TheGlobalBusinessEnvironment:MeetingtheChallenges 3rdEdition,PalgraveMacmillan JanetMorrison www.palgrave.

com/business/morrisongbe3

DisneyCorporation:Itallstartedwithamouse
CasetakenfromTheInternationalBusinessEnvironment,secondedition(Palgrave,2006),byJanetMorrison

WaltDisney,thefounderoftheWaltDisneyCompanyin1923,isfamouslyquotedassayingtohissuccessors inthecompany:Ionlyhopethatweneverlosesightofonethingthatitallstartedwithamouse.The businesswasstartedbyWaltDisneyandhisbrother,whorentedasmallstudiotoproduceanimatedfilms, introducingitsmostfamouscharacter,MickeyMouse,in1928.Itwasinanimatedfilmsthatthestudio excelled,andonwhichitsreputationandbrandarebased.Thecompanyhasgrownintoa$28billionayear mediaandentertainmentempire,consistingoffilmstudios,themeparksandresorts,atelevisionnetwork andconsumerproductsdivisions.MuchofthisdevelopmenthastakenplaceundertheleadershipofMichael Eisner,whotookoveraschiefexecutivein1984.Heiscreditedwiththehugeexpansionofthethemeparks andresorts.However,fromthelate1990s,thecompanysperformancetookadownturn(seefigure).New competitorsinthethemeparkbusiness,combinedwiththedownturnintourismfollowingtheWorldTrade Centerattacksof11September2001,affectedthemeparkattendance.Waveringconsumerconfidencehas affectedtheconsumerproductsdivision,whichneedsnewcharactersbeyondMickeyMousenowinhis seventiestoreinvigoratetheDisneybrand.Thelossmakingtelevisionnetwork,ABC,havingbeenaleading networkinthe1970sand80s,notedfornurturingcreativeideas,fellbehindtheothermajornetworksinthe US.Therehasbeenabraindrainofcreativetalentintheflagshipanimationdivision.

Eisnerheldcombinedrolesofchairmanandchiefexecutive,while,inthevicechairmansseat,wasRoy Disney,nephewofthefounderandstillasubstantialshareholder.Theboardconsistedmainlyofinsidersand personalassociatesofEisner.RoyDisneyhasbeenaleadingcriticofEisner,andthecorporategovernanceof thecompanygenerally,voicingconcernsofmany,includingtheinstitutionalshareholders,whohold30per centofDisneystock.TheyhavecriticizedEisnersautocraticmanagementstylefordestroyingmoraleinthe company.Theyalsopointtopoorinvestmentdecisionswhichaffectedshareholdervalue. From2001,changesincorporategovernanceweremade,toreflectrecommendedbestpractice.Enlargement oftheboardtothirteenmemberswasfollowedbytheintroductionofmoreindependentdirectorsin2004. Thecompanyannouncedthatallbutthreedirectorsareindependent,andithasadoptedacodeofbusiness ethics.Thesemoves,however,didnotdampencriticismofEisner.InMarch2004,hewasforcedtostepdown aschairmanwhen43percentoftheshareholdersvotedagainsthisreappointment.Underpressure,theboard thenvotedtosplittherolesofchairmanandchiefexecutive.Thismove,however,stilldidnotplacatethe shareholders,particularlyasthenewchairmanvotedin,GeorgeMitchell,wasrejectedby24percentofthe shareholders.Mitchell,formerSenatemajorityleaderintheUSCongress,hadbeenadirectorofcompanies associatedwithpoorcorporategovernance,includingXerox,whereaccusationsofmanipulatingfinancial resultsledtosixofficialspaying$22millioninfines.CalPERS,theCaliforniapublicpensionfundandaDisney shareholder,calledforMitchellsresignation. RoyDisneyresignedfromtheboardin2004,butasasubstantialshareholder,hehasbeenvocalinaSave Disneycampaign.Throughouttheupheaval,DisneydirectorshavebeenstalwartintheirdefenceofEisners management.In2004,hepromisedtoincreaseprofitgrowthbyimpressivefiguresof30percent,andcould

TheGlobalBusinessEnvironment:MeetingtheChallenges 3rdEdition,PalgraveMacmillan JanetMorrison www.palgrave.com/business/morrisongbe3

pointtothefactthatcorebusinessesweredoingwell:ABCwasgaininggroundonitsrivals,andboxoffice takingswererising.However,shareholders,ithasbecomeapparent,areinterestedinmorethanjustseeing risingshareprice.Asoneglobalcorporategovernanceadviserhassaidofthedirectors:Theyresuddenly goingtohavetoprovepubliclytheydopayattentiontoownershipissues.Whetherthestockpriceisgoingup ordownintheshorttermisnottheissueatDisney.Theissueisthattoomuchpowerisaccumulatedinthe handsofoneindividual(Wine,5March2004).TheDisneyboard,packedasitwaswithfriendsand supportersofEisner,offeredlittleprospectofproperoversight.ABCsfounder,reflectingonthecurrent situationatDisney,hassaid:Goodoutsidedirectorswillalwaystrytodowhatsgoodforthecompany. Managementdirectorsarealwaystemptedtodowhatsgoodforthemselves(Parkesetal.,2002). In2005,theboardannouncedthatEisnerwouldstepdownasCEO,andthatRobertIger,chiefoperating officer(COO)andpreferredcandidateofEisner,wastheunanimouschoiceoftheboardforthepostofCEO. RoyDisneyandanotherformerdirector,StanleyGold,launchedlegalproceedingsagainsttheDisney directors,claimingthatthechoiceofIgerwasaforegoneconclusionandthatnoproperselectionprocesshad takenplace.
Sources:Parkes,C.,Grimes,C.andBurt,T.ThefairytalemayendintearsasEisnersMagicKingdomshowssignsofcrumbling, FinancialTimes,24September2002;Burt,T.Disneybanksonitsmousetoroaragain,FinancialTimes,15November2003;Burt,T. Disneyinboardroomshakeup,FinancialTimes,8January2004;Burt,T.andParkes,C.Aresoundingvictoryforshareholders, FinancialTimes,5March2004;Wine,R.Riseofthecorporatecrusaders,FinancialTimes,5March2004;Burt,T.,Calmamidthe storm:despiteabruisingyear,Eisnerremainssureofhisstrategy,FinancialTimes,8November2004;Gapper,J.,Ataleofintrigue atthecourtofDisneysking,FinancialTimes,28February2005;Parkes,C.,LegalchallengetoDisneyboard,FinancialTimes,10 May2005.

Casequestions WhatwerethecorporategovernanceproblemsatDisney? Towhatextenthavetheybeensolved? @ Disneyscorporatewebsiteisathttp://corporate.disney.go.com

@ Disneysmainwebsiteiswww.disney.co.uk