The Walt Disney Company - Has Disney lost the Magic?



Authors: Sanjib Dutta,
Senior Faculty Member,
ICMR (IBS Center for Management Research).

In the late-1990s and early-2000s, Disney was counted among the worst boards in the US. CEO Michael Eisner was also said to exercise an undesirable level of power over the board. The article talks about the governance problems at Disney and the credibility of the company's new governance norms.

All was not right at the Magic Kingdom. The Walt Disney Company (Disney), a name that had become synonymous with entertainment and magic, had run into rough weather. After operating income peaked at $4.3 billion in 1997, the company's financial performance had been going downhill. Theme park attendance, the main source of revenue, had declined sharply after the September 11th terrorist attacks on the US instilled a deep-rooted fear of traveling in the American public. To crown it all, the Disney board had been coming in for constant criticism for its bad governance policies. The situation just seemed to be displaying signs of improvement in 2003 (the stock price grew by about 35 percent and analysts expected the earnings per share to increase by more than 30 percent), when the bubble burst with the resignations of Roy Disney (Roy) and Stanley Gold (Gold).

Roy and Gold resigned from the Disney board in late-2003, in protest against the bad governance at the company and the operating style of long standing CEO, Michael Eisner (Eisner). Roy was the vice chairman at the company and the head of its animation department.

He was the nephew of the company's founder Walt Disney (Walt) and also the largest shareholder. He had joined Disney in 1954 and had been serving on the board since 1967. In 2003, Roy was told that he would not be eligible for a board appointment the next year because, according to the new corporate governance norms adopted by Disney in 2002, he was past the maximum age limit to be a director. Preferring to avoid such an ignominious method of eviction, Roy chose to resign voluntarily. He wrote a lengthy and critical resignation letter to Eisner saying "It is my sincere belief that it is you that should be leaving and not me"1

Close on his heels came the resignation of Gold. Gold was an investment banker and a long-time ally of Roy. Gold also took the opportunity to indulge in a fair amount of board bashing.

Criticizing the board, Gold wrote, "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, the absence of succession planning and the lack of strategic focus".2

Both men (along with several others), believed that the root of all trouble at Disney was Eisner. They alleged that Eisner did not run the company in accordance with the principles of good governance. They also feared that bad governance would put the future of the company at risk, unless drastic changes were made. After leaving the company, both men launched a public campaign to oust Eisner (who they had helped appoint in 1984). They said that he held sway over the board and ran the company like a 'personal fiefdom'. Both were considering meeting with the company's major shareholders to muster support in their campaign.

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1] "Corporate Conflict",, December 1, 2003.
2] "Corporate Conflict",, December 1, 2003.