Case Study-Discussion Post

Absolutely no plagiarism, must be original and very thorough. Please make sure everything is followed in the question and the grading rubric. Assigned articles is attached but also must include at least 1 other academic relevant outside resource, total of at least 2 references. Must include in-text citations. Please include the free link to the relevant academic source.Supporting material: Please feel free to use these links…Must also include one other academic relevant outside resource.SUPREME COURT.(2010).CITIZENS UNITED V.FEDERAL ELECTION COMMISSION. WASHINGTON D.C. RETRIEVED FROM HTTP://WWW.SUPREMECOURT.GOV/OPINIONS/09PDF/08-205.PDF*PLEASE READ THE MAJORITY OPINION IN CASE BEGINNING ON PAGE 66 IF YOU ARE ASSIGNED TO ARGUE FOR THE DECISION OF THE COURT. IF YOU ARE ASSIGNED TO ARGUE AGAINST THE DECISION – REFER TO THE DISSENTING OPINIONS THAT BEGIN ON PAGE 88 OR 178.Yang, T., & Zhao, S. (2012). CEO duality, competition, and firm performance. Social Science Research Network. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2177403Ferracone, R. (March, 2014). Combined chairman/CEO roles: Easier than you think. Forbes. Retrieved from http://www.forbes.com/sites/robinferracone/2014/03/05/combined-chairmanceo-roles-easier-than-you-think/QUESTION:SAVING DISNEYAfter reading the case Saving Disney from your HBP course pack, let’s discuss the independence of the Board of Directors during Eisner’s reign:1. Do you think ousting Eisner was the right thing to do for the shareholders? What can be learned from the issues raised about the Board of Directors?2. What do you think about the SaveDisney.com website – was it an effective way to encourage shareholder activism?3. Do you think this is a good example of the need for a split in the roles of CEO and Chairman of the Board?PLEASE SEE GRADING RUBRIC BELOW. THIS ASSIGNMENT SHOULD BE AT LEAST 3-4 PARAGRAPHS LONG AND VERY THOROUGH. MAKE SURE YOU INTEGRATE REAL-LIFE APPLICATIONS TO SUPPORT KEY POINTS.Case Discussion RubricCase Discussion RubricCriteriaRatingsPtsThis criterion is linked to a Learning Outcome Quality of Initial Posting40.0 ptsInitial response displays an excellent understanding of the assigned case, the course readings, and the underlying concepts and includes the correct use of relevant terminology. Initial response additionally integrates specific real-life application (current events, work or personal experience, prior coursework, etc.) and/or other peer-reviewed research to support key points. Initial response is clear, concise, and compelling.This criterion is linked to a Learning Outcome Quality of Replies to Classmates35.0 ptsReplies to classmate’s display understanding and analysis of the professor’s and classmates’ posts and extend the discussion in a meaningful manner either by extending the analysis of the case or by including outside research relevant to the discussion (please do not include updated case information).This criterion is linked to a Learning Outcome Mechanics10.0 ptsEntirely free of mechanical errors. These include: grammar, punctuation, spelling, and formatting (font style and size).
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APRIL 4, 2005
NANCY D. BEAULIEU
AARON M. G. ZIMMERMAN
Saving Disney
The message . . . was delivered so loud and clear that you could almost hear it echo through the sprawling
Pennsylvania Convention Center: It’s time for CEO Michael D. Eisner to go. Never before in Corporate
America have shareholders expressed such an enormous, public loss of confidence in a chief executive.” 1
— The Wall Street Journal, March 15, 2004
In Philadelphia on March 3, 2004, the Walt Disney Company (WDC) was gearing up for what
would be one of its most memorable annual shareholder meetings. Chairman and CEO Michael D.
Eisner was up for reelection to the board, as were ten other directors. Eisner and the Disney board
had faced increasing criticism from shareholders for several years. Part of the criticism came from
Disney’s financial performance. Net income had fallen for five straight years in the late 1990s; though
it had begun to swing upward, it was still below 1995 levels. The board’s purported lack of
independence was another major source of shareholder angst. The directors had a reputation for
being “in lockstep behind Michael.”2
After years of trying to change the company from within, two directors, Roy E. Disney (nephew of
the late Walt Disney) and Stanley P. Gold, resigned in protest in late 2003. In the months leading up
to the March shareholder meeting, they waged an intense public relations battle calling for
shareholders to withhold their votes from Eisner and three other directors at the annual meeting.
