Trouble in the 'Magic Kingdom': Governance Problems at Disney

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Excerpts

According to analysts, by the early 2000s, the Disney board had acquired the dubious distinction of being one of the worst boards in the US. Analysts believed that the board was not powerful enough to oppose Eisner on any matter and that it allowed him to bulldoze all the decisions.In January 2002, the board appointed Ira Millstein (Millstein), a leading corporate governance lawyer to suggest changes that would improve the governance of the company. Some of Millstein's recommendations included: The expansion of the company's corporate governance committee, the shrinking of the board from 16 to 12 directors and not using the company's auditor for non-auditing consulting work. By the end of 2002, the company had formally adopted the new governance norms which were based on Millstein's recommendations.....

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Although it was generally acknowledged that Eisner was responsible for making Disney (which was until then known for its children's films and theme parks) into a well recognized and successful global media conglomerate, it was felt that he was assuming too much power in the organization.In the first thirteen years under Eisner, the market value of Disney rose from $2 billion to $67 billion. However, by the late-1990s, analysts began noticing that the company was hinging too much on Eisner....

Soon after their well publicized resignations, Roy and Gold announced that they would launch a campaign to oust Eisner. Both men were planning to meet major shareholders in the company as well as institutional investors and governance bodies to seek their help in ousting Eisner from Disney.In addition to removing Eisner, they also hoped to get the shareholders to nominate a new body of independent directors at an upcoming board meeting in March 2004. ....

Exhibit I: Income Statement
Exhibit II: Disney's Performance
Exhibit III: Attributes of a Good Board