Disney Turns to Insider Iger To Take CEO Reins From Eisner
After a year of urgent shareholder calls for a fresh start at Walt Disney Co., the company's board yesterday named embattled Disney Chief Executive Michael Eisner's hand-picked choice to succeed him, veteran insider Robert Iger.
The appointment of Mr. Iger, the company's president and chief operating officer, is intended to extend Disney's recent financial revival with a leader who is well-versed in its inner workings and unique culture. Mr. Iger, 54 years old, who rose up through the ranks of Disney's network-television business, will take over as chief executive on Sept. 30.
At that point, Mr. Eisner -- who at times has lobbied hard for some continuing role at Disney -- will vacate his executive position, a year earlier than planned. He will stay on the Disney board until the end of his current term early in 2006, but has pledged not to seek re-election.
DISNEY'S SUCCESSION RIDE
? Company statement
? Bios of key officials | Timeline
? Iger Faces Bumpy Magic Kingdom Ride
03/14/05
? Whitman Gains From Disney Try
03/14/05
? Disney Dissidents Attack Eisner Role in Search for CEO
03/11/05
? Disney Aims for Smoother Ride
02/07/05
? When the Mouse Squeaks, Disney Calls on Iger
03/08/02
The break with the longtime Disney chief is intended to signal that Mr. Iger, despite being Mr. Eisner's top pick, will run the company his own way. Critics have long argued that Mr. Iger wouldn't have true control of Disney as long as Mr. Eisner remained in the picture in any way. Some corporate-governance experts said yesterday that the six-month management transition period was still too long, though, especially given that Mr. Eisner and Mr. Iger will "share duties" during that time, according to Disney.
Still, Mr. Eisner's eventual exit provides the board with some cover in appointing Mr. Iger over superstar outsider Meg Whitman, the eBay Inc. chief executive who interviewed for the job a week ago. She withdrew her name from consideration on Friday night because she felt the Disney board was dragging its feet and appeared to be set on Mr. Iger, people familiar with the situation said. Mr. Iger was tapped only after a lengthy debate among board members, some of whom were known to favor hiring a big-name outsider, according to people close to the situation.
Mr. Iger's selection is unlikely to bring immediate peace to the Magic Kingdom, however, and he may not enjoy much of a honeymoon period. Roy E. Disney and Stanley Gold, dissident ex-directors of the company who led a shareholder revolt last year, quickly assailed Mr. Iger's selection, saying it was the result of a "sham" process overseen, and tightly controlled, by Disney Chairman George Mitchell.
Indeed, the Disney board will have to prove to shareholders that it didn't miss an opportunity to wipe the slate clean by hiring Ms. Whitman. Disney has been in turmoil for most of the past six years, fighting off a malaise brought on by falling earnings, a shareholder uprising, an unsolicited acquisition offer by Comcast Corp., and the sharp-elbowed executive culture that Mr. Eisner instilled at the company.
A Disney spokeswoman said Messrs. Iger and Eisner were unavailable to comment. An eBay spokesman said that Ms. Whitman declined to comment.
Mr. Iger's ascension marks the end of a tumultuous two-decade reign under Mr. Eisner. Though he guided one of the world's best-known brands through a massive expansion, Mr. Eisner was ultimately tarnished by a prolonged period of underperformance and a string of fierce corporate battles. In some cases, those clashes spilled over into the courtroom, like the bitter contract dispute with former studio chief Jeffrey Katzenberg in 1999, and the recent trial over a multimillion-dollar severance paid to another former Disney president, Michael Ovitz.
As Disney's earnings waned and criticism of his leadership crescendoed, Mr. Eisner gave up his chairmanship last March after a shareholder revolt that sought sweeping changes across the Burbank, Calif., company. Mr. Eisner, 63, announced plans last fall to depart as CEO when his current contract expires in September 2006. Disney's board had pledged to pick a new CEO by this June, and hired a search firm to look for external candidates.
According to people familiar with the matter, Mr. Eisner fought in recent months for some continuing role for himself. He at times suggested to friends and colleagues that he might like to return as chairman of the company, or take on some other role like "chief creative officer."
In recent days, people close to the situation say, much time was devoted to determining whether Mr. Eisner would keep his board seat or not through the end of his current contract. Another problem: his surrender of the chief executive title a year early triggers complex contractual issues for Mr. Eisner. Mr. Mitchell said in a conference call with reporters that the company plans to "honor his contract" and anticipates no major difficulty. A Disney spokeswoman said Mr. Mitchell was unavailable to comment beyond his remarks in the conference call.
With his early departure as CEO, Mr. Eisner's employment agreement calls for him to receive annual post-termination bonuses of at least $6 million for three years. That would be reduced by a year if he takes a job with another major entertainment company. It also provides for him to serve as a consultant after his exit "at a fee to be mutually agreed, which may be nominal."
