From the rapt attention of the crowd it’s clear that this is what they have come to hear—not projections of compound earnings growth. “Creativity is a funny thing,” Roy continues. “It’s a living, breathing force with a life of its own and it tends to flower among individuals and in small groups.” Disney must “resume our trajectory of creativity and financial success” by “trusting the talents and imaginations of its creative people—and I can’t emphasize enough the word trust—and then by supporting them with the resources they require. We need to install a new management team…. Speaking as someone with the name of Disney, it is my firm belief that we are not a commodity. As long as we continue to believe in the power of creative ideas then our best years will still lie ahead.”
There is thunderous applause.
Eisner comes to the podium. “Thank you, Stanley. Thank you, Roy. I enjoyed that. But I think I have to say the conclusions you’ve just heard are fundamentally wrong…. You have just heard rhetoric from our critics that frankly displaces reason.”
Over the next two hours, Disney executives and division heads—Bob Iger, Tom Staggs, Dick Cook, Lloyd Braun, Susan Lyne, Anne Sweeney among them—give polished presentations lauding their operations and unveiling new products, like the much anticipated Hidalgo and The Alamo for the studio, Home on the Range in animation, and a Stephen King series, “Kingdom Hospital,” as well as a return of “Super Millionaire” on ABC. But as the lunch hour comes and goes, the audience is clearly anxious to get to the climax, the results of the final shareholder vote.
Late that afternoon, after a few more questions from the audience, Eisner abruptly accepts a motion to adjourn the meeting, seeming to have forgotten that no tally has been announced. “I think it’s about that time…the meeting is adjourned,” he says.
Howls of protest arise from the room, and cries of “Vote! Vote!”
Eisner realizes his oversight. “I almost got away with that,” he quips. “I’ve been informed that the inspector of elections is prepared…”
An inspector steps to the podium. “For item one, the election of directors,” the inspector began, and then reads the exact vote tallies, all of them in the millions of shares.
There are more howls, since without a calculator, it’s hard to know what percentage of the votes has been withheld. Ultimately, it’s determined that 43 percent of the shareholders have withheld their votes from Eisner, and 24 percent from Mitchell. Even more devastating to Eisner, though not released to the public, 72.5 percent of Disney “cast members” voting through their 401(k) retirement plans, have voted “no” on Eisner. A remarkable 63.7 percent voted against Mitchell as well.
To a smattering of applause and murmurs, the crowd begins to disperse. The shareholders have just delivered a stunning repudiation of Eisner’s leadership.
At the Four Seasons Hotel, the Disney board reconvened at nearly 5:00 P.M. By the time the vote was announced, it didn’t come as a total shock. Word had circulated among board members that morning that the “no” vote would surpass 40 percent, worse than anyone had imagined. The sizable vote against Mitchell—larger, in fact, than the 22 percent withhold vote that had driven out AOL’s Steve Case—was hardly grounds for reassurance.
Nonetheless, Eisner turned to Mitchell, saying again that he wanted him to assume the chairman’s title. In the wake of the shareholder rebuke, Mitchell announced that he had pondered the matter and had decided that he didn’t want the position. After all, the vote against him had been second only to that against Eisner himself. He’d already been criticized as being too closely identified with Eisner and beholden to him. As a Nobel laureate and esteemed former senator, he had his reputation to consider.
The discussion turned to two other potential candidates, Robert Matschullat, the chairman of Clorox, a relatively new board member, and former head of investment banking at Morgan Stanley; and Gary Wilson, the chairman of Northwest Airlines and former Disney chief financial officer. The board thought Wilson and Matschullat’s financial skills would complement Eisner’s creative instincts. But before either of these suggestions could gain any traction, Eisner brought the discussion to a halt. “Maybe I’ll just trigger my out now,” he said—in effect, threatening to quit and exercise his breach of contract provisions. He turned to Mitchell: “George, I really want you to do this.”
At least some directors were stunned by what they considered Eisner’s naked exercise of power. It was clear to them that Eisner wouldn’t be comfortable with a business executive who might actually challenge him, and that he preferred the more malleable former politician.*
At this juncture, Eisner suggested that he and Mitchell leave the room for a private conversation. As they walked in the hall, Eisner put his arm around Mitchell and insisted that “You’re the only guy I can work with. Anyone who can bring an end to six hundred years of fighting in Ireland can handle the Walt Disney board,” flattering Mitchell even as he cajoled him into taking the position. “We need your common sense,” he argued.
Just before 9:00 P.M., Disney issued a press release: The board of directors, “mindful of the shareholder vote today, announced that it is separating the positions of CEO and Chairman. Effective immediately, the Board created the position of Chairman of the Board. The Board has unanimously elected former Senator George Mitchell to serve in that non-executive position. While making this change in governance, the Board remains unanimous in its support of the Company’s management team and of Michael Eisner, who will continue to serve as chief executive officer.”
Despite the professed support for Eisner, there was no mistaking the board’s action: Nearly twenty years into his reign, Michael Eisner had been deposed as Disney’s chairman.
Though exhausted by the day’s historic events, that night Eisner appeared on ABC’s “Nightline” to defend himself against Roy and Gold, who vowed to press their campaign. It was galling, really, that the Disney-owned ABC Network would even devote a program to the Disney vote, and no doubt it was yet further retaliation by Ted Koppel, still angry about the David Letterman affair. Still, if he was going to have Roy and Gold on the show, Eisner was determined to have his say. Then Eisner joined Mitchell and the two flew in the Disney jet to New York, an opportunity for Eisner to further cement their new relationship.
The next morning Eisner awoke to page-one headlines: “Defied in Vote, Disney Leader Loses One Post” (New York Times); “Eisner Loses 43% of Vote; Rebuke by Shareholders Weakens CEOs Grip, May Spark Board Shift” (Wall Street Journal); “Eisner Under Fire: Disney’s Eisner Loses Top Post, Stays as CEO” (Los Angeles Times).
A call from Martin Lipton helped cheer Eisner up. Lipton had watched him on “Nightline.” “I’m getting calls,” Lipton reported, “Jerry Speyer [the real estate developer Eisner had displaced from Disney World], others. You have no idea how good you were. I know what a day you had.”
Several weeks later, on March 30, I meet Eisner at his office at the ABC building in New York. Disney has just had some good news, winning a lawsuit brought by the heirs of the Milne estate over the rights to Winnie the Pooh. Eisner predicts the press, in its eagerness to write anything bad about him or Disney, will give Disney’s “Pooh” victory short shrift.
The courtroom triumph is especially sweet for Eisner, who notes that it marks a defeat for attorney Bert Fields, who represented Katzenberg, represents Harvey Weinstein, and who, Eisner believes, has made a name for himself by harassing Disney.* Eisner observes that “Hollywood is a microcosm of the world. There’s a group of ethical people, serious, eager to work. Then there’s the underbelly, and the seedy part of that group, the people who supply the underbelly. There are the struggling runaways, the prostitutes—male and female—the dregs of the earth. The vultures. They take the low road. They may wear suits, be articulate…” He trails off.
While Eisner seems in good spirits, he is defensive about the shareholder vote, and eager to rebut impressions in the press that the board took the chairman’s title fro
m him. He insists that the board asked him to stay, and tells me how they summoned him from his room at 1:00 A.M. to make sure his feelings hadn’t been hurt. “It was touching,” he says, then continues. “I was not ‘stripped,’ quote unquote, of my title. I had already suggested this two years ago, and if it was up to me, we would have done it then. The board didn’t want to. Ira Millstein was against it. My goal was to follow the Tom Murphy model, the Bill Gates model. [The board] would have made someone the CEO, and then I would have become the chief creative officer and chairman. Now, because of the ‘situation,’ that won’t work.
“Anyway, I don’t care about the title. Many CEOs have had thirty-five to forty percent withhold votes, and nothing happens. But it was my view—the board’s view—that this should happen.” (According to Institutional Investor Services, that is untrue. The vote against Eisner was the seventh-highest ever recorded, but the others were all against directors, none of whom was a chief executive. Patrick McGurn, executive vice president of ISS, said he knew of no other withhold votes against a CEO in the range Eisner claimed, saying withhold votes against sitting CEOs are “extremely rare.”)
Eisner tells me that the board meeting itself was “very emotional. There are three reasons they want me to stay: One, they like me. I know what I’m doing. I’ve been unjustly criticized.
“Two, they detest Stanley and Roy. You have no idea. Beyond what you can imagine. They’re liars….” Eisner pauses. “They have said horrible things about the board. First they went after me, then the board.
“Three, Comcast. I’m strong. I told Steve Case to go to hell. They didn’t want to weaken the company vis-à-vis Comcast.”
After some more conversation, and just before we leave for dinner, Eisner gets a pen and a piece of paper. “Disney is a French name, not Irish,” he reminds me. “Now look at this.” He writes “D’Isner,” “Deez-nay,” as the French would pronounce it, “is Eisner without the D.”*
But even as Eisner was musing on his possible dynastic claim to the Disney throne, it was apparent to many that his grip was slipping. Roy and Gold vowed that they would continue their crusade to replace Eisner, and would mount a full-scale proxy fight over the next year, even though the effort would likely cost them an estimated $20 million. Despite their support for Eisner at the March annual meeting, at least some Disney directors recognized that splitting the office of chairman and chief executive had only bought some time. The size of the withhold vote and the ongoing threat of a proxy fight made the status quo untenable.
No one had more at stake than Disney president Bob Iger. Speaking at an analyst meeting soon after the shareholder vote, he said he’d received an email suggesting a new reality show: “The Successor.” It would combine elements of “Survivor,” “Who Wants to Be a Millionaire” and “The Apprentice” to “figure out who succeeds Michael Eisner.” Iger’s contract was due to expire in September 2005, and while Eisner has said Iger never threatened to resign, Iger also made it clear that there was no reason for him to stay unless he was officially designated by Eisner as his chosen successor.
At the same time, both at Eisner’s behest and some board members, Iger tried to distance himself from the fate of the perennially struggling ABC network. Barring a dramatic turnaround, it was hard to imagine that Iger would be named to succeed Eisner as chief executive after Eisner had so publicly linked him to the failure to revive ABC. Iger had begun to distance himself from the network that winter, when he’d turned over responsibility for approving the pilots to Braun and Lyne. But now, with ABC still in fourth place, more dramatic measures were called for.
At the investor conference, sponsored by Bear Stearns, Iger had pointedly failed to express any confidence in Lloyd Braun or Alex Wallau when asked about ABC management. Instead, he had reserved all of his praise for Susan Lyne. “We made a big change two years ago when we brought Susan Lyne in as president of ABC Entertainment. Our job right now is to support her, to give her both the time and the room to perform, and I think that’s critical. I believe in Susan strongly, and I thinks she has the goods to turn it around.”
During the last week of March 2004, Lloyd Braun flew to Hawaii, where J. J. Abrams was filming the pilot for “Lost.” Rumors were circulating that Braun might be quitting. Braun knew Iger and Eisner hated “Lost.” He was tired of being second-guessed and overruled. The success of “The Apprentice” on NBC had been the last straw. Two weeks earlier, he’d told Kevin Brockman, the head of media relations for ABC, that he didn’t want any part of another ABC management reorganization. “I’m ready to leave this place if it’s handled appropriately,” he said, knowing that Brockman would convey the message up the ranks.
A few days later, on March 25, with Braun in Hawaii, Iger sent Susan Lyne an email asking her to meet with him. When she walked into his office early the next morning, he announced that “We’re going to be making some changes around here.” He said he was going to ask Anne Sweeney to become head of the network as well as the cable division. Alex Wallau would be moved to some other job.
“What about Lloyd?” Lyne asked.
“Lloyd wants out,” Iger said. “I’m going to take him up on his offer.”
Naturally, Lyne wondered where she fit in, though after Iger’s strong public statement of support at the investor conference, she wasn’t especially worried. “Everyone wants you to stay,” Iger assured her. “Not just me. You can take Lloyd’s direct reports.” But not, evidently, his title. “The chairman title is ridiculous,” Iger said. “What do you think of Mark Shapiro?”
Lyne was startled by this turn. Shapiro was a rising star at ESPN, the young executive responsible for the controversial series about the NFL, “Playmakers.” “I like him,” Lyne said. “He’s a pistol. He’ll need some time.”
“I know,” Iger said. “That’s why he’ll work under you.”
Lyne expressed surprise, saying that she, like others at ABC, were under the impression that Iger had taken an instant dislike to Shapiro.
“That’s not true,” he replied. “True, Mark makes mistakes. He didn’t handle Rush…” (referring to the incident where Rush Limbaugh was fired as an ESPN commentator after making racially insensitive remarks on the air).
“Do you want me to call him?” Lyne asked.
“No, let me talk to him,” Iger said.
Iger did call Shapiro, who flew from ESPN headquarters in Connecticut to Los Angeles to meet with Iger and Eisner. They offered him the title of president of ABC, reporting to Lyne, adding that in six months, if it wasn’t working well, they’d get rid of Lyne. But Shapiro resisted. “No offense,” he said, “because I love Susan, but firing Lloyd and promoting Susan doesn’t make any sense.” He noted that without one executive who was clearly in charge, they were “just rearranging the deck chairs.” He felt he had the energy and charisma to go up against Jeff Zucker at NBC and Les Moonves at CBS. “ABC needs a leader and needs to be inspired,” he argued.
“He’s right,” Eisner suddenly said. “Susan can’t do this. Let’s sweep her out and give it to Mark.”
Iger looked troubled. “We can’t. The press will be terrible.”
No decision was made, and Eisner warned Shapiro that if anything about their discussion leaked, all bets were off. The next day Shapiro met alone with Iger. Shapiro acknowledged his lack of network experience and relative youth, but noted that Iger, too, had been young and inexperienced when he became president of ABC. He argued the press would praise a bold move like putting a thirty-four-year-old star from ESPN atop the network.
When he left Los Angeles, Shapiro thought he’d be replacing Lyne. But in subsequent calls, Iger said he felt Shapiro needed a transition period, and kept urging him to accept a position reporting to Lyne. To Lyne Iger reported that negotiations weren’t going well, and that Shapiro didn’t want to report to her. She rejected the idea of another co-equal; she and Braun had made it work, but both agreed it should not be a two-person job.
Braun returned fr
om Hawaii on Saturday to a flurry of press calls. Variety, Hollywood Reporter, the sports section of USA Today all had stories that Shapiro was moving to a high-level position at ABC. Eisner and Iger were furious about the leaks, and suspected that Shapiro himself, or, more likely, someone close to him, was the source. (Shapiro told Iger he had told no one but his wife, and pointed out that given Eisner’s warning, it wasn’t in his interest to leak anything.) But as the rumors continued, Braun realized it was only a matter of time before he was replaced, if not by Shapiro, then someone else. On Monday, he was in a car with Brockman en route to a table reading for a new series when Iger reached him by phone. Iger had finally decided to fire him. The last straw had been reports from Alex Wallau, other Disney executives as well as TV producers and directors in Hollywood that Braun was criticizing and undermining Lyne. Iger had concluded that ABC’s management was “dysfunctional.” (Braun denied speaking ill of Lyne.) “I didn’t realize you were in town,” Iger began. “I understand you’ve had some discussions, and we’d like to proceed and make some changes. You should have your lawyer call Alan Braverman” (Disney’s general counsel).
That was it. Their long, contentious rivalry was over. Braun immediately abandoned the table read and called Lyne. “It’s over,” he said. He sounded relieved. “This will be good for you,” he predicted. “They need you. I’m cutting my ties now. I’ll be in tomorrow morning to speak to our people, but that’s it. Right now I’m going to Dodger Stadium.” Braun is an avid Dodger fan, and it was opening day of the baseball season.
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