Coup II

I want to believe, I really do.

I want to believe that Roy Disney can pull off another miracle, and once
again save the Disney Company from itself. I’m having a little trouble.

Three weeks ago, as news broke that Roy and long-time accomplice Stanley
Gold had resigned from Disney’s board, I received countless e-mail pointing
to my “prophetic” article of two years ago, “All
the Wrong Moves.”

Gregory, webmaster of DisneyInformer.com, wrote:

In the article, I noted striking similarities between the current state
of the company and the stagnation of Disney circa 1984. As I concluded,
“It’s time to right the ship immediately or—if Roy is truly
a man of his convictions—expect another resignation letter soon.”

True, while the company’s creative missteps parallel those of 20 years
ago, the odds are much greater against Roy pulling off a second coup.
Here’s why this will be a much more difficult battle than the War of ’84:

1. The Timing

My initial call for action was 29 months ago, when Disney’s stock price
was trending down (in the high $20s and falling fast), as opposed to today’s
inching upward (albeit, to the low $20s). The company—on paper, at
least—was in a more precipitous position.

Roy’s departure from the board at that time would have been much more
shocking and disruptive. Instead, he remained silent, giving outsiders
the impression that he supported the decisions of the last two years.

In reality, as Roy’s dissatisfaction surfaced internally, Eisner was
laying the groundwork for his ouster. First, new corporate governance
rules were adopted suggesting directors not be reelected at age 72. Roy
was 71 at the time. Then, management tried to shelter Roy from the decisions
at Feature Animation, the division he headed. They tried to humiliate
Roy and the rest of Feature Animation by taking a $74 million pre-tax
write-down on Treasure Planet days after its release, then tried
to sabotage Brother Bear by releasing it on a Saturday in the middle
of autumn.

Consequently, some see Roy’s departure—coming days before he was
sure to be asked to leave—as little more than symbolic.

2. The Climate

The corporate business climate of 2004 is quite different than that of
1984. Twenty years ago, corporate upheavals like that at Disney typically
were instigated by heartless takeover artists intent on manipulating the
stock price for short-term gain. They had no concern for the fate of a
company’s employees, customers, products, heritage and future.

Alas, these stock price-obsessed outsiders are now on the inside—running
the companies. Living quarter to quarter, obsessing over quick fixes,
is Standard Operating Procedure. Roy will have a much tougher time convincing
the investment community that there’s anything wrong with Eisner’s diminishing
Disney’s long-term value for short-term gains.

3. The Dilution

Those major investors will also be more difficult to contact, in part
due to the staggering number of shares. In 1984, before all the stock
splits and acquisitions, there were 37.8 million outstanding shares. Today,
there are more than 2 billion.

Consequently, the power of each share is vastly diluted. In 1984, Roy
owned 5 percent of the company. Today, the 17.3 million shares he controls
represent less than 1 percent of the company. The only individual with
close to that number? Eisner.

In 1984, a mere handful of individual shareholders held nearly 40 percent
of the company’s outstanding stock. And several—Roy, the Bass Brothers—were
in it for the long-term.

Today, the vast majority of Disney’s shares are held by institutional
investors and mutual fund owners, which possess billions of shares of
hundreds of different companies. Disney’s largest stockholders, Barclays
Bank, State Street Corp., FMR Corp. and Citigroup, each own about 3 percent
of Disney’s outstanding shares, which represent only a small fraction
of their own overall holdings.

4. The Sell-Off

No one is stockpiling DIS. With so many shares outstanding, no individual
is likely to acquire a controlling interest in the company. Roy is doing
the opposite. While he stockpiled Disney shares in 1984, he recently has
been paring down his own holdings. A few months ago, he agreed to sell
7.5 million shares—40 percent of his holdings—although he retains
voting rights on them for five years. Still, the way the deal was structured,
Roy comes out looking more like he’s hedging his bets than like he’s digging
in his heels.

5. The Age

Roy was 54 going into the last fight and, presumably, a lot more motivated.
He was held in low regard by prior management and had yet to make a name
for himself. He’s now 73 and is roundly recognized as the executive who
salvaged Feature Animation from the scrap heap.