Since there was no alternative slate of directors, Eisner and the board were guaranteed reelection, but
by withholding their support, angry shareholders could send a message to the company.
In mid-February 2004, Comcast, the largest cable company in the United States, made an
unsolicited $48 billion bid to buy Disney, citing poor management among other reasons. The same
day, WDC reported strong increases in revenue and net income for the first quarter of 2004. The stock
price surged. Disney rejected Comcast’s bid, but the cable giant left the offer on the table going into
the shareholder meeting.
In the weeks before the meeting, many of the largest state pension funds in the U.S., including
California, Florida, New York, and Ohio, stated they would withhold their votes from Eisner.
Disney’s board maintained its support for current management. After the vote on March 3, the
company announced that of the two billion shares outstanding, an unprecedented 43% had withheld
1 Ronald Grover and Tom Lowry, “Now It’s Time To Say Goodbye,” Business Week, March 15, 2004, p. 30.
2 Joann Lublin and Bruce Orwall, “Disney Dissidents Didn’t Block Moves They Now Criticize,” The Wall Street Journal,
February 19, 2004, p. C1.
________________________________________________________________________________________________________________
Professor Nancy D. Beaulieu and Research Associate Aaron M. G. Zimmerman prepared this case. HBS cases are developed solely as the basis
for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management.
Copyright © 2005 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.
This document is authorized for use only by Lisa Fizzell in MBE510 Governance, Ethics, and Compliance-1 taught by Danielle Foley, New England College of Business from February 2018 to
August 2018.
For the exclusive use of L. Fizzell, 2018.
905-014
Saving Disney
their support for Eisner.3 The board plunged into a five-hour meeting to decide what, if any, action to
take in response.
The Walt Disney Company4
The Walt Disney Company was known most widely for its classic animated children’s cartoons
and films, populated by cultural icons such as Mickey Mouse, Donald Duck, and Snow White. The
company was also known around the world for its theme parks and resorts: Disneyland (California),
Walt Disney World (Florida), Disneyland Europe (Paris), and Tokyo Disneyland, with Hong Kong
Disneyland planned for 2006. WDC, however, was a much broader and deeper media and
entertainment company. They owned ABC television studios, several movie production studios (e.g.,
Miramax, Buena Vista, and Touchstone), a professional hockey team, a publishing business, and the
very lucrative ESPN cable sports network. WDC also had a consumer products division that put
Disney logos and characters on thousands of items, including apparel, electronics, home furnishings,
and breakfast foods. In 2004, the company was divided into four main business lines: Media
Networks, Studio Entertainment, Parks and Resorts, and Consumer Products (see Exhibit 1 for
financial results by business segment).
Humble Beginnings
In Hollywood in 1923, Walt Disney started a small cartoon studio bearing his name. In 1928, he
dreamed up Mickey Mouse, who would go on to become arguably the most famous cartoon character
of all time. Walt’s brother, Roy O. Disney, provided the business acumen behind the studio, while
Walt supplied the creative leadership. In 1929, the company changed its name to Walt Disney
Productions. In 1937, the studio produced Snow White, the first animated feature film, earning the
company $8 million at the box office. Three years later, in 1940, the company went public.
The early 1950s saw Disney’s foray into live-action movies and TV. In 1955, Disneyland opened in
Anaheim, California, and was an enormous success. Walt began plans for a second theme park, Walt
Disney World, and EPCOT Center in Florida. Disney movies continued to do well, and by the time
Walt Disney died in 1966, Disney studios had become a significant player in Hollywood.
