A Billion Here, a Billion There

Published February 22, 2005

By C. W. Oberleitner

In 1997, Disney Company shareholders took The Mouse to court over Michael Ovitz's $140 million dollar severance package following his brief, ill-fated tenure as company president. After reading James B. Stewart's new book DisneyWar, some in Hollywood are asking where these corporate governance watchdogs were for the other $3 billion in losses run up by Eisner and company.

Stanley Was Right

Since launching their campaign to remove Michael Eisner from the Walt Disney Company, Roy Disney and Stanley Gold have faced an uphill struggle. That being how to explain to potential supporters and the press how they could go from being the men who championed Eisner's hiring, as well as members of a board that supported virtually his every move, to being outspoken dissidents demanding Eisner's removal. James B. Stewart's new book DisneyWar does a better job of chronicling and explaining this transformation than Roy and Gold have, up till now, been able to do.

DisneyWar chronicles the deterioration of Eisner's relationship with the two men most responsible for bringing him to Disney. One by one, as he loses the managers used to insulate himself from Roy and Gold, the more the pair begins to see a truer and more accurate picture of an exceptionally duplicitous Eisner.

DisneyWar debunks two popular, contemporary Disney myths. The first is promulgated by Eisner himself that he viewed former Disney President Frank Wells like an equal partner who brought out the best in him. The second is that things didn't start going badly at Disney until after Wells unexpected death in a helicopter crash in 1994.

At least two years before Wells death, according to Stewart's book, "Eisner had called Gold at one point to complain about Wells, and asked if could fire him."

For his part, Wells confided to Gold, "I hate it. I hate Michael Eisner. I can't go in there (Disney headquarters) anymore and take that shit."

Little by little, following Wells' death, both Roy and Gold came to the realization that despite his repeated demands for complete honesty in others, Eisner had little or no problem lying to anyone about anything. That included them, a myriad of Disney executives, the media, Wall Street investment analysts, Disney's single largest shareholder Sid Bass, and the Disney board.

Prior to this month's Disney Company shareholders' meeting, Stanley Gold said DisneyWar would confirm what he and partner Roy Disney have contended for more than a year: that Michael Eisner lied to the Disney board about the value and true cost of acquiring FOX Family Channel. He went on to say that Stewart had discovered a possible "cover-up" by Disney executives to kill a plan that would have returned hundreds of millions to the Disney treasury.

In DisneyWar, Stewart recounts, in vivid detail, how Disney chief financial officer Tom Staggs "launched a confidential, high-priority project" to determine the value of the Family channel. The idea being that if the value of the channel was far less than Disney paid for it, "the valuation could be used to generate significant tax savings." Preliminary estimates by Staggs' project team put the overpayment for FOX Family at approximately $1.8 billion. The estimated tax savings, to the company and its shareholders, on that amount was $400 million.

Staggs' project team's efforts were in vain. Peter Murphy, head of Disney's strategic planning department, killed the project before it could file its final report insisting that the channel, now known as ABC Family, was worth the $5.2 billion Disney paid for it. Staggs was later informed that his plan never stood a chance because it would mean admitting to the board that the original valuation of the channel, used by Eisner to secure the board's consent for the purchase, was not what it had been made out to be.

Interestingly enough, Staggs himself rose to his current position as CFO from the ranks of the strategic planning department. Strategic planning is known throughout Disney as "the goon squad" for, according to many past and present Disney employees, its ability to "bash the life and creative spark out of any idea."

Stewart also praises Staggs, along with Eisner "for not running seriously afoul of securities laws during a time of rampant corporate scandal."

In addition to the losses incurred from overpaying for FOX Family, DisneyWar also examines how Eisner and his strategic planning posse lost nearly a billion dollars each on Euro Disney, which Eisner later tried to blame on Wells, and an abortive attempt to create an Internet portal, GO.com.

Freudian Field Day

Eisner said he welcomed scrutiny. "I really don't mind you're investigating the company," he said, "because I've got nothing to hide. You may find that we've made some mistakes, but not because we didn't try to do the right thing."

[From DisneyWar, by James B. Stewart, published by Simon & Schuster.]

