“It all started with a mouse” - Walt Disney
Walt Disney: CEO and Supervisory Board
Eda Dokle
Summer 2012
Institute of Economic Studies
Charles University
Abstract
Disney has been one of the leading companies in the entertainment industry for much of its 89
years of life. How was the ‘Magic Kingdom’ governed during all these years? First, this paper
aims to provide an analysis of the corporate governance best practice. Then, it addresses the
successes, challenges and failures that Disney’s corporate governance faced during Disney,
Eisner and Iger leadership. Finally, it provides some lessons learned and the positive
improvements made lately by the corporate governance.
“It all started with a mouse” - Walt Disney
Corporate governance best practice
Since 1990s, with the start of the global liberalizations and privatizations, the corporate
governance has been under a crisis and the performances of the company boards have undergone
continuous criticism and inspections. 1 To better understand the problems of the Walt Disney
Company, we first develop the basic concepts for good corporate governance.
Corporate governance is mainly about maintaining and further developing the corporate culture
and values. Good corporate governance means also properly performing the obligations towards
the shareholders, customers, employees, and community.
The performance of the company should be the main goal of the corporate governance. It should
be accompanied by a close monitoring and supervision of the board by the shareholders to make
sure that the interest of the management and the owners of the company are walking together.
Effective boards which aim good governance should focus on performance, culture and good
behavior to ensure profits in infinity. The board control structure is very important because it
shapes the behavior of individual board members and the whole board. The board leadership
structure may be either unitary (CEO and board chairman are one post) or dual board structure
(separate).
During the past decades, the executive compensation has become a way to reward not
necessarily performance but mainly a rise in the market share secured by the management.
Nevertheless, the main drive behind corporate governance reforms facing problems are the
market requirements because investors are more willing to invest in well- governed companies.
Walt Disney: It all started with a mouse
The Walt Disney’s mission “To make people happy” reflects the philosophy and values of the
people who found the company. Since its foundation in 1923, the Walt Disney Company
objective has been to become “one of the world’s leading producers and providers of
entertainment and information, using its portfolio of brands to differentiate its content, services
and consumer products”. 2 It seems like Walt Disney aimed to make this company successful
perpetually by producing unique entertainment experiences of high quality and creativity.
When mentioning some of Walt’s achievements, as the Mickey Mouse, the first full- length
animated movie, the theme park, and the first modern multimedia corporation, the Time
Magazine states that “the most significant thing Walt Disney made was a good name for
himself”. 3 Walt Disney was a visionary entrepreneur who became one of the most successful
entrepreneurs in America influencing the business corporate culture of the time.
1
Kami Rwegasira, “Building a great corporate board”, Daily News, July 19, 2003: 3.
The Walt Disney Company, Investors Rela tions, http://corporate.disney.go.com/investors/index.html .
3
Richard Schickel, “Walt Disney: Ruler of the Magic Kingdom”, Time Magazine, Dec07, 1998
2
“It all started with a mouse” - Walt Disney
“Well…sometimes I think of myself as a little bee. I go from one area of the studio to another
and gather pollen and sort of stimulate everybody. I guess that’s the job I do”4 used to say
Disney meaning that he inquired to create a workplace of professionalism, teamwork and
integrity. His business philosophy was to focus on the customer by using high service standards.
Michael Eisne r: The monarchic corporate governance style
Michael Eisner took over the leadership of the company in 1984, after the company had
experienced several unsuccessful CEOs since the death of the founder, Walt Disney. Eisner’s
leading period is known for success in reaching high profits and search for monarchic power
within the company. During this period, the company expanded the theme parks and its financial
performance was considered to be better as shown in the following chart.
Yahoo Finance, http://finance.yahoo.com/q/bc?s=DIS&t =my&l=on&z=l&q =l&c=
Despite the positive financial figures, during the 1990s, Walt Disney kept a continuous place in
the worst American corporate boards ranking of the BusinessWeek.5 Two big events happened in
4
Walt Disney: Famous Quotes, (Disney’s Kingdom, 1994) P.84
Louis Lavelle, “The Best & Worst Board”, Business Magazine, October 7, 2002.
