The Walt Disney Company - Has Disney lost the Magic?

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

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Can Disney Recapture the Magic?

The problems at Disney made people wonder whether the 'Magic Kingdom' had lost its magic. The spate of publicity that followed the resignations of Roy and Gold had the effect of bringing the governance issues at Disney sharply into focus. However, there were those who felt that resignation was not a good move on their part. When they could not get the board to listen to their opinions when they were directors themselves, it was felt that it would be even more difficult to do so as outsiders.

Hope however, was not lost. After the duo resigned, the corporate governance wing of a major investment firm asked Disney's independent directors to respond to some of the issues raised by Roy and Gold. At the end of December 2003, Herbert Denton (Denton), who ran a firm called Providence Capital and specialized in leading shareholder campaigns, organized a meeting of about 50 investment firms and sent a letter to the Disney board outlining some of their demands. The letter demanded that that the post of chairman be separated from CEO, director nominees be solicited from major investors, financial benchmarks and timetables be set, the board develop a succession plan, and make it easier for shareholders to vote changes to company bylaws.

"It's our way of seeing whether Michael Eisner's embrace of good governance is for real or for show," said Denton.¹¹ Several other analysts also favored splitting the positions of chairman and CEO. "It basically provides checks and balances" said Kathy Styponias, an analyst at Prudential Securities.¹²

There was also some speculation that Disney could be become a target of takeover bids, considering the vulnerable condition it was in following the threats to remove the CEO. Comcast Yahoo and InterActiveCorp were thought to be some of the likely suitors of Disney. There was also considerable speculation on who would replace Eisner if the dissidents were successful in overthrowing him. Even if they were not, Eisner's term was due to expire in 2006, and analysts felt that it was time some potential successors were considered.

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. The future of the Magic Kingdom was in the hands of the shareholders. And only time will tell whether Disney can recapture the old magic.

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11] Marc Gunther, "The Directors", Fortune, December 27, 2003.
12] Marc Gunther, "The Directors", Fortune, December 27, 2003.