DisneyWar
The Battle for the Magic Kingdom

Article by - S.S. George
Dean, ICMR Case Studies and Management Resources

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Several inglorious chapters in the history of Disney are examined in great detail in the book. Eisner’s very public falling out with his former friend Jeffrey Katzenberg is one such story. Katzenberg was brought to Disney from Paramount Pictures by Eisner to head the company’s motion picture divisions, a job which he handled with great success. Eventually though, Katzenberg was fired from the company, but he did not leave quietly. Katzenberg claimed that, according to the terms of the contract he had with Disney, the company was obliged to pay him a share of the future revenues from the projects he had worked on. Even though the contract spelt out the requirement clearly, Eisner refused to pay up, and eventually the matter went to court. The matter was finally settled out of court, and Disney ended up paying Katzenberg 280 million dollars. Ironically, if Eisner had agreed to honor the contract in the first place, Disney would have ended up paying up a much, much smaller sum.

The hiring and the subsequent firing of Michael Ovitz is another incident that cost Disney heavily, both financially and in terms of credibility. Ovitz was one of the most successful agents in Hollywood, and Eisner’s best friend. Although he had no prior experience working in a large public company, he was hired by Eisner in 1995 to be the president of Disney. However, given Eisner’s reluctance to groom a possible replacement for himself, Ovitz was given little to do, and all his proposals and projects were scuttled by his boss. After fourteen months, Ovitz was fired by the board, with a 140 million dollar severance package – about 10 million dollars for every month he spent with the company.

These were not the only blunders that cost Disney and its shareholders. Eisner himself was lavishly paid even after Disney’s growth stalled, and became one of the wealthiest people in the United States. The book also deals at length with Disney’s acquisition of Miramax and its troubled relationship with the Weinstein brothers, the acquisition of Capital Cities/ABC, the ill-advised purchase of the Family Channel, and Go, its disastrous foray on the internet. However, to give Eisner credit, he did not fall for all the fads that were prevalent during the heyday of the dotcoms. Unlike Gerald Levin of TimeWarner who led his company into a disastrous merger with AOL, Eisner kept Disney out of the clutches of eager suitors from the digital world.

One of the striking characteristics about Eisner is his extreme insecurity. For many years, he refused to name a successor, and when someone came to be perceived as a possible successor, he would immediately begin to run him down in front of the board and the media. Anyone who was successful at Disney soon found himself (or, in at least one instance, herself) on the way out. He would constantly undermine the authority of his subordinates, especially those who could possibly outshine him, even going to the extent of asking the subordinates to spy on their bosses.

In 2004, Roy E. Disney, son of co-founder Roy O. Disney resigned from the board of the company, and with fellow board member Stanley Gold began a campaign to oust Eisner. Thanks to their Save Disney campaign, in March 2004, an unprecedented 43 percent of the shareholders of the company voted against the reelection of Eisner as the Chairman and CEO. George Mitchell, a former U S Senator and Eisner loyalist then assumed the position as Chairman, with Eisner continuing as the CEO. Although Eisner had stated that he would continue as CEO till his contract expired in 2006, in March 2005 the company announced that he would be stepping down in September 2005 itself, with Robert Iger, his deputy, becoming the new CEO.

There are few heroes in this book, though all the major players in the book do not come off equally badly. Roy Disney, for example is portrayed as a decent person, fighting to uphold Disney traditions and the Disney way – but, as a Disney board member, he too went along with many of Eisner’s excesses for far too long a time.

One of the surprising things about the book, given its unsparing view of the man and the company, is the fact that Eisner co-operated at all its writing. Stewart had access, with Eisner’s permission, to company executives. He also shared several lunches with Eisner, and even attended some company meetings.

More than anything else, DisneyWar demonstrates the difficulties of creating a truly independent board of directors. The board of Disney was an especially tame board even by the standards of the day. Most board members were personally beholden to Eisner, with some of them drawing fat fees from the company for consulting or other services. Eisner even conveniently interpreted rules regarding the independence of directors to oust those of the directors who actually dared to take an independent stand. In all this though, the shareholders of the company were the real losers.

By the time this review is printed, Eisner will no longer be the CEO of Disney. In a recent judgment, a Delaware court ruled that the board of directors had acted properly in the hiring and firing of Michael Ovitz. However, the judge had little good to say about Michael Eisner and his handling of the board. A couple of excerpts from the judgment :

"By virtue of his Machiavellian (and imperial) nature as CEO, and his control over Ovitz's hiring in particular, Eisner to a large extent is responsible for the failings . . . that infected and handicapped the board's decision-making abilities."

"Eisner stacked his (and I intentionally write 'his' as opposed to 'the Company's') board of directors with friends and other acquaintances who... were certainly more willing to accede to his wishes . . . than [act as] truly independent directors."

After reading DisneyWar, words that ring true indeed.