Coincidentally, when Roy’s father was 73 he was preparing to retire—and
then brother Walt died. Would the Florida Project continue? Would the
company even survive? The elder Roy postponed his retirement. He spent
the next five years cementing the legacy of the Disney name and securing
the continuation of the company. He made sure Walt Disney World opened
on time—and died two months later.

Perhaps Roy sees this present day campaign as his final five-year contribution
to preserving the family business. Lest he be remembered most for recruiting
Eisner, the man he now blames for destroying the company.

6. The Name

In 1984, being part of the Disney family counted for something. Disney
was a company that cherished its past. Everything it sold banked on the
goodwill of the Disney name. So, when Roy resigned from the board the
first time, management was mortified and begged him to return. This time
around, I’d wager there was relief and celebration.

Nowadays, the company sees the Disney name only as something they can
exploit. They admit the “words of Walt” make a cute book of
quotes—but you can’t run a business by them.

7. The Opponent

The disdain for Disney traditions starts at the top. At least in 1984
Roy and Disney management had basically the same goal—to protect
and improve the company—just different ideas how to achieve that
goal. Roy and Team Disney 2004 have diametrically opposed goals—his,
to protect and improve; theirs, evidently, to consolidate and squeeze.

Eisner is also more firmly entrenched than his predecessor, Ron Miller.
Eisner’s in his 20th year at the helm, has already overseen one glorious
turn-around, and had a proven track record before Disney. He’s a more
forceful personality who can say the right things to Wall Street. Plus,
he’s a fighter.

Miller had been c.e.o. for little more than a year, had inherited an
organization in the midst of a 10-year slump, and had worked for no one
else but Disney.

In 1984, Miller and chairman Ray Watson were consumed with saving the
company. Eisner is consumed with saving his job.

8. The Board

Twenty years ago, Disney’s board of directors was a diverse, sometimes
contentious collection. They knew they had problems and were ready to
act—even if that meant booting the chief executive.

Eisner’s boards have been among the weakest corporate America has ever
known. They unanimously elected his hand-picked cronies, while Eisner
systematically rid the company of executives with more seniority than
him.

Ironically, the age limit regulation was adopted to make management more
accountable to the board; in practice, it will eliminate management’s
main critics. With the loss of Roy, Gold and soon, due to the age limit,
Ray Watson, the director with the most seniority will be Eisner.

Remember, Roy was able to recruit Eisner in the first place only after
he and his allies were brought back on the board. That won’t be happening
this time.

9. The People

So, Roy’s power with the investment community has been diminished and
his tie to the board severed. What’s left?

As Gold wrote me, “There is a lot that all of us can do, even if
we don’t own millions of shares. The Walt Disney Co. is an institution
that is important to all of us; it is more than for-profit business; it’s
an American institution. Initially, you can have your friends and supporters
register their letters of support, addressed to either roydisney@savedisney.com
or stanley gold@savedisney.com. While this Web site is in the planning
stages, it would be helpful to us to have the names and e-mail addresses
of individual supporters so that we can efficiently get back to them with
news and plans as we develop them.”

Public sentiment didn’t seem to play a large role in 1984. But if Roy
is serious about taking this fight to the streets, it’s going to take
time and energy. He’s got to keep up the heat. Yet after the resignations
and early rounds of name-calling, things are starting to die down. Roy
will need to stay in the news.

Of course, the most telegenic image—short of toddlers in princess
attire chaining themselves to Disneyland’s Main Gate—would be a massive
display of outrage at the company’s shareholders meeting. Unfortunately,
it’s going on seven years since Disney held an annual meeting in Southern
California, inviting an onslaught of picketing activists and tough questions
from angry shareholders.

According to Disney’s investor relations department, a time and a place
for the 2004 meet could be announced by the end of the year. Two things
you can bank on, though: First, the late winter session will be held in
some remote location to reduce access by angry shareholders and coverage
by the media. Second, Eisner will find some flimsy justification for the
site (“No, no, we selected Fargo because 2004 is the 50th anniversary
of The Vanishing Prairie, which was partly filmed in Canada, which
borders North Dakota…”).

10. The Prize

No matter what, Disney emerges from this mess damