Diplomacy Breaks Out at Disney

Published December 7, 2004

By C. W. Oberleitner

Reaction to the news that Roy Disney and Stanley Gold will not offer an alternate slate of candidates for election to the Disney Company board at the 2005 stockholders meeting has been anything but swift. Some analysts see last Friday's announcement by Disney and Gold as the pair throwing in the towel. Others suggest that what we're actually witnessing is the deft hand of a career diplomat at work.

Almost one year after resigning from the Walt Disney Company Board of Directors and calling for the ouster of then Chairman and CEO Michael Eisner, former directors Roy Disney and Stanley Gold last Friday offered an olive branch, albeit a thorny one, to the company's current board.

In a letter addressed to the Disney board, the pair stated,

Consistent with our September 28, 2004, public statement, we do not intend to present an alternate slate of candidates for election to the Board at the Disney Company's 2005 Annual Meeting of Stockholders. Our decision is based on the actions the Board has taken in recent months in response to the shareholders' unprecedented 45% no-confidence vote in Mr. Eisner at the 2004 Annual Meeting. Needless to say, we are assuming that the Board will continue to act in good faith to fulfill the promises it made to Disney stockholders over the course of the last nine months.

The announcement, coming as it did late last Friday, arrived just as most people were preparing for a weekend of holiday shopping and merriment. By Saturday, it had barely created a ripple among Disney fans and SaveDisney.com supporters, who frequent the many Internet discussion boards dedicated to every aspect of the Disney Company.

Of the dozen or so posts regarding the Disney/Gold announcement, one person asked,

Can anyone make heads or tales of the announcement on savedisney.com?

Are they backing away from the battle to restore Disney? Are they compromising with the enemy, aka Eisner?

That question received the following responses:

Sounds like the towel just got thrown in.

Which is about all they could've done. No sense in trying an onside kick when you're down by 97 points. The stock is climbing, the earnings look great, the stockholders (at least the non-Disney-fan ones) are happy, and there's not much between now and the annual meeting that's going to change any of that.

And:

SaveDisney DID NOT quit! They just feel that the board will do what's right and oust Eisner.

I'm worried about this, too…

I believe that Eisner WILL be out of the company by June 2005. If not, then we should know darn well that Roy and Stanley will resume their campaign and really continue fighting until Eisner is out of the Disney company.

Richard Verrier, writing for The Los Angeles Times (registration required), reported that,

"They've been getting a lot of 'atta boys' from people but probably not a lot of pledges of support" for a proxy fight, said Patrick McGurn, senior vice president of Institutional Shareholder Services.

Anthony Valencia, an analyst with TCW Group, agreed: "Basically, they got what they wanted so there's not a lot of point in going forward" with a rival slate.

However, sources familiar with both the Disney Company and the SaveDisney.com forces say that Friday's announcement of what amounts to a cease-fire by Disney and Gold is actually the result of the latest round of peace-making efforts by Disney board chairman, George Mitchell.

"It makes a lot of sense and seems to be absolutely true," said one entertainment industry analyst, who asked not to be named.

"There have been a lot of changes, since Philadelphia, in the way both Roy and Stan and the Disney Company talk to the press," commented another analyst, referring to the last Disney stockholders' meeting held March 3, of this year in Philadelphia.

Luck with the Irish

Former U.S. Senator George J. Mitchell has been a director of the Walt Disney Company since 1995. During his time in the U.S. Senate, it was said that "there is not a man, woman or child in the Capitol who does not trust George Mitchell," and for six straight years he was praised nationally as "the most respected member" of the Senate. During his time as Senate majority leader, Mitchell gained the unqualified respect of the American people.

Mitchell, a native of Waterville Maine and the son of an Irish-American father and Lebanese immigrant mother, at the request of President Clinton, assisted the governments of Ireland and the United Kingdom and the political parties of Northern Ireland to agree to an historic accord, ending decades of conflict.

