Diane was so upset that when James Bates, a Los Angeles Times reporter, left a message, she broke her long-standing public silence and returned the call. The reporter wasn’t in, but Diane left a message. “As far as my cousin is concerned, Roy loves the company, but I think he’s taken the wrong action here. I think he’s put the company in play. As far as Michael goes, he’s had a good run. It is time for him to go.” Then she hung up.
When Bates returned her call, she elaborated, saying “New leadership is necessary. I think Michael Eisner did some great things for the company but there also are some not-so-great things,” and she urged the board to move quickly to replace him. “Disney’s Daughter: Eisner Must Go,” was the headline in the Los Angeles Times on March 10, 2004.
As both Disney and Save Disney kept up their round-the-clock polling of shareholders, it became clear to both sides that the once unthinkable might happen: As many as 35 percent of Disney’s shareholders might withhold their votes from Eisner. In an effort to blunt the shock value of any such result, Disney began floating to reporters the notion that as many as a third of the voters might vote against Eisner. Each day seemed to bring more bad news for the embattled Disney team.
On February 25, CalPERS announced that it would cast its votes with Roy and Gold and vote against Eisner, followed by state pension funds in Connecticut, Massachusetts, and New Jersey. Even New York, where Disney had done so much to help revitalize Times Square, and Florida, with its massive Disney presence, joined the fray, saying they would withhold support for Eisner. Mutual fund company T. Rowe Price, Disney’s fourteenth largest shareholder, with 19 million shares, called for Eisner’s ouster. Alan Hevesi, New York’s comptroller and director of the state’s retirement fund, which owned 8.7 million shares, issued a statement saying, “I call on Disney directors to separate the positions of chairman and chief executive and to replace Mr. Eisner as soon as possible.”
Disney dismissed the state pension fund actions as headline grabbing by aspiring politicians motivated by personal political gain, and not the interests of Disney shareholders. But there was no denying the silence from Eisner supporters. Not one state government said it would vote for Eisner. Disney had mounted a campaign to generate letters of support for Eisner from prominent entertainment executives and other businessmen. It had yielded little. Marty Sklar, the head of Disney’s Imagineers, wrote an op-ed piece calling Eisner “a great creative force and the ideal creative partner.” Barry Diller, asked about Eisner on CNBC, said only that he was a “longtime friend and supporter” and that he thought Eisner would keep his job. General Electric’s Jack Welch, also on CNBC, praised Eisner as “a creative genius.” But otherwise the silence was deafening. Even Sid Bass, for so long Eisner’s staunchest backer, remained silent.
On March 2, it fell to George Mitchell to make Disney’s case in The Wall Street Journal. He argued that there was no immediate need to divide the posts of chairman and chief executive and stressed Disney’s governance reforms. “The changes we have made have resulted from our listening. We listened to the concerns that have been expressed about the company and about all of corporate America. We heard the concerns that boards were too large; that they were not independent enough; had too little diversity and not enough expertise; that there was not enough turnover, that they were too insular. We listened—and we took action. Michael Eisner listened, too. He initiated many, and embraced all, of these changes—and encouraged their speedy implementation.”
Two days before Disney’s annual meeting in Philadelphia, Eisner spent the night in New York with Jane. The next day they were being driven to Philadelphia when Eisner got a call reporting that Disney had just heard from Fidelity, which controlled over 3 percent of Disney’s shares. Disney had been counting on Fidelity’s support—just days earlier Eisner had been assured he had it. Now he learned that Fidelity was casting its votes against him, voting “no” with Gold and Roy.
Eisner turned to Jane. “Everyone hates me,” he said.
*In December 2004, without admitting or denying the allegations, Disney settled the SEC investigations and agreed to comply with the securities laws. Eisner was not required to acknowledge any personal responsibility.
*While I wasn’t listening to this confidential conference call, the session was recorded and I later obtained a transcript.
