Worth What You Pay For It

First published January 27 2004

By C. W. Oberleitner

C. W. Oberleitner returns to JimHillMedia.com to offer some free advice for Disney's embattled CEO, Michael Eisner.

Much as I might like my writing gig here at JimHillMedia, it is not my primary occupation. As you may know, if you’ve read the short bio at the end of my columns, I am a small business, business systems consultant. That’s a fancy way of saying I charge people to listen to me say things about networks, computers, productivity, and the Internet that my friends and family wish I’d just shut up about.

In the consulting business there’s a saying: "Free advice is worth what you pay for it." That, however, is just what I have for Walt Disney Company CEO, Michael Eisner. I’m about to break the first rule of consultants everywhere: get the retainer first, and, for no charge or commitment on his part, offer my own "win-win" scenario to his current melee with former WDC board members, Roy E. Disney and Stanley P. Gold.

Declare Victory

On March 3 of this year, the WDC will hold its annual shareholders’ meeting. In keeping with recent tradition, the meeting will take place far away from major centers of Disney activity, in Philadelphia. Despite the fact that the company owns thousands of square feet of meeting space and hotel rooms in Central Florida and Southern California, WDC executives prefer, as one Disney manager put it, to bring the meeting closer to individual shareholders. Still others at the company say that Eisner himself prefers holding these meetings in cities less accessible to the more fanatic small Disney investors, like those found in California and Florida who have a history of asking embarrassing questions.

Regardless of venue, Eisner will be required to address the WDC’s shareholders and advise them of the current condition of the company, as he sees it. These speeches are usually a very upbeat review of a company’s successes, regardless of how meager, during the previous year. It would be the perfect time and place for him to announce his retirement. Or, put another way, I’m advising Mr. Eisner to declare victory and go home.

This is not just another call for Eisner to step down but rather my well thought out solution to a difficult dilemma. A dilemma not only for Mr. Eisner, the WDC Board of Directors, and the company’s shareholders but also for millions of Disney fans and customers around the world, customers who far prefer Disney Magic to Disney Corporate Melodrama.

Looking Back

During his nearly twenty-year run at the WDC, Michael Eisner has developed a well-deserved reputation for standing up in the face of adversity. This is one Fortune 500 CEO who’s not afraid of a fight. And therein lies the problem.

Eisner has survived more than one serious challenge to his stewardship of the House of Mouse. He’s endured battles that have, on more than one occasion, called into question his fitness to remain at the helm of the Disney organization. While technically he has emerged victorious from these skirmishes, it has always been at a tremendous cost in terms of dollars and prestige for what is arguably the world’s foremost producer of family entertainment.

The most well known of Eisner’s battles is probably his all too public struggle with former studio chief, and now the "K" in the DreamWorks SKG partnership, Jeffrey Katzenberg. In 1996 Katzenberg filed a $250 million lawsuit against Disney for, what he alleged, was an unpaid bonus. Eisner, at first, refused to settle with his former hand-picked studio boss. The result was a series of courthouse proclamations and courtroom battles that played out before the world’s news media for nearly three years.

From Los Angeles to London there were calls for Eisner’s dismissal. In an Op-Ed piece The Wall Street Journal said:

Disney's goal in life should be to keep the public in the dark about how the sausage factory really works," wrote Holman W. Jenkins Jr. "The dispute has perversely highlighted a doubt already hanging over Disney's famous chief executive: Does the wonderfully creative and impulsive Mr. Eisner know when to throw in the towel?

In the end, a settlement was reached just before Eisner was to take the stand for a second time in an attempt to redeem himself from his now famous slam of Katzenberg, "I can’t stand the little midget." While terms of the original settlement were kept secret, industry insiders put its cost close to the $275 million mark. In the years following the initial settlement, due in large part to the tremendous ongoing success of Disney’s Lion King franchise, it’s believed Katzenberg has received close to $400 million from his former employers.