(http://www.businessweek.com/magazine/content/02_40/b3802001.htm)
5
“It all started with a mouse” - Walt Disney
Disney during this time, which received high media coverage and fueled the criticisms regarding
Disney’s corporate governance.
The first event is the Ovitz hiring and firing from the company within a fourteen months period.
In 1995, CEO Michael Eisner hired his best friend Michael Ovitz to be the new president of the
company and fired him in 1996. In September 2005, the board approved Ovitz appointment
unanimously but not all the board members were properly informed regarding the full process of
Ovitz hiring. During Eisner leadership, a crucial point in corporate governance was the
information infrastructure, meaning who gets which type of information, how often and in what
form. As a result of this situation within the board, a proper monitoring and evaluation of the
activities of the company were not possible to perform. Nevertheless, despite the lack of
complete process in hiring Ovitz, this hiring was accompanied by an increase in the market value
of Disney’s stock by over $1 billion in value in one day. 6
The second event is the shareholder revolt started by Roy E. Disney, Walt’s nephew, who
complained about the way Eisner was leading the company. He argued that Eisner had been
ruling the Disney Company for many years in an imperial and very independent way. After this
revolt, the board stepped in in 2004, and with 45% of the votes, they removed Eisner from the
position of chairman of the board. This is considered to be a crucial event in corporate
governance because in the past two decades, it was not common for shareholders of American
public companies to vote against the re-election of any board member. Even if there were ‘no’
votes, they were not counted. 7
The question ‘why did not the board react before?’ to change the way Eisner was governing the
company was raised several times. The answer lies in the idea that a good indicator of good
governance is considered to be a CEO who maximizes the performance of the company and
during this time the performance of the company was very good and the stocks were rising
higher and higher. This performance made the shareholders happy and not concerned.
Nevertheless, the Eisner’s firing was seen as a sign of board independence which was typical for
the period and was called ‘CEO shuffle”. 8
Apart from the financial costs, both events mentioned above caused adverse publicity for the
company. The Economist states that the board during the Eisner period could be “easily mistaken
for a pair of Snow White’s dwarf pal (specifically, Sleepy and Dopey) ”. 9 This general idea was
created among the media due to Eisner hiring his friends as directors to have continuous support
within the board. His most commented hiring have been: an actor, an architect and a head of
6
Delaware Supreme Court affirms dismissal of shareholder derivative suit against Walt Disney Co. complaining
about company’s hiring and firing of Michael Ovitz and payment to him of $130 million in severance,
Entertain ment Law Reporter, Volume 28, No.1, June 2006.
7
Schumpeter, “Mickey Mouse governance: The meaning of Walt Disney’s latest boardroom changes ”, The
Economist, October 15, 2011,( http://www.economist.com/node/21532268)
8
Jill A.Brown, “Board and Top Management Changes over the Decades: Responses to Governance and CSR Issues ”,
Center for Ethical Business Cultures, 2010.
9
Schumpeter, “Mickey Mouse governance: The meaning of Walt Disney’s latest boardroom changes ”, The
Economist, October 15, 2011, (http://www.economist.com/node/21532268)
“It all started with a mouse” - Walt Disney
schools, which are not considered to be good choices for corporate directors of such a big
company as Disney.
While, the management is responsible to run the company and check its operations on daily
basis, the corporate governance supervision remains a responsibility of the board of directors, in
order to properly oversee the management actions. During Eisner period, he was both CEO and
Head of the Board of Directors. This dual post held by him did not allow for the segregation of
duties mentioned above. By relying too much on the actions of CEO Eisner, the Disney board
showed to be a passive one.
As a result of the Ovitz case, shareholders sued Disney directors for the damages created by the
hiring and firing of Ovitz. In 2005, the Delaware Chancery court finalized a judgment in favor of
the Disney board deciding that they acted in good faith. The court stated that the rules in the
Disney’ s corporate governance were not as per ‘best practice’, but that it cannot hold liable the
board for not complying with these practices, as this is a judgment that the market will make.
10
The judge emphasized the fact that Eisner had hired many of his friend and acquaintances in
the board, damaging the objectivity and decision making functions of the board.
