Turmoil rocks Disney board
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Disney: Expressed anger and bitterness at the company.
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LOS ANGELES (Hollywood Reporter) -- When the Walt Disney Co. board meets Tuesday in New York, directors will find themselves under intense scrutiny thanks to a public spat between longtime chairman and CEO Michael Eisner and Roy E. Disney, son of the company's co-founder.
Long-simmering tensions between the pair flared during the weekend after Roy Disney -- the last family member with a major role at the entertainment giant -- resigned his position on the board.
Disney also called upon Eisner to step down, attacking a variety of management missteps that he said had made the company "rapacious, soulless and always looking for the 'quick buck."'
On Monday, investor Stanley Gold, who joined Roy Disney in a dramatic bid to recruit Eisner to the company nearly 20 years ago, also surrendered his seat on the board and offered a blistering critique of Eisner's management and the board itself.
"It is clear to me that this board is unwilling to tackle the difficult issues I believe this company continues to face -- management failures and accountability for those failures, operational deficiencies, imprudent capital allocations, the cannibalization of certain company icons for short-term gain, the enormous loss of creative talent over the last years, absence of succession planning and the lack of strategic focus," Gold wrote in his resignation letter.
Gold cited a number of cases in which he said he had sought and failed to secure changes in corporate governance at Disney, including urging the company to separate the positions of chairman of the board and CEO, both titles held by Eisner. He also decried the board's decision to involuntarily retire Roy Disney -- who is 73 -- by adopting an age limit of 72 years for board members.
In a statement apparently authorized by the remaining board members, the company called Gold's allegations "untrue and unwarranted." It is a "disservice to shareholders and to employees that the company faces this distraction at a time when its performance is improving as a result of growth plans and initiatives being implemented by management with board approval," the statement read.
Gold responded late Monday with a statement urging the company to release all of his recent letters to board members and "let the court of public opinion decide whether there has been a full discussion of the issues I raised in my letter of resignation."
While Disney remains beset by problems at its ABC and theme park units, its shares have risen 34 percent since Jan. 2. The stock closed at $23.17 Monday, up 8 cents.
The impact of the moves by Roy Disney and Gold remains unclear. As of July, Roy Disney controlled 16.5 million shares, or less than 1% of the roughly 2 billion shares outstanding. While that makes him among the largest individual shareholders, Roy Disney's stake is not nearly large enough to mount a boardroom coup without backing from some other person or entity.
While Wall Street has had a love-hate relationship with Eisner since at least 1994 -- when the death of longtime lieutenant Frank Wells in a helicopter crash touched off a long run of executive turmoil and stock bumps -- some analysts shrugged off the latest dustup.
"I think it's a very noisy nonevent," said Paul Kim, senior media analyst with Tradition Asiel Securities. He added that Roy Disney's attack suffered from bad timing. "He might have had more sympathetic ears if the stock hadn't risen 60%-70% over the last 10 or 12 months ... You could probably apply most of the points about Eisner in (Roy) Disney's resignation letter to all media heads."
Eisner: Disney listed his complaints about the CEO.
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On the other hand, Roy Disney's ancestry -- not to mention his passion for the company -- have made him a sympathetic and even rallying figure to many employees, though in recent years he has spent increasing amounts of time at his home in Ireland. It seems likely that he and Gold will continue their quest to hasten the departure of the man they hired two decades ago to save the company, which had drifted badly following Walt Disney's death in 1966.
"Roy has devoted a lifetime to Disney as both an employee and director," Gold wrote. "He has served with renewed vigor during these times of malaise, disappointment and instability at the company, trying to maintain the morale of employees, focusing on the magic that makes Disney special and attacking bonuses to the CEO and increased compensation for board members while the company falters and shareholder value erodes."
The public comments from Disney and Gold seem to indicate that the pair have given up on the Disney board, which in the past has been attacked as too beholden to Eisner. The company adopted some new rules in recent months to address those concerns -- including, ironically, the mandatory retirement provision that led to Roy Disney's resignation.
The board as it now exists seems unlikely to oust Eisner. Roy Disney and Gold had grown into two of his harshest critics during the past two years. In addition, director Andrea Van de Kamp was ousted after she reportedly voiced similar criticisms of Eisner's management.
David Lewin, a professor at UCLA's Anderson School of Management, said that the allegations by Gold and Roy Disney could lead to a shareholder lawsuit, though "that doesn't happen very often. And if it does, it's very rare indeed for the shareholders to win."
Some suggested that the spat might serve as a reminder to Eisner -- whose contract expires in 2006 -- to begin planning a graceful exit.
"Eisner is nearing a 20-year run, which is atypical of a CEO these days, especially when the financial results are not so stellar," Lewin said.
Copyright 2003
Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