And then there was the matter of Eisner’s handling of the "resignation" of Katzenberg’s replacement at Disney and his onetime friend, Michael Ovitz. After less than a year and a half as the number two man at Disney, former super agent Ovitz and CEO Eisner had reached the end of their ability to work effectively with one another. While the official word was that Ovitz’ decision to resign was by "mutual agreement," few in Hollywood, thanks mostly to friends of Ovitz, doubted that he and Uncle Mike had been feuding for months over how best to run the company.

It cost the WDC somewhere around $150 million to pay Michael Ovitz to go away. And, Eisner’s problems with his former pal didn’t end with Ovitz departure either. Incensed by the size of the Ovitz buyout, a group of WDC shareholders sued the company and its board of directors claiming they breached their fiduciary responsibilities by paying him so much for his brief and unproductive tenure at the company.

This case has dragged on in both the courts and the media for more than five years. In deposition after deposition, it became the basis for the claims that Eisner, rather than reporting to the WDC’s board of directors, was dictating policy to them. And it’s not the only shareholder suit Eisner and the company have had to face.

In an earlier case, shareholders sued Disney for failing to disclose potential monetary damages from a suit brought against the WDC by the family and company with U.S. merchandising rights to Winnie the Pooh. Last September a U.S. federal court judge tossed out the shareholder’s suit. The Winnie the Pooh suit is ongoing.

Looking Ahead

If history is any kind of an indicator, Michael Eisner will probably choose to ignore my advice and tough it out at the WDC until his current contract expires in 2006. If that turns out to be the case, the coming two years are bound to be full of stories about every misstep, real or imagined, that Michael Eisner has ever made or will make at the helm of the WDC.

In order to meet deadlines and fill time and space, television and news writers, editors, and producers will recount every detail of Eisner’s twenty-year career at the WDC. The Katzenberg and Ovitz affairs, along with the ongoing drama of the Winnie The Pooh trial, will be replayed in every detail. Pundits and talking heads will wax on for months about Eisner’s inability to hold on to key talent. They will write and talk about the steady and continued exodus of topflight executives who have left the company during his watch. And, they will hammer away at his nearly two-decade failure to establish a clear path of succession for his eventual retirement.

People familiar with Roy Disney and Stanley Gold’s efforts to remove Eisner expect the duo’s battle with the Disney CEO to be a long one. Some estimate it could take a year or more. It is an open secret within the entertainment community that Eisner’s enemies, of which after twenty years there are many, have already been lining up outside Shamrock Holdings making information and resources available to Roy and Stanley.

One thing is very clear. If, as expected, Michael Eisner decides to ignore the calls for him to step down, in the foreseeable future the WDC is going to be in for one heck of a lot of unwanted and definitely un-needed negative publicity. And, even if he does manage to hang on to his job until his current contract expires, Eisner will once again have done so at a tremendous cost, not only to the WDC but also to his own personal prestige and reputation.

From my vantage point here in early 2004, it is possible to look down the road to 2006 and foresee Michael Eisner finally retiring from the WDC as one of the most vilified CEOs of all time. Rightly or wrongly, if this battle is joined, and should Eisner last until the end, he will depart Disney with every one of his sins and failures draped around his neck. True, like the proverbial magician, he may still pull a rabbit out of his hat and wow critics and investors alike. Events on the corporate Disney horizon, however, do not seem to point to such an outcome.

Disney stock may be up but, hey, so is the overall market. The Disney studios may be coming off a banner 2003, with nearly $3 billion in worldwide box office, but other parts of the company still have a fairly rough road ahead. Theme parks and resorts continue to struggle with the downturn in worldwide tourism. Walt Disney Studios Paris, and Disney’s California Adventure in Anaheim, struggle with public perceptions that they are poor values for money spent. Disneyland needs millions in maintenance and repairs. Its 50^th Anniversary plans are yet to be put in place. And, according to many laid off Imagineers at Walt Disney Imagineering, the new Hong Kong Disneyland park has had its initial modest design cut back so often that the finished park will only be a reflection of what one expects a Disney theme park to be.

