Performance Vs Governance at Disney.

To create an innovative company that “makes people happy” and at the same time create shareholder value and also adopt a good governance style may be challenging. While I admired the amazing magic at the Disney parks I had to also agree to the management style used by the CEOs to ‘get their way’ provided they created ‘stakeholder value’, which cover a wider group interest than the shareholders. I’m sure every CEO will agree with me when I say that they do manipulate decisions to suit their needs in the hope that it works for the shareholders too.

Eisner’s Success during 1984- 2004
Governance issues aside, one could not argue against his success. Eisner took decisive action at an underperforming company and showed immediate results. Under his direction, stock appreciated 1600% and revenues grew from $1.5 billion to over $30 billion. With this type of success, any board of directors is going to be reluctant to question the CEO. The board, representing yes men and friends of the CEO relinquished their role and gave additional managerial freedom to Eisner. Governance was tempered by success in the stock market.

Eisner’s era
Eisner was criticized for assuming too much power and responsibility within the organization, even going as far as surrounding himself with board members consisting of friends and acquaintances. Those that opposed his decisions were often victimized and left out of important committees, resulting in Eisner having full control over the board. Another problem was not identifying a successor. This kept Eisner in power because the board was unable to look at other prospects and must rely on Eisner

In late 2003, Roy Disney and Stanley Gold, both of whom were directors at the Disney resigned from the board in protest against the bad governance practices at the company. They alleged that CEO Michael Eisner ran the company like a ‘personal fiefdom’ and that the board was only a rubber stamp to his decisions. They also accused Eisner of putting the future of the company at risk through what they expressed as bad governance.

Robert Iger:The new leadership
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. Despite several criticisms from governance groups and activists on the dual position of CEO and Board Chairman, Robert Iger was given the post of chairman, as well, in March 2012. This appears as a reversal of the reforms adopted by Disney in 2004 when then-chairman Michael Eisner relinquished the title under pressure from shareholders. However, the company has continued to perform well.

The main lesson out of the Disney’s corporate governance failures is that the board of directors should be composed of competent, appropriately independent, diverse people with a wide range of skills and capabilities who should clearly understand their responsibilities and act in the interest of the company. They should also embrace transparency, accountability and fairness in their governance style.

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About surenraj

“Views expressed are my own”
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