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Wednesday, December 03, 2003 - Page updated at 12:00 A.M.
Disney's CEO Eisner is facing strongest leadership challenge
By Gary Gentile
LOS ANGELES With two once-strong allies turning on him, Michael Eisner's micro-managing style of leadership at the Walt Disney Co. is again getting scrutinized.
Still, industry experts say Eisner may hold what Disney needs to weather a difficult period and also what will help him survive the latest challenges to the chief executive's position he took in 1984.
Roy Disney and Stanley Gold have called on Eisner to resign, saying he is to blame for a tumbling stock price, embarrassing management missteps and a focus on short-term profits over the company's core mission.
But odds are that Eisner, credited with turning a sleepy theme-park company and also-ran movie studio into a major media conglomerate, will keep his job at least until his contract expires in 2006.
"Mr. Eisner did a very good job for a long time for the company," said Harold Vogel of Vogel Capital Management in New York. "He now has stronger board and governance procedures than he ever had before, which would mute complaints of institutional holders, and institutions are not clamoring for him to leave."
Separately yesterday, the Disney board elected John Chen, chief executive officer of Sybase, as a director, and declared an annual cash dividend of 21 cents per share, payable on Jan. 6 to shareholders as of Dec. 12, at the company's meeting in New York. With the latest payment, the company will have paid a 21-cent annual dividend for five years in a row.
With Gold's and Roy Disney's departures, Chen's scheduled arrival in January and the previously announced addition of Yum! Brands President Aylwin Lewis in January, the board will have 11 outside directors and two nonindependent directors. Two members, Thomas Murphy and Raymond Watson, will retire in March.
In resigning from Disney's board of directors this week, both Disney, nephew of Walt, and Gold singled out Eisner and his management style as the main factors in the decline of Disney's fortunes in the past seven or eight years.
"You had a very successful first 10 years at the company in partnership with Frank Wells, for which I salute you," Roy Disney wrote in his resignation letter Sunday.
Wells died in a helicopter crash.
Eisner is famous for managing every aspect of Disney's business, from approving carpet patterns in hotels to commenting on TV and movie scripts.
Critics say he is loath to share power and has insulated himself from criticism, rewarding executives who play it safe and alienating risk takers and critics.
His personal style has also clashed with others, including Harvey Weinstein, head of Miramax, the studio Disney bought in 1993, and Steven Jobs, the head of both Apple Computers and Pixar Animation Studios, which produced such animated film hits as "Finding Nemo" with Disney and is negotiating a new contract.
In 1995, he hired his friend Michael Ovitz as Disney president, a disastrous decision that led to the departure of several executives and a multimillion-dollar severance that is the subject of a shareholder lawsuit. Ovitz left after just 18 months.
Eisner led the company solo until 1999, when he finally hired Robert Iger, who had been head of Capital Cities/ABC.
The division between Eisner and Roy Disney may be emblematic of growing demands by shareholders that companies be managed more aggressively for profit.
"It's the struggle between investing in the parks for attractions versus improving the bottom line for shareholders," said David Joyce, media analyst for Guzman.
In the past five years or so, Disney has invested millions of dollars in new parks, but now intends to spend more on marketing those assets rather than substantially expanding them, Eisner has said.
Disney has also cut hundreds of jobs in its animation department, slashed 4,000 jobs companywide, closed an unprofitable Internet venture and is selling its chain of Disney retail stores.
Eisner has been criticized for not producing the kind of growth and stability at Disney that can be seen at other media companies, including Rupert Murdoch's News But Eisner is also credited with having resisted the urge in the late 1990s to merge Disney with an Internet company, a move still plaguing media giant Time Warner.
In the end, Eisner's fate may be tied up with the direction of Disney's stock. Disney stock fell from more than $40 per share in 2000 to under $14 in 2002.
The stock has risen nearly 34 percent since the beginning of 2003 as the company's fortunes have gradually improved, trading yesterday at $22.58.
If Disney can deliver on its promise to raise earnings from 66 cents per share this year to $1.02 in 2005, Eisner may dodge calls for his resignation.
"The company knows what it needs to do and has already done a lot to be poised for the economic and tourism rebounds," media analyst Joyce said.
Information from Bloomberg News is included in this report.
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