Seventeen
March 2, 2004, is a clear, mild day in Philadelphia. Though Save Disney’s rival meeting isn’t scheduled to begin until 4:00 P.M., by 1:00 P.M. a line has formed on the sidewalk at the Loews Hotel, a nondescript modern building located around the corner from the Convention Center. By 3:30 hundreds of people are waiting. Many in the line are carrying anti-Eisner placards, and a few carry anti-Comcast signs. Nearby, the Christian Action Network hands out leaflets protesting “Gay Days” at the Disney theme parks as well as a video, “Gay Day at Disney Gone Wild.” Five television satellite trucks crowd the narrow street.
Save Disney helped shareholders wanting to attend Disney’s annual meeting find discounted airfares and hotel rooms, and an overflow crowd squeezes into the Loews Millennium ballroom festooned with “Save the Magic!” banners as a jazz band blares over the loudspeakers.
Tracy Lunquist, a thirty-four-year-old graduate student at the University of Illinois, has been a Disney shareholder since 1992, and would someday love to work at Disney. She’s there with her friend Ian Mitchell of Philadelphia. They agree that Disney under Eisner has been in decline. They cite lapses at the theme parks, the exodus of high-level executives and creative people, the firing of animators, the cheap, straight-to-video sequels, and the falling-out with Pixar. Surprisingly well informed, they say they stay in touch through on-line Disney fan sites.
“That’s totally Eisner,” Lunquist says of the falling-out with Steve Jobs. “The guy gets rid of anyone who disagrees with him. But autocracy and creativity cannot coexist.”
Mitchell nods in agreement. “People who buy stock in Disney don’t do it just for the dividend check,” Lunquist continues. “We want to be involved in the company.”
Despite the antigay protesters across the street, Scott Ross and his domestic partner, Nathan Lee, have driven fifteen hours from Springfield, Missouri, to support Roy and Gold. Avid fans of the theme parks, they visit Disney World three times a year. “Over the last few years, the quality has gone downhill,” Ross told The New York Sun. “They’re more worried about profits than making sure you have a magical experience.”
As the lights dim and the music swells, Gold takes the stage. He introduces members of the Disney family sitting in the front row: Roy, Patty, Abby, Tim, Susan, Roy P., and Andrea Van de Kamp, the former board member who has now openly thrown her support to Roy and Gold’s effort to unseat Eisner. There is deafening applause as they stand and acknowledge the crowd.
After a nostalgic slide show of pictures from Disneyland, circa 1959, Shamrock executive Michael McConnell presents many of the themes and arguments honed during the presentations to the shareholder advisory services and institutional investors during the past two months.
Then Roy mounts the stage and moves to the podium. It’s clear that to this audience, he is the embodiment of Disney, the values that transcend profit and loss and which have drawn them to Philadelphia. The audience jumps to its feet and gives him a prolonged ovation.
“There’s a pretty long list of changes we’d all like to see,” he tells the audience. “For instance, I think the short list would include management. We know that for sure. Improving the cleanliness, the maintenance, and the guests services in the parks, and that would include putting the smile back on the faces of both cast members and guests.”
The audience breaks into applause. “Making better movies and television shows,” he continues, “especially in feature animation. Fixing the ABC Network and dragging it out of its perennial fourth place. Being better corporate citizens of the country and the world, and to just plain being Disney again.” There is more wild applause.
Shamrock executive Gene Krieger reads questions submitted by audience members to Gold, Roy, and McConnell. One of the first is about Pixar, and Roy responds, “We want the whole gang at Pixar back. They told us…” He pauses. “Forgive me for saying ‘us.’I still forget I don’t work there. But the night before last, I heard that all of them in the blink of an eye will come back when Michael Eisner is no longer at Disney.”
Krieger reads another question. “If Eisner leaves, who should run it? Would you do it?”
“No,” Gold replies. “We think there is a short list of five to ten people who could run it much better than Eisner.”
“Are you pandering to the Christian Right? Are you tolerant to all?”
“No, and yes,” Roy replies, eager to distance himself from some of the demonstrators outside. (Abby and Tim Disney were particularly upset by what they consider fringe groups trying to attach themselves to their father’s cause.)
“We need to get stronger after tomorrow,” Gold continues. “We need to keep the drumbeat current….”