Part of the Disney studios’ current success is due in no small part to its partnership with Pixar Animation Studios. The agreement between the two companies is up for renewal, and while negotiations between the partners is ongoing, few within the industry expect Disney to emerge with anything near its current revenue sharing arrangement. Still, others worry that the open animosity between Eisner and Pixar CEO, Steve Jobs, may jeopardize the whole thing and send Pixar spiraling off into the arms of another studio.

Disney-owned ABC TV continues to struggle in the ratings following its disastrous decision to dump all its eggs into the Who Wants to be a Millionaire basket. Recently, the network announced it would be trying out yet another primetime game show. And this year, even the very profitable Disney-owned cable sports network, ESPN, will be facing new and ever increasing competition for the rights to some of their most watched sporting events.

Win-Win

All of this brings me back to my suggestion that, at the March 3rd WDC shareholders meeting in Philadelphia, Michael Eisner resign as WDC CEO, declare victory, and go home. In so doing, he will confound his enemies, halt the erosion of his reputation and legacy, and save his family and his company a whole lot of unnecessary grief, not to mention a couple of million bucks here and there.

The business world, and Disney fans of all kinds, expects, at the very least, a series of arguments if not an all-out floor fight to break out sometime during this meeting. Now try to imagine what it would be like in a room filled with people primed for a fight, and the press there ready to record every bloody detail, if Michael Eisner were to step up to the podium, speak briefly about the great successes of the past year, and then pause and say that these great achievements make this the perfect time for him to turn the company over to new leadership. The collective gasp would leave the room devoid of oxygen.

Think about this for a minute. Eisner could make his resignation effective anytime during the next six to nine months. Succession would no longer be his problem. Bob Iger would take over the day-to-day administration of the company while the board began a search for Eisner’s replacement. During that six to nine month period, instead of becoming every editor’s whipping boy, he will become the darling of the media. His will be the most sought after interview in the country.

The media will become obsessed with why he chose this time to leave the WDC. They probably won’t even pay a lot of attention to his final separation package, currently estimated to be near the half a billion-dollar mark. Even if somebody tries to make a big deal out the size of his final compensation, he still could easily retake control of the story. All he’ll have to do is invite Access Hollywood into his office, wax nostalgic about the previous twenty years, smile at the camera, and tell Disney fans everywhere what a great privilege and honor it has been to run the company that Walt built.

In the meantime, the fight, or what’s left of it, will move away from Eisner and into the WDC boardroom. Roy Disney and Stanley Gold will quickly have to decide, in light of Eisner’s surprise departure, if they can work with the current Disney board. If they can, they could be instrumental in assisting the board with their search for Eisner’s replacement. On the other hand, if Disney and Gold feel the current board is still too beholden to Eisner, they could decide to mount a proxy fight and turn the board over as well.

In any event, the target will be off Eisner’s back. Journalists, like me, from around the world will be busily trying to pin it on everyone from Steve Jobs to Barry Diller. And, we won’t have the luxury of filling our columns and airtime by recycling all our old Michael Eisner war stories.

There is one other small group of people who would benefit greatly from Michael Eisner’s immediate retirement, his family. I’m not just speaking of financial gain here. By all accounts, Michael Eisner is tremendously and justifiably proud of his wife, his marriage, and his three sons, who are each in the early stages of building lives and careers of their own. If Eisner tries to hang on for the remainder of his contract, he is sure to suffer the very public ire and derision of his critics. As I said before, if history is any indicator, he may win the battle but come away so mocked and scorned as to forever have the name Eisner associated with gross excess and extreme hubris in the face of adversity.

I can’t imagine a family anywhere that would enjoy seeing their husband or father burdened by such a legacy. It will, of course, be up to the senior Eisner to determine what that legacy will be.

As a consultant, I always try to offer my clients a win-win solution. This is my 2004 win-win scenario for Michael Eisner. I realize that it’s a bit sketchy, but, hey, this is just the opening pitch. We consultants require time and frequent meetings in order to be able to work up detailed plans. Mike, my rates are very reasonable, and I remain at your disposal. Call me. We’ll talk.

C’ya real soon!