After the founder’s death, the company entered a long internal power struggle to fill the vacuum
created by Walt’s death. Roy O. Disney, his son Roy E. Disney, and Walt’s son-in-law Ron Miller,
held senior leadership positions at the company, but did not agree on the strategic direction the
company should take. As a result, the company eschewed risks and simply tried to guard Walt’s
legacy. This strategy was maladaptive to a changing market in entertainment. In the 1970s and 1980s
Americans’ taste in entertainment shifted to favor movies like the thriller Jaws, the space epic Star
Wars, and the bitter drama, Kramer vs. Kramer. Disney seemed to be out of step as it continued to put
out light family-oriented comedies. By 1983, profits had fallen to $93 million from $135 million in
1980.5
Disney simultaneously faced problems in its theme park business. By the time EPCOT center
opened in 1982, it had cost $1.2 billion, double the original projected costs. To finance the project, the
3 In 2003, Steve Case resigned as chairman of Time Warner after receiving a 22% no confidence vote at a shareholder meeting.
4 This section draws heavily from Ron Grover’s “The Disney Touch: How a Daring Management Team Revived an
Entertainment Empire” (Homewood, IL: Business One Irwin, 1991).
5 Grover, “The Disney Touch,” p. 3.
2
This document is authorized for use only by Lisa Fizzell in MBE510 Governance, Ethics, and Compliance-1 taught by Danielle Foley, New England College of Business from February 2018 to
August 2018.
For the exclusive use of L. Fizzell, 2018.
Saving Disney
905-014
company had borrowed heavily and had cut spending on the upkeep of Disneyland and Walt Disney
World,. As a result, both parks began to lose some of their luster. This combined with rising gas
prices caused attendance to fall; in 1983, attendance at Disneyland was at 1974 levels.6 In the face of
all this, Disney executives followed the policies of Walt Disney: never advertise or raise park
admission prices. One observer wrote:
When filmmaker Walt Disney died in 1966, Walt Disney Co. was run briefly by his brother
and then by his son-in-law, Ron Miller. For years, insiders say, every decision was gauged
against “what Walt would have done.” The result: a string of profitless, family-oriented movies
in a market that demanded racier entertainment. It took an acquisition battle and outside
management to resuscitate the company.7
The Rise of Michael Eisner
Even though Walt Disney Productions was struggling, the company had an impressive collection
of assets, including its film library, theme parks, and real estate. With its languishing stock price,
Disney was the target of many investors in the early 1980s takeover frenzy. While the company
fought the takeover attempts, one of its biggest shareholders,8 Roy E. Disney, and his business
partner, L.A. lawyer Stanley Gold, jumped into the fray.
Roy Disney and Stanley Gold had known each other since the early 1970s. Gold recalled, “First I
was his lawyer, then consigliore, then employee, then partner.” In 1977, the value of Disney’s stock in
the company that bore his name had gone from $80 million to $45 million, “reflecting the erosion in
company profits.”9 Disney sought to diversify his portfolio and contacted Stanley Gold. The result
was Shamrock Holdings, founded in 1978 and named for Disney’s 52-foot yawl. Shamrock, which
began as an investment vehicle for the Roy Disney family, evolved into a successful private equity
firm with investors outside the Roy Disney family.10 In 1985, Gold became CEO of Shamrock, while
Roy Disney continued as chairman.
Disney and Gold felt strongly that the company needed to replace Ron Miller, then CEO. Gold
reflected on the condition of the company:
Management had fallen apart. They were just lost. From the summer of 1983 to Christmas
of that year, Disney shares fell by half. I told Roy that I believed that he needed to decide: sell
everything and get out, or use his voice and shares to change management. [Roy’s wife] Patty
coined a phrase: “All the way in or all they way out.” So Roy decided to go in all the way. So in
February of 1984 we started the campaign to get rid of the old management, and bring in new
people.11
6 Ibid.
7 Stewart Toy and Corie Brown, with Gregory L. Miles, “The New Nepotism: Why Dynasties are Making a Comeback,”
Business Week, April 4, 1988, p. 106.
8 He owned 1.1 million shares, roughly 5% of the company.
9 Rice Faye, “The Other Disney in the Spotlight,” Fortune, June 5, 1989, p. 161.
10 According to the Shamrock Web site, by 2004, the company had invested $1.5 billion in private equity and $500 million in
real estate.
11 Interview, September 28, 2004.
3
This document is authorized for use only by Lisa Fizzell in MBE510 Governance, Ethics, and Compliance-1 taught by Danielle Foley, New England College of Business from February 2018 to
August 2018.