“Stay tuned,” Roy injects. “We have thirty-one thousand registered names so far, but we need more. I used to say, if we had enough rifles, we could have this over tomorrow.”
There is awkward laughter. Roy’s daughter Abby visibly cringes at this gaffe. (Roy later says he meant the comment in jest, and regretted it as soon as the words were out of his mouth.)
“I think this is an unprecedented campaign in the history of American business,” Gold says, trying to steer things back to a loftier plane.
Krieger reads another question: “What are your feelings about Comcast?”
“My absolute druthers would be for Disney to be a movie studio and theme parks with ancillary publishing and good merchandising things,” Roy answers. “But I’m also practical enough to know there are other limbs—like ABC—that you don’t just cut off. But if we run everything well, we’ll be worth too much to entice other companies to take over.”
There is more prolonged applause, and then the band breaks into Henry Mancini’s “Moon River.” Hundreds of people line up to get Roy Disney’s autograph, including Lunquist and Mitchell. “It’s not every day you get to shake the hand of a real Disney,” Mitchell says. “Roy is so in touch with the company and what the people want out of this company. Now, I don’t know if he was prepped, but he got it right. He knows us.”
Afterward, Save Disney is host to a reception, with free hors d’oeuvres and soft drinks, beer, and wine. Roy mingles in the crowd, under a moving halo of television cameras, shaking hands and exchanging pleasantries. However shy by nature, he seems in his element among the Disney faithful. One of them is Michelle Kutch, a teacher in the Brandywine, Delaware, schools. She’s seven months pregnant, and has a two-year-old. They’ve already visited Disney World twice and taken a Disney cruise. She drives a Volkswagen painted to look like Herbie in The Love Bug.
“Thank God Roy has come to our rescue,” she says.
That night, the eve of the annual meeting, Eisner, Iger, and the Disney board gathered in the Four Seasons Hotel, a quiet refuge some distance from the Convention Center. The mood was grim. All the latest indications suggested that the vote was going to be worse than anyone had feared—far worse, even, than the 30 percent Disney had been quietly projecting to the media. The latest polling by Disney’s proxy solicitors suggested the final result would be closer to 40 percent, the highest withhold vote against a chief executive ever recorded by a major American corporation.
Eisner maintains that he began with a dramatic gesture, offering to resign. “If you think this will go away, I’m happy to get off the stage,” he said. There was a chorus of protests: Eisner couldn’t leave because no one else could do the job, and it would leave Disney more vulnerable to the Comcast offer. A majority on the board felt that it had to find a way to both keep Eisner and placate what was clearly an angry group of shareholders.
Ten days earlier, takeover defense lawyer Martin Lipton had suggested splitting the positions of chairman and chief executive, as many shareholder advocates and both Gold and Roy had long recommended. The board had resisted, but now Lipton argued forcefully that the board had to do something to show it was responding to shareholders. To ignore the massive vote of protest might play into Comcast’s strategy of portraying the directors as advocates of management rather than shareholders. Eisner hated the idea that he was giving in to shareholder pressure, or that he was being “stripped” of his title, but in principle, he said he didn’t mind ceding the title of chairman as long as he remained CEO, with his authority undiminished. But that meant the chairman had to be someone he’d be comfortable with.
Ironically, separating the titles of chairman and chief executive gave Eisner enormous leverage over the board. Under his contract (drafted by Irwin Russell, Eisner’s lawyer and until recently a board member) relieving Eisner of either the chairman or chief executive title constituted a breach of his contract, giving Eisner the right to leave within thirty days with all the benefits specified in his contract, which would cost Disney millions. Indeed, Russell was on hand to underscore this very point. Thus, if Eisner were relieved of his title on terms he didn’t like, he could leave at once and force Disney to pay him an enormous sum.
Eisner’s choice to succeed him as chairman was George Mitchell; he felt he was the only person on the board with the stature to quell public criticism, and he was someone who, over time, Eisner had come to trust, at least up to a point, notwithstanding the awkward matter of the Comcast negotiations. In the eyes of at least a few of the directors, however, Eisner’s motives were more transparent: Eisner felt he could control him.