That one quote, perhaps more than any other in Stewart's 572-page Mouse House expose, sums up what, at its core, is wrong with today's Walt Disney Company. Michael Eisner is unable to separate himself, and his own overreaching ambitions, from the company he leads.

If there is any problem at all with DisneyWar, it's the relentlessness with which it pursues its central theme of ultimate irony. That being that the company best known the world over for uplifting family values and for telling stories of the triumph of truth over adversity is, in fact, being gleefully run by disciples of Renaissance philosopher Nicolo Machiavelli.

In an odd twist on the traditional method of Disney storytelling, it is, for the most part, the characters, like Roy Disney, Stanley Gold, Jeffrey Katzenberg, and Steve Burke, driven out of, or who leave on their own volition, the Magic Kingdom who come across as the true heroes of DisneyWar. There are, of course, exceptions.

DisneyWar paints Sanford Litvack, former Disney Company general counsel and vice chairman, most like Kaa, the serpent from Disney's animated classic version of Rudyard Kipling's The Jungle Book.

It is Litvack who, in a never-ending quest to succeed Frank Wells as president of the Disney Company, slithers up and down the corridors of power at the company's various offices dropping the axe on his boss's many perceived adversaries, including Eisner's one-time best friend and Disney President, Michael Ovitz.

In the end, just as Shere Khan does to Kaa, Eisner also thwarts Litvack's best efforts to rise to power within the jungle that is Team Disney. Litvack leaves the company when it becomes clear that it is Bob Iger and not he who will be made president of the Disney Company.

Dear Horatio

The first two-thirds of the book are a remarkable recap of the Wagnerian rise, fall, and departure of some of Disney's brightest minds. The list of former Disney execs at or near the top of major American companies, including potential Eisner replacements Steve Burke and Meg Whitman, reads like a who's who of business today.

Prominent among these stories are those of one-time studio head Katzenberg and the brief and tortured tale of former super agent and president without portfolio Michael Ovitz.

If there's any fault at all to be found with Stewart's recounting of the Ovitz story, its how pathetically powerless he portrays the man. Stewart, like his colleague at Vanity Fair, Dominick Dunne, makes use of testimony from the trial being heard before Delaware Chancery Court Judge William B. Chandler regarding the suit brought by shareholders against Eisner and the Disney board over Ovitz's $140 million severance package.

Unlike Dunne, Stewart seems to be fairly satisfied with Ovitz testimony that he was so stunned by his one-time best friend's betrayal that he did little more than plead for more time to master his position.

Writing in the February 2005 edition of Vanity Fair, Dunne is one of the few journalists to quote a line of questioning by plaintiffs' attorney Steve Schulman that suggests a darker side to the Eisner…Ovitz relationship:

One day Steve Schulman asked Michael Eisner on the stand if he had any reason to "fear Mr. Ovitz had any tools or weapons at his disposal that could be used against you?"

"No." replied Eisner.

"Does Mr. Ovitz have any private information on you?" asked Schulman.

"No." replied Eisner.

Dunne then reports that during his testimony Sanford Litvack was asked, by plaintiffs' co-counsel Seth Rigordsky:

"O.K. Did Mr. Eisner ever express to you in words or substance a concern that somebody within the company was eavesdropping or tapping?"

"Nope."

"Did you ever become aware of a concern of Mr. Eisner about that issue?"

"I'm sorry. What issue?"

"The issue of somebody eavesdropping or tapping his (Eisner's) office."

"When?"

"In '95 or '96?"

"No."

Dunne goes on to say,

The words "private information" and "tapping" suggest a suspicion of secrets between Eisner and Ovitz…"

What those secrets might be will probably not come out at the trial. However, given his unprecedented access within Disney, it would have been nice to read Stewart's insights on this cryptic line of questioning.

Avid Disneyanamaniacs hoping to find new and startling revelations of any kind in DisneyWar are likely to be disappointed. There's little in Stewart's book that hasn't already appeared in the press or on the Internet in one form or another.

Or put another way, virtually everything you've ever heard over the last twenty-one years about the Walt Disney Company and Michael Eisner is probably true.

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