For the exclusive use of L. Fizzell, 2018.
905-014
Saving Disney
Roy resigned his board seat as an act of protest, which according to Gold, caused “a lot of
consternation.” Miller resigned in September 1984 and Roy came back on the board in time to select a
new CEO. There were no clear successors within the company, but there were plenty of other people
who wanted the job. Gold and Disney strongly favored a team of Michael Eisner, president of
Paramount Pictures, and Frank Wells, president of Warner Brothers. Eisner had earned a reputation
as a creative whiz at ABC, then Paramount, where he was credited with a string of box office hits.
Frank Wells was a corporate lawyer who had risen through the ranks at Warner. Gold explained
why he felt Eisner and Wells should lead Disney:
Frank had hired me at his law firm in 1968, then he left for Warner Brothers. He was the
mentor, I was his protégé. I had a personal belief that complex organizations are better led by
two people than one person. So I thought that Eisner and Wells were a good combo. Eisner
was really at the top of his game as a creative executive. He knew pictures, knew story, knew
the public’s taste. Frank was well grounded and solid in legal, financial, accounting,
mentoring, and growing a team. So I thought they were the right two people to run this thing.
The majority of the Disney board, however, favored Dennis Stanfill, the former chairman of
Twentieth Century Fox, for his experience running a large public corporation. While Eisner “knew
how to pick hit films… he lacked the depth… to run a $1.5 billion company.”12 Stanley Gold and Roy
Disney, however, knew that Eisner was “one of Hollywood’s most creative executives” and believed
“Disney needed a creative person at its helm.”13 On Roy Disney’s behalf, Gold launched an intense
campaign, flying around the country to convince the major shareholders to support Eisner and Wells.
Working grueling twenty-hour days, he was ultimately successful. While some of the board still
supported Stanfill, they felt it was likely that if he was elected, the shareholders would mount a
proxy battle to get a new slate of directors to then fire Stanfill and hire Eisner and Wells.
On September 22, just three weeks after Miller’s departure, Michael Eisner was elected
unanimously as chair and CEO, with Frank Wells as president and COO. Gold recalled: “They had
both wanted to be CEO. Frank wanted to be co-CEO, but Michael refused. Frank, for the good of the
cause, said ‘I’ll be COO. But we both report to the board. And if we dispute anything, we’ll go into a
room and settle it.’”14
When Eisner and Wells joined Disney, average annual compensation for entertainment executives
was about $2 million. The new executives “proposed taking smaller base salaries—$750,000 for Eisner
and $400,000 for Wells—in exchange for lucrative bonuses and a spate of stock options.”15 “With
earnings down and raiders circling, the board was eager to entice the pair.”16 Eisner was granted
options to buy 510,000 shares at the then-current price of $57.44 a share.17 In addition, the board
12 Grover, “The Disney Touch,” p. 23.
13 Grover, “The Disney Touch,” p. 20.
14 Interview, September 28, 2004.
15 John A. Byrne, with Ronald Grover and Todd Vogel, “Is the Boss Getting Paid Too Much?,” Business Week, May 1, 1989,
p. 46.
16 John A. Byrne, with Ronald Grover and Todd Vogel, “Is the Boss Getting Paid Too Much?,” Business Week, May 1, 1989,
p. 46.
17 Michael Cieply, “Two Disney Directors Who Helped Lead Takeover Defense Are Stepping Down,” The Wall Street Journal,
January 16, 1985.
4
This document is authorized for use only by Lisa Fizzell in MBE510 Governance, Ethics, and Compliance-1 taught by Danielle Foley, New England College of Business from February 2018 to
August 2018.
For the exclusive use of L. Fizzell, 2018.
Saving Disney
905-014
“offered contracts that included a piece of the action—for Eisner, an annual cash bonus equal to 2% of
Disney’s net income in excess of a 9% return on equity.”18
At Disney, Eisner and Wells worked as a team and led a revival at the beleaguered company.