Hours had already elapsed, and now Mitchell expressed doubts about taking the job. He pointed out that he didn’t really know the industry, and lacked experience as a businessman. He also didn’t want to spend more time in California, away from his home on the East Coast. Finally, at midnight, Eisner reminded the directors that he had to give a major speech the next day. He joined Zenia Mucha to practice, and then went to his room. But at 1:00 A.M., he got a call asking him to return to the directors meeting. Nothing had been resolved, but Mitchell had agreed to consider becoming chairman overnight. In the meantime, they wanted to make sure that Eisner wasn’t feeling hurt or rejected. Finally, at nearly 2:00 A.M., the directors disbursed.
The next morning, thousands of shareholders and an enormous press corps have converged on the Philadelphia Convention Center adjacent to the Marriott hotel in downtown Philadelphia. Costumed Disney characters drift through the vast lobby as “Whistle While You Work” is piped through loudspeakers. Outside, hundreds of protesters have lined up, carrying signs denouncing Comcast, sweatshops, and the out-sourcing of jobs to Asia.
The vast meeting room is packed by 10:00 A.M., when proceedings begin. There’s electricity in the air, a palpable sense of anticipation, a feeling of history in the making. All the comments I hear around me suggest that this crowd is hostile toward Eisner, and smells blood. The shareholders are passionate about something far more profound than Disney’s latest quarterly results. I can only wonder if this was what it felt like at the famous tennis court gathering of the bourgeoisie on the eve of the French Revolution.
There is a ripple of murmurs, even a few boos, as Eisner steps to the podium. “Good morning everybody. I’m Michael Eisner,” he begins, his voice hoarse, perhaps because he stayed up so late the night before. “As it happens, this annual meeting is taking place at a time when the amount of vision is once again resulting in a dramatic, and we believe, a sustainable upswing in Disney’s performance…. We now anticipate earnings gains from continuing operations in excess of thirty percent in fiscal 2004, and we have set a target of double-digit compounded growth in earnings through 2007…and of course we are thrilled with a nearly sixty percent increase in our stock price since our last annual meeting.”
Eisner acknowledges the “slow movement” of ABC prime time, and the collapse of the Pixar talks. That
Sunday, Finding Nemo won the Oscar over Disney’s Brother Bear, and “No one would have wanted to continue this relationship more than me,” Eisner maintains. “But the economics of the ongoing relationship were not in the interest of our shareholders.” Otherwise, he gave a glowing assessment of Disney’s prospects. “I love this company. The board loves this company, and we are all passionate about the output from this company.”
After brief remarks from retiring directors Tom Murphy and Ray Watson, Eisner announces that the board has reached an agreement to allow Gold and Roy to make fifteen-minute presentations. To a prolonged wave of applause that clearly signals the audience’s sentiments, Gold comes to the podium. “Roy Disney and I have been on a mission,” he says. “A mission not to promote ourselves but to save our company.” After reciting a litany of board and management failures and compromises, he says, “This is the story Roy Disney and I have told as we have crisscrossed the country in the last thirty days talking to small and large shareholders alike…Let me be clear. No half measures, no excuses, no amount of spinning will be tolerated. Michael Eisner must leave now.” Gold turns and says directly to Eisner: “You have compromised your soul and lost your integrity.”
Sitting on stage, Eisner looks grim as Gold’s barrage comes to an end. Eisner stares straight ahead, and looks like he is struggling to keep himself in check. There can’t have been many chief executives subjected to such a withering tirade in front of thousands of shareholders.
Then, on the darkened stage, Roy suddenly appears at the podium, and many shareholders leap to their feet, applauding wildly. Once the applause subsides, Roy begins. “The Walt Disney Company is more than just a business. It’s an authentic American icon, which is to say that over the years it’s come to stand for something real and meaningful and worthwhile to millions of people of all ages and backgrounds around the world…Our mission has always been to be bringers of joy, to be framers of the good in each of us, to be teachers. To speak as Walt once put it, ‘Not to children but to the child in each of us.’ This is the core of what we have claimed to call Disney.”
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