Mitchell was also the principal architect, and namesake, of a Middle East peace plan that won bipartisan and international support in 2001.

"Is it any wonder then," asked a long-time Disney observer following the announcement by Disney and Gold that they would not mount a proxy fight at the next Disney stockholders' meeting, "that peace is finally breaking out at Disney?"

Mitchell became chairman of the Disney board of directors immediately following Eisner's unprecedented 45% no-confidence vote. At that same meeting, Mitchell himself received a remarkable 24% no-confidence vote.

Mitchell has always enjoyed enormous popularity. In his home state of Maine, he once won reelection to the Senate by an 81% majority. Friends, however, have been quoted by the media as saying that the former Senate Majority Leader was stunned by the size of his own no-confidence vote, and that he has found being seen as part of the problem rather than a problem solver quite distasteful.

Since assuming the chairman's title, Mitchell has played an increasing role in the day-to-day governance of the world's second largest media conglomerate.

The Los Angeles Times reported:

And indeed, he said, since he became chairman in March, the amount of time he has devoted has been "the equivalent of a full-time job."

Working primarily out of an office at the headquarters of Disney division ABC Inc. in New York, Mitchell has traveled the country, reassuring skeptical investors that Disney's prospects are bright. He also has been meeting more often with Disney executives to bolster his knowledge of the company's affairs.

"I've worked hard since I've been on the board," he said. "I've learned the business."

Elephant Breeding

Disney, despite its image as an imaginative purveyor of wholesome family products and services, has developed a reputation in entertainment and business circles for conducting many of its hardnosed business affairs and feuds in public.

In 1994, following the death of Disney President Frank Wells, Eisner publicly refused to promote then head of studio operations, Jeffrey Katzenberg, to Wells' old job. The rift between the two broke out on the front pages of daily newspapers when Eisner refused to pay bonuses Katzenberg claimed the company owed him.

Katzenberg sued. The squabble dragged on for five years before being settled for an undisclosed amount. The two parties settled only after Eisner, testifying in open court, acknowledged having called Katzenberg "that little midget."

The Disney Company, incorporated in the state of Delaware, is currently being sued in the Delaware Court of Chancery by shareholders. Their suit contends that the Disney board failed in its fiduciary duties when it allowed Eisner to hire and then, fourteen months later, fire his friend Michael Ovitz, who received a $140 million severance package for his brief, yet troubled, service to the company.

Earlier this year, prior to the March 3 stockholders' meeting, under the direction of Vice President Corporate Communications, Zenia Mucha, the company adopted what most observers referred to as a very "unDisney, in-your-face" style of responding to statements made by the SaveDisney.com forces and their supporters.

The day before the stockholder's meeting, SaveDisney.com held a press conference and rally to reiterate their demands on the Disney Board. That same day, the usually mild mannered Bob Iger, President of The Walt Disney Company, held a press conference at which, pointedly referring to Roy Disney, Stanley Gold, and their SaveDisney.com supporters, he said,

I think there's a lot of misinformation out there. I think first and foremost is the fact that we've lost a lot of talented people, the fact of the matter is the Walt Disney Company is a very strong management team. And anyone that asserts that great talent has left the Company is doing a great disservice to the people who are still at the Company and showing a considerable amount of disrespect.

He went on to say,

Tomorrow's going to be, I believe, an interesting day, but it's also a day that I believe gives us an opportunity to prove to everyone that the statements that have been made about us and the campaign that has been waged as I said in the beginning is indeed distorted and one that is ripe with misinformation.

Mitchell, it has been said, was appalled by all of this. Reportedly, he has told friends and associates that this "in-your-face," confrontational style of arguing your case before the media was no way to resolve differences.

"I wouldn't be surprised if Mike and Zenia, and Roy and Stan, made George long for the good old days of standing between the British and the IRA" said an author familiar with the issues surrounding the shareholder revolt.

Changing Tone

Indeed, since September there has been a noticeable change in the amount and volume of rhetoric coming from both sides.