In a letter to the board, Mr. Eisner confirmed he wouldn't seek the chairmanship of the company after Mr. Mitchell's planned exit from the board next year. In the conference call, Mr. Mitchell said the board would begin the search for his successor and have someone in place on his retirement. Mr. Mitchell said the board would also name a new independent director by the end of this year.
Just a year ago, Mr. Iger was almost nowhere on the succession radar. The New York native and former TV weatherman spent years climbing the ladder at Capital Cities/ABC Inc., home of the ABC television network. By the mid-1990s Mr. Iger was poised to become that company's chief executive. But then Capital Cities/ABC was sold to Disney, and Mr. Iger began another climb up the ladder. He oversaw the ABC network before taking on Disney's international operations in the late-1990s, and then vaulted over rivals to become the company's president and chief operating officer in 2000.
A clean-cut executive with a calm and low-key public persona, Mr. Iger stands in stark contrast to Mr. Eisner, whose huge personality has filled the halls of the Team Disney building on Disney's Burbank lot. Mr. Eisner earned a reputation as one of the business world's fiercest corporate warriors, surviving repeated attacks on his position. During his five years as Mr. Eisner's second-in-command, Mr. Iger has largely remained in his shadow, often taking on tasks that Mr. Eisner didn't like, such as traveling overseas. At times, Mr. Eisner has even privately expressed reservations about his No. 2.
But over the past year, Mr. Iger has built support both in and out of the Disney empire as a potential successor, taking a more prominent role in making the company's case to Wall Street. As Disney's fortunes have improved -- especially at the ABC network he pledged several years ago to personally fix -- Mr. Iger's momentum has gathered speed. Mr. Iger is well-liked within the company and is said to be more of a consensus-builder than Mr. Eisner.
Still, Mr. Iger is untested as the leader of such a broad-ranging company as Disney, whose businesses include theme parks, movies, consumer products and cable television. While Mr. Iger is an insider with an enormous amount of knowledge of the company, he has spent most of his career in the television-network business. He has less experience in some of Disney's most crucial areas -- such as its animated film operations and theme parks.
While Disney has been on an upward trend in the past year, with net income soaring 85%, there are big challenges for Mr. Iger going forward. Among them: keeping ABC's nascent turnaround on track; reviving the company's fading fortunes in the animated film world it once dominated; considering whether to revive Disney's battered partnership Pixar Animation Studios, which is currently set to end after the release of the animated movie "Cars" next year; and attempting to restart growth in a theme-park business battered by the post-9/11 global travel slump.
Mr. Iger's promotion quickly drew howls from some quarters. Disney's board has long been under attack from critics who said it was too beholden to Mr. Eisner. Messrs. Gold and Disney said in a statement that Mr. Iger's selection "is yet another example of this board's breach of faith. The pledge made by Chairman Mitchell to conduct a bona fide search was a ruse...Mr. Mitchell's approach to good governance is no better than a carny at the fair, enticing words but in the end the game is rigged."
Mr. Mitchell, however, said in the conference call the search process was of "the highest standard," and that the board held 11 meetings over the past six months to discuss succession and consider "several" external candidates. He characterized the board debate as "full and vigorous" and that "in the end, the board came together and acted unanimously." He added that Mr. Iger represents "the right blend of continuity, successful performance...and a recognition of needed change."
Mr. Eisner pledged his support to Mr. Iger last year, but the board also hired recruiter Heidrick & Struggles International Inc. to court external candidates. Disney found it less easy to lure outsiders, though, especially given Mr. Eisner's public backing for Mr. Iger.
The board waited until early this year to start approaching external candidates seriously, giving Mr. Iger ample opportunity to campaign for the job and get to know the board. Recruiters and board members approached several high-profile CEOs and top media executives. Among them, News Corp. President Peter Chernin and Yahoo Inc. Chief Executive Terry Semel declined to be interviewed, people familiar with the situation said.
Several were concerned about Mr. Eisner's influence in the process and the risk that their candidacy could become public, people close to the situation say.
Ms. Whitman, one of the most prominent CEOs in the technology industry, was initially among those who declined to be interviewed. Disney's recruiter and some board members had approached Ms. Whitman in January to pitch her on the Disney CEO job. Ms. Whitman worked at Disney from 1989 until 1992 as senior vice president of marketing for the Disney Consumer Products division. She has helped transform eBay from a quirky auction Web site into a global Internet marketplace. However, Ms. Whitman told board members repeatedly that she was happy at the Internet auction company and wasn't interested.
But two directors continued to court her and talks got serious the week of Feb. 15, when they told her she was the only external candidate and pleaded with her to throw her hat in the ring. They told her Disney had only one internal candidate, according to people familiar with the matter.
Ms. Whitman was flattered and intrigued, said a person familiar with her thinking. She agreed to be a candidate for the job on the condition that the board could resolve it quickly because she didn't want to be distracted indefinitely from her current job at eBay.
