Save Disney founders Roy E. Disney and Stanley Gold release letter
On Thursday, March 10, Roy E. Disney and Stanley Gold, the founders
of Save Disney, released the following open letter:
Open Letter to The Walt Disney Company Board of Directors:
In September 2004, following Michael Eisner's public announcement that
he intended to step down as CEO of The Walt Disney Company, we urged
you to hire an outside independent recruiting firm to conduct a search
for the best possible replacement based on a process in which candidates
were selected and reviewed openly and fairly. When you voted to conduct
such a search, we commended the decision and expressed our cautious
optimism that the Disney Board finally seemed ready and willing to make
real progress with regard to succession planning.
Your actions since then have seriously eroded whatever faith we may
have had in the way you are conducting the search. Accordingly, we are
asking you to reconsider two of your recent decisions affecting the
search for the new CEO.
1. We are advised by credible sources that all of the CEO candidates
will be interviewed in the presence of Michael Eisner. If this is true,
the practice would make a mockery of the idea that candidates should
have meaningful interchanges with the non-management members of the
Board. Quite honestly, it would subvert the entire search process.
As we have chronicled in numerous letters to you --as early as August
and September of 2002 and again in March and April of 2003 --no meaningful
discussion about the Company and its strategy as well as its prospects,
opportunities and mistakes can be discussed forthrightly in the presence
of Michael Eisner. In our view, Michael Eisner is incapable of honest
self-evaluation without seeking to blame or vilify others. Indeed, based
on our experience on the Board, what kept most of our fellow Board members
from challenging him was the combination of his overbearing nature,
the Board's reticence for confrontation, and the fear that any director
who did speak his or her mind would be shown the door (e.g., Andrea
Van de Kamp and Roy).
The list of missed opportunities is catalogued in James Stewart's DisneyWar
and it is not an admirable record for current senior management. It
is inconceivable how you can expect a real candidate for the CEO position
to come in and discuss in a thoughtful and meaningful way strategic
issues, the decisions made by senior management over the last ten years,
and how the candidate would approach the important issues now facing
Disney, with Michael Eisner sitting in the room. As Board members, many
of you were unable to do it (although privately with us you expressed
your concerns) and it is unrealistic to expect a potential CEO candidate
to do so.
Moreover, Michael Eisner has already publicly announced that his selected
candidate to succeed him is Robert Iger and, at the Company's expense,
has conducted a campaign for Mr. Iger's selection in both the media
and on Wall Street. His choice of Bob Iger is nothing more than a ploy
to hang onto power in some capacity and preserve his legacy. He has
acknowledged as much in the Stewart book. His presence in the interview
room is an obstacle to an open discussion and we urge you to exclude
him (as well as all other non-independent directors) from this process
if you want to conduct a careful, reasoned and meaningful search process.
This Board has an obligation to properly fulfill its corporate governance
responsibilities, including its paramount task, the search for a CEO.
This is not a decision that should be abdicated to Michael Eisner. Although
management's recommendations should be considered, it is not appropriate
for a CEO with a reputation for quelling opposing views and who has
already decided who his successor should be to participate in the candidate
reviews. Your fiduciary duties require the Board to make an informed,
independent decision -- one that is not blindly predicated on the dictates
of a CEO who received a 45% withhold vote just a year ago.
2. You should reconsider your decision not to investigate the facts
surrounding senior management's withholding of information from the
Board regarding the Fox Family acquisition and its unsuccessful operations.
We were dismayed to see Chairman George Mitchell quoted in the February
11, 2005 edition of the New York Post to the effect that he had personally
spoken with each and every Director and that not one of you was interested
in investigating the allegations in DisneyWar regarding the Fox Family
cable channel.
Mr. Stewart's book indicates that senior executives at Disney in 2002
and 2003 withheld materials from Board members in an attempt to cover
up their mistakes in acquiring Fox Family and prevented the Board from
considering a plan (initially proposed by the Company's CFO) that reportedly
could have resulted in approximately $400 million in tax savings. Did
the senior executives who withheld this information do so because they
wanted to preserve their millions of dollars of annual bonuses? Did
they want to avoid embarrassment and escape criticism by the Board?
In effect, senior management apparently manipulated the information
flow in order to prevent a fair inquiry into what was happening. Whether
this manipulation cost the Company money is difficult to fully assess
from the materials in the Stewart book, but it clearly raises an integrity
issue with respect to these senior managers, including Bob Iger, a candidate
for the CEO position that Chairman Mitchell embraces as an "outstanding
candidate."
The undisputed facts in the Stewart book are:
A. Disney's senior management (Eisner and Iger) proposed the acquisition
of Fox Family for $5.3 billion, provided that Disney did not have to
assume Fox Family's Major League Baseball contract, which would have
cost Disney at least an additional $700 million in losses.