The main aim of Walt Disney Company to provide quality products to satisfied customers in
order to achieve long term profits was replaced by “Eisner’s drive for short-term profits, nearobsession over 20percent annual growth, was at the root of many of Disney’s problems”11
(Stewart, 2005). Despite several criticisms for Eisner, there have been several lessons learned
during his governance. The prevailing ones are:
 The compensation committee should properly perform its role regarding the employment
negotiations. This process should be regulated especially when hiring futures executives
of the company.
 The board of directors should be active and duly perform its corporate governance duties
in order not to allow for a powerful CEO gain monarchic power.
 In case of employment negotiations, directors should request for p re-meeting materials
and information in advance. They should also request discussion time for specific
employment negotiations and make sure that all the steps and processes during the hiring
process should be properly documented. This is important in cases sent to court.
Robert Iger: The ne w leadership style
After Eisner decided to step down as CEO in 2005, Robert Iger, chief operating officer (COO)
was unanimously approved by the board as new CEO. The first challenge Iger faced was to
create a working environment for workers motivated to achieve high goals set by management.
He aimed to change the leadership way at Disney and started by giving managers the chance to
10
11
Donald A.Glazier, “Executive Compensation and the Disney Decision”, Integ ro Insuran ce Brokers, January 2006.
Stewart, J. B., Disney war, (New York: Simon & Schuster, 2005)
“It all started with a mouse” - Walt Disney
make independent decisions. 12 Iger promoted collaboration, enhanced diversity and gave people
a sense of purpose. Moreover, he believed that adopting technology would be necessary for the
business to grow and be more efficient. As a result of this ambition, in 2005, Disney supplied his
programs and movies in iPod platform.
More importantly, Iger, through the humble position he held, showed to care not only about the
business performance, but also concern for the people working for the organization. This
behavior made people feel appreciated and respected.
Although the solution to Disney’s problems in corporate governance has been argued to be for
the board to choose a board chairman separate from the position of CEO, in Disney they seem to
favor the dual position. Despite several criticisms from governance groups and activists on the
dual position of CEO and Board Chairman, Robert Iger was given on March 2012 also the post
of chairman. 13 Iger’s additional post as Board Chairman may remind shareholders of the Eisner
period. Iger will hold the CEO position until March 2015 and the chairman position until June
2016.
Conclusion
In analyzing the corporate governance of a company, it is necessary to point out whether it
adopts a ‘shareholder model’ or a ‘stakeholder model’. In the ‘shareholder model’, the company
aims to endorse the shareholder value while in the ‘stakeholder model’ the company serves a
wider range of interests. Nevertheless, both stakeholders and shareholders share the same
opinion that good corporate governance has the following requirements: transparency,
accountability, fairness and responsibility. 14 In the Disney case, we can observe the two models.
During Walt Disney leadership, the ‘stakeholder model’ prevailed while during Eisner leadership
the ‘shareholder model’ is dominant.
The main lesson out of the Disney’s corporate governance failures is that the board of directors
should be composed of competent, diverse people with a wide range of skills and capabilities
who should clearly understand their responsibilities and act in the interest of the shareholders.
Nowadays, the board of directors seems stronger and well organized compared to 1990s. It has
thirteen directors and most of them are senior business executives or former operating executives
of large companies. This shows that the company is committed to have strong corporate
governance and is trying to keep up with all today’s corporate governance requirements. Despite
the positives steps taken, there exists further room for improvement in the Disney’s corporate
governance.
12
Michele Chandler, “Iger and Disney have survived singing cops and moms in Mars”, Stanford Knowledge Base,
(http://www.stanford.edu/group/knowledgebase/cgi -bin/2011/06/03/iger-and-disney-have-survived-singingcops-and-moms-on-mars/
13
Lisa Richwine, “Disney CEO Iger adds chairman role”, Reu ters, March 13, 2012
(http://www.reuters.com/article/2012/03/13/us -disney-board-idUSBRE82C0Y520120313)
14
Olivier Fremond, “The Role of Stakeholders”, OECD, October 2000,