Ms. Whitman met with the recruiter the week of Feb. 22 in the San Francisco Bay area, according to one person familiar with the matter. She then met with the entire Disney board, on Sunday, March 6, at a board member's home in the Los Angeles area. Mr. Eisner also attended the three-hour interview, people familiar with the situation said.
Ms. Whitman asked Disney's recruiter, Heidrick, if she could have a decision by last Monday; the recruiter told her she could likely have a decision before then. Mr. Iger met with the board for an hour immediately after her.
While Ms. Whitman was interested in the job, she was extremely leery of being used as a stalking horse to demonstrate that the board had an outside option, said a person familiar with the matter. She didn't hear from the recruiter on Monday or Tuesday. By midweek, board members told her that the process was taking longer than expected, according to people familiar with the matter.
By Friday, Ms. Whitman had resolved not to take the job, a decision that was solidified by reading press reports about a letter sent to the board by Messrs. Disney and Gold, the dissident shareholders, criticizing the selection process, said a person familiar with the matter. Ms. Whitman grew concerned that Mr. Iger was the candidate the board wanted all along, people familiar with the situation said.
She called Mr. Mitchell Friday night about 6 p.m. Pacific time to notify him she was withdrawing her name, according to the people. In their conversation, Mr. Mitchell did little to dissuade her and keep her candidacy alive, which confirmed to her that she wasn't a serious candidate, according to a person familiar with the situation.
In the conference call yesterday, Mr. Mitchell said the board "definitely had choices" but "made the right choice." He said Mr. Eisner was consulted "as appropriate," and took part in an interview meeting with one candidate, but did not stay the entire time. Messrs. Disney and Gold last week in a letter blasted the board with the accusation that it was inappropriately allowing Mr. Eisner to sit in on interviews with candidates.
Mr. Mitchell said he had consulted with a number of Disney's largest investors and "a vast majority expressed strong support for Bob Iger and encouraged the board to appoint him." While Mr. Iger has yet to publicly present a detailed game plan for the company going forward, Mr. Mitchell said "there will be changes. Bob is not Michael."
Not everyone is convinced. Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware's business school, said: "Those outside the company who have been critical probably won't find much solace in the (CEO search) result." Mr. Elson, a member of three public-company boards, said the Mr. Iger's appointment "appears to be more of the same."
Messrs. Disney and Gold, meanwhile, put off plans for a proxy fight this year after Mr. Eisner announced his departure, reasoning that the board needed time to make good on its promise to find a high-quality successor. Now that moment is here, and the Disney dissidents are already waving their swords again.
"Shareholders should seriously consider replacing this board and starting anew," they said in their statement yesterday. They added: "We find it incomprehensible that the Board of Directors of Disney failed to find a single external candidate interested in the job and thus handed Bob Iger the job by default."
Elevating an experienced insider with a positive recent record might prove to be a sound governance move, counters Jeffrey Sonnenfeld, an associate dean at Yale University's School of Management. No one assumes "that good governance is equated with going outside," he adds, citing companies such as McDonald's Corp. and PepsiCo Inc. that have successfully groomed new leaders from within. "It's great for internal morale to reward the ship that is being righted at Disney," and "Iger gets a lot of that credit."
While Mr. Mitchell lauded Mr. Iger as a "visionary," the new Disney chief has spent more time laboring under other big names known for their strategic visions. At Capital Cities/ABC, he worked under the legendary management duo of Tom Murphy and Dan Burke in what was often described as a family atmosphere. People familiar with Mr. Iger's career say it has been tougher going under the demanding Mr. Eisner at Disney. Other would-be successors, like Messrs. Katzenberg and Ovitz, exited the company after run-ins with Mr. Eisner. Mr. Iger, known as a good political tactician, played his hand differently, deferring to Mr. Eisner rather than butting heads with him.
Mr. Iger has also enjoyed some good fortunes, especially in the television division with hit programs such as "Desperate Housewives" and "Lost." Until recently, his standing inside Disney was handicapped by the poor performance of ABC, which was supposed to be his strength.
"He has been the antithesis to Eisner in his own behavior and operational skills all the way down the line," said Stephen Mader, a vice chairman of recruiters Christian & Timbers in New York. While No. 2, Mr. Iger "has been viewed as a much more rational, conciliatory guy" than Mr. Eisner and an executive "who can get these [board] guys to work together," he added.
Mr. Eisner hasn't detailed his future plans. In his letter written to the board in the unmistakable style of his cheery public communications, Mr. Eisner said he would be available to "assist in a seamless and orderly transition." He said: "I'm ready to move on and climb new mountains, while always being available to help Disney in any way I can. Beginning October 1, I expect to clean off my hiking boots, re-stock my Mickey Mouse backpack and start surveying some of the other peaks that are on the horizon."