Eisner also brought in a fresh team of executive talent. Roy Disney had urged the company to refocus on its animation division, which he considered to be the company’s “crown jewel.” Disney took
the division “under his wing, concerned that the new management would not have the time to
develop it.”19 Eventually, Eisner brought in his former colleague from Paramount, Jeffrey
Katzenberg, to run the animation studio. Disney animation underwent a rebirth with a string of hits:
The Little Mermaid (1989), Beauty and the Beast (1991), Aladdin (1992), and The Lion King (1994).
Meanwhile, Disney’s live-action studio, Touchstone Pictures, released several big hits including
Down and Out in Beverly Hills (1986), Good Morning Vietnam (1987), Three Men and a Baby (1987), and
the groundbreaking Who Framed Roger Rabbit? (1988).
Eisner and his team revamped Disney’s theme parks. They raised admission prices by $5 and
added several new attractions, including Captain EO, a space-themed ride and movie starring Michael
Jackson, and Star Tours, a ride based on the Star Wars films, developed with George Lucas. In 1987,
the same year the new attractions opened, Disney spent over $280 million upgrading the parks,
double what had been spent the year Eisner was hired. Attendance increased from 31 million guests
in 1984 to 36 million in 1987. Park operating margins went from 18% to 30%. The company’s annual
cash flow of $1.1 billion allowed it to expand, building a new theme park (Disney MGM Studios in
Orlando), hotels, and rides.
Eisner led other changes at Disney. He began television advertising and opened retail stores to sell
Disney merchandise; by 1990, there were 70 Disney Stores in the U.S. generating $120 million in
annual revenue. Michael Eisner had seemingly restored Disney’s financial health and transformed it
into a major American brand.20 During Eisner’s first ten years as CEO, annual profits went from $291
million to $1.11 billion and the stock price increased 1300% (Figure A).
Figure A
Disney’s Stock Price (1984–1994)
18
16
14
12
10
8
6
4
2
0
1984
Source:
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
Created by casewriter from data provided by CompuStat.
18 John A. Byrne, with Ronald Grover and Todd Vogel, “Is the Boss Getting Paid Too Much?,” Business Week, May 1, 1989,
p. 46.
19 Fay Rice, “The Other Disney in the Spotlight,” Fortune, June 5, 1989, p. 161.
20 Waxman, Sharan. “Facing a Battle, Disney’s Chief is Known to Fight Back, Hard,” New York Times, February 12, 2004, p. A1.
5
This document is authorized for use only by Lisa Fizzell in MBE510 Governance, Ethics, and Compliance-1 taught by Danielle Foley, New England College of Business from February 2018 to
August 2018.
For the exclusive use of L. Fizzell, 2018.
905-014
Saving Disney
Eisner and Wells were paid well for their efforts at Disney. In 1988, Eisner and Wells earned $40.1
million and $32.1 million, respectively, in total compensation. A large part of that came from
exercising stock options. But with Disney’s ROE at 25%, Eisner’s bonus formula gave him an extra
$6.8 million in cash. One writer observed that the total annual haul of Eisner and Wells eclipsed the
amount that Tom Watson, Jr., had made over his tenure as head of IBM from 1952–1971. When asked
about the design of Eisner’s pay contract, director Raymond Watson said, “I had no idea that it
would turn out like it has. But then I didn’t think that our stock would be trading at four or five times
what it was when they came in, either.” Watson continued: “Could we have gotten them for a 1%
bonus instead of 2% or fewer stock options? I don’t really know. But I know that no one is
complaining.” 21
The following year, in 1989, Eisner received a record-breaking two million Disney options. When
asked if they were paying too much, Roy Disney replied, “They’re worth every penny of what we’re
paying them. I would hate to think where we would be without them now.”22 By the end of the
1980s, after his first five years with the company, Eisner’s total pay amounted to $61.9 million.23
Eisner’s compensation continued to climb through the 1990s. (See Table A.) When he exercised some
of his options in 1992 for a payout of $192 million, one observer said “It’s obscene. Nobody’s worth
that kind of money.” But the manager of a pension fund that owned a significant amount of Disney
stock disagreed, saying Eisner “deserves every penny. He’s the best thing that happened to the
company since Mickey Mouse.”24
Table A
Compensation for Michael Eisner (1989–1994)
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