter is to be opened by the board only in the event Eisner is incapacitated.
In other words, even those independent directors don't get to know who Eisner would want to fill his shoes.
Published reports say he's named Disney's President Bob Iger to replace him.
But the letter isn't winning points with analysts.
"I think there's a fair amount of substance in Disney's new rules on corporate governance. However, there are elements of it which are less than ideal, and (the letter) is one of them," Cleveland said.
Meanwhile, Disney's results and share price (down 65%) continue to disappoint.
Eisner's big liability over the last few years has been profit disappointments. He passed off 1998's flat results as a "twice a decade problem" and 1999's drop of 27% as a "short-term earnings hiccup."
In 2001, he wrote, the company faced a number of challenges. In the year just ended, when profit fell 43%, Eisner vowed earnings would recover at least 20% to 1999 levels.
Helping 2003 look better will be a 2002 write-off on a film that's flopping at the box office right now: "Treasure Planet," a space-based version of Robert Louis Stevenson's Treasure Island.
The film took in just a fraction of what Disney hoped when it opened over the five-day Thanksgiving weekend. It grossed $16.6 million at the box office after costing $140 million to make - joining a list of Disney films that fell short of expected box office takes.
The take of "Treasure Planet" was so pitiful, Disney restated results for the Sept. 30 fourth quarter, trimming reported profit by $74 million and cutting EPS to 9 cents from 11.
Attendance also is off at Disney's theme parks since 9-11, and its ABC broadcasting unit needs revamping. While ratings are up, it still lags its two key rivals.
Eisner has kept the CEO's job this long because he led Disney's renaissance from the mid-1980s to the mid-'90s. Its split-adjusted shares rose from under $2 to $43 by 1998. Revenue grew eightfold.
But the Disney chief should draw lessons from another big media shootout.
Former AOL Time Warner CEO Gerald Levin helped chaperone the now troubled merger between Time Warner and America Online in 2001. In the process, he rubbed Ted Turner, one of AOL's largest shareholders, the wrong way.
Turner reportedly retaliated by getting Levin fired after AOL's share price plunged more than 60% after the merger.
Eisner may not be facing exactly the same crisis with investors, but he still has foes on Disney's board.
Gold could still make trouble. Gold's ally and investment client, Roy Disney, though he owns less than 1% of Disney's 2 billion outstanding shares, might still rally angry investors to dump Eisner.
