Discord in the Mouse


The Walt Disney Co. chairman Michael Eisner came under fire last week after two long-time directors resigned from the board.

Disney vice chairman Roy Disney set off the fireworks on Nov. 30, abruptly resigning from the board. In a three-page letter, he blamed Eisner for most of the media giant's problems. The next day — Dec. 1 — Stanley Gold, a long-time confidant of Roy Disney, also resigned, reiterating the former vice chairman's comments.

Gold seemed most upset about Roy Disney's forced retirement, calling the action a move merely to squelch a critical voice on the board of directors.

Retirement Rules

Roy Disney was expected to resign as a result of new corporate-governance rules at the media giant that required directors to retire at age 72. He is 73.

Disney's board had left Roy Disney's name off the slate of directors to be nominated in a two-day board meeting that was scheduled to start Dec. 1, along with the names of longtime Eisner supporters Raymond Watson (76) and Thomas Murphy (77).

After the board meeting concluded Dec. 2, Disney said Sybase Inc. chairman John Chen would become an independent director in January. Yum Brands president Aylwin Lewis was elected to the board in September.

It is unlikely that Disney would nominate another director to replace Gold or Roy Disney. Earlier this year, Disney said it would reduce its board membership from 13 members to 11 members in January.

In his resignation letter to the board, Roy Disney said it should be Eisner who steps down, and not him.

He went on to criticize Eisner's micromanagement, which, he claimed, has harmed company morale; Eisner's failure to turn around the ABC Television Network; and the perception that under Eisner's leadership, Disney "is rapacious, soulless, and always looking for the 'quick buck' rather than long-term value, which is leading to a loss of public trust."

Roy Disney also wrote that Eisner has "driven a wedge between me and those I work with, even to the extent of requiring some of my associates to report my conversations and activities back to you. I find this intolerable."

In a prepared statement, former Sen. George Mitchell (D-Maine), presiding director of Disney's board, said Roy Disney had been informed of the board's decision that its mandatory age requirements applied to him, as well as to Watson and Murphy.

"It is unfortunate that the committee's judgment to apply these unanimously adopted governance rules has become an occasion to raise again criticisms of the direction of the company and calls for change of management that have been previously rejected by the board," Mitchell said.

Roy Disney — nephew of Disney cofounder Walt Disney and son of cofounder Roy O. Disney — was a member of team that recruited Eisner to take the helm in 1984.

Eisner, who was head of Paramount Pictures, came on board with former Warner Bros. vice chairman Frank Wells that year and swiftly took action to turn the company around. After Wells died in a helicopter crash in 1994, Disney's fortunes waned, and Eisner has largely been blamed for the decline.

Turnaround Signs

Although Disney has gone through some rough times — its stock hit eight-year lows in 2002 — the company has been gaining ground lately. Its stock is up about 42% this year, and Disney appears to be turning the corner after major cost-cutting moves were implemented last year.

Over its fiscal fourth quarter ended Sept. 30, revenue increased 5% to $7.01 billion and operating income was up 15%. Net income more than doubled in the period to $415 million (20 cents per share) from $175 million (9 cents) in the prior year, based largely on strong showings from its film and cable-television units.

Whether Roy Disney will have much influence in ousting Eisner remains to be seen. According to its last proxy statement, Roy Disney holds about 17.3 million Disney shares, or less than 1% of total shares outstanding.

"While the tension between Mr. Disney and Mr. Eisner is not an entirely new issue, we believe that if nothing else, the resignation could act as a catalyst for change at the executive level and, at a minimum, this is a major distraction for company management and the board of directors," Merrill Lynch & Co. media analyst Jessica Reif Cohen wrote in a research note.