In early September, Eisner announced he would retire at the end of his current contract, which expires in 2006. The announcement was met with a flurry of speculation in the media that what he actually intended to do was appoint Bob Iger Disney as CEO, retain his seat on the board, and resume the chairmanship following Mitchell's departure.

Roy Disney and Stanley Gold responded almost immediately saying they thought Eisner was "again attempting to usurp the authority of the Disney board." They went on to say,

To put it bluntly, if the board does not immediately engage an independent recruiting firm to conduct a worldwide search for a talented CEO--and concurrently announce that Mr. Eisner will leave Disney at the conclusion of that search--we will go directly to our fellow stockholders and propose the election of an alternate slate of directors who will.

Over the course of the next few weeks, a very non-confrontational Eisner, in a series of uncharacteristically casual statements offered to the media, announced that he would, in fact, leave the company and probably give up his seat on the board when his contract expired.

A short time later, following a regularly scheduled board meeting, Mitchell announced that the Disney Company board would,

Engage an executive search firm to assist it in selecting a CEO who possesses the qualities and experience the Board believes are necessary for this important position.
Consider both internal and external candidates. Bob Iger is the one internal candidate. He is an outstanding executive and the Board regards him as highly qualified for the position. However, the Board believes that the process should include full consideration of external candidates as well.
Complete the process and announce a successor as soon as possible, with an expected date of completion of June 2005.
Work to assure a smooth and effective transition by Michael Eisner and the Board. The Board regards its responsibility on succession as so significant that all members should participate actively and fully in the entire process; and each has committed to do so.

"Do you see what's happening here?" asked one Disney observer who is certain what we are seeing is the diplomat's craft in action. "Where, earlier this year, all we had were charges and accusations and counter charges and accusations we've now got a dialog going." He went on to point out that each side is getting "some, but not all," of what it wants. "That's classic conflict resolution. Compromise. Both sides win and loose the same."

To further make his case, he went on to point out that during the past several months when the Disney Company makes a spokesperson available for comment, it is more often than not the dispassionate, "Disneyesque" John Spelich, Disney VP Corporate Communications, rather than Mucha, who "the media loves to hate."

It is also true that during this same period, there has been a constant stream of rumors on the Internet and around the coffee shops and bars along the corridor between Disney corporate headquarters and Shamrock Holdings, the Burbank-based investment firm that is home to SaveDisney.com. According to sources familiar with both companies, Mitchell, and/or his emissaries, has been in contact with Roy Disney and Stanley Gold.

These sources maintain that Mitchell is determined to ensure that next year's Disney stockholder's meeting will not be a repeat performance of the 2004 meeting. To that end, he has offered, much as he did with the director's of state pension funds dissatisfied with Disney corporate governance, to give Disney and Gold a voice in the selection of Eisner's replacement and future makeup of the board. In addition, the board will no longer attempt to block a shareholder proposal that a member of the Disney family always has a seat on the board.

In exchange, according to sources, the pair of former directors would agree, as they did in last Friday's statement, to not put forward an alternative slate of directors and thereby launch a proxy fight at the 2005 stockholders' meeting.

"I just hope you're right," said Dixon Ticonderoga (not his real name), entertainment industry financial analyst and advisor to o-meon.com. "Roy and Stan have been duped by Michael before. Just look at the Ovitz thing and ABC Family Channel."

He went on to say that if these actions were the results of efforts made by Mitchell to put Disney on a more stable path, "it should work."

"If, however, Mitchell starts talking about how great Bob Iger is (before the search firm makes their recommendations), well--then you can expect Stan to start bitching like there's no tomorrow."

He went on to add, "Then what if Eisner screws Mitchell and backs down from his commitments? Who can't see that happening?"

this business of show

George J. Mitchell Chariman of the Board The Walt Disney Company.

Zenia Mucha, Vice President Corporate Communications The Walt Disney Company.