B. Eisner agreed to buy Fox Family for $5.3 billion, plus he agreed
to assume the baseball contract, for a total cost of at least $6 billion.
C. Eisner and Iger told the Board that, notwithstanding this increased
purchase price, Fox Family was a good deal because they could put better
programming on the Channel at little or no additional cost. They said
they would "repurpose" programming from the ABC Network (i.e.,
do a "second run" of ABC Network programs on the Fox Family
Cable Channel with very minimal additional costs). From the Stewart
book, it would now appear that they made these representations to the
Board without first checking with the producers of the programs, Disney
executives with operational responsibilities in this area or the Company's
lawyers. In fact, their repurposing scheme was dead- on- arrival; the
Company didn't have rights to do repurposing; and it couldn't acquire
those rights at a cost that would have justified the purchase price
for Fox Family.
So far, a lot of very bad and very expensive business judgments, but
nothing evidencing a lack of integrity. But then comes the cover-up.
D. As soon as Fox Family is acquired, its operating results grossly
under-perform the projections presented to the Board at the time it
was considering the acquisition. As some Board members began to question
the acquisition and the inability to achieve projected results, the
Company's CFO apparently devised a plan to write-down the acquisition
by some $2 billion, the difference between the purchase price and fair
market value of the Fox Family assets. That plan, while embarrassing
to senior management, purportedly had the advantage of saving the Company
and its shareholders $400 million in taxes, not a trivial matter.
E. According to DisneyWar, when the $400 million tax saving plan is
presented by the CFO to Peter Murphy and other executives, the CFO is
instructed to terminate the outside consultants he hired to work on
the project and to make sure their report is not finalized. Moreover,
Mr. Stewart indicates that certain members of senior management are
admonished not to inform the Board members of the plan in an effort
to conceal management's mistakes.
F. Finally, in order to avoid disclosing the sorry state of affairs
at Fox Family at the Board's next strategy session, Bob Iger reportedly
instructed Company personnel to increase the projected performance of
the renamed ABC Family Channel; even though those managers charged with
the operation of the Channel believed these newly revised projections
were unrealistic.
G. It is unclear from the Stewart book how much of this cover-up was
directed by Eisner or Iger, but there is clearly an implication that
they were involved.
For the last three years, the Disney Board has put its collective head
in the sand and refused to address, or even discuss, the serious issues
of Michael Eisner's management. Those of you who were around in 2002-2003
will undoubtedly recall the series of letters we wrote to you trying
to stimulate such a discussion. We are afraid that your failure to investigate
and understand Michael Eisner and Bob Iger's involvement in the Fox
Family matter is another example of your avoiding the real issues. Failure
to investigate these matters in the current post-Enron era is impossible
to fathom.
The two issues discussed above pose a litmus test for the Disney Board.
If the shareholders and cast members of The Walt Disney Company are
ever again to have confidence in the Company's leadership, they need
to know that their new CEO was chosen in circumstances that were open
and candid, and that the Board fully investigated and considered the
allegations made against Bob Iger in DisneyWar. You have only to consider
what Boeing's board of directors did earlier this week to see how a
responsible board responds to even the appearance of unethical or inappropriate
behavior on the part of the CEO. Similarly, Hewlett-Packard's board
sets a worthy benchmark for how a board should deal with a CEO whose
multi-billion-dollar acquisition strategy fails to come close to delivering
projected results. In selecting a new CEO, the Disney Board should be
no less demanding.
Unfortunately, when it comes to selecting a new CEO, high standards
don't seem to be on the Board's agenda. Indeed, between last September
(when it announced it would select a new CEO by June of this year) and
the annual shareholders meeting in early February, the Disney Board
did not interview a single outside candidate for the job. Nonetheless,
during much of this time (i) Eisner and Iger have utilized the Company's
extensive public relations operations to promote Iger for the job, (ii)
the Board itself has publicly proclaimed Iger a leading candidate to
succeed Eisner, and (iii) at least three Board members are reported
to have already committed their votes to Iger's candidacy.
Given all this, is it any wonder that some potential candidates have
said both publicly and privately that they believe "the fix is
in"?
If the facts are even close to those presented in the Stewart book
and there was a cover-up, this Board ought to at least demand a return
of the very large bonuses from 2002, 2003 and 2004 from the senior executives
involved (the bonuses for Eisner, Iger and Peter Murphy were more than
$38 million in the aggregate for those years). Other remedies should
be considered once the facts are uncovered. And you ought to do that
before some plaintiff's lawyer or regulatory official makes that demand.
It is time to clear the air at The Walt Disney Company and begin a new
era. That cannot be done by avoiding problems because you think they
will embarrass Messrs. Eisner and Iger.
We urge you to accept these recommendations and make a clean break
from the sordid practices that have typified Disney's leadership these
last few years. Good governance involves more than filling in questionnaires
and adopting nice-sounding policies. It is about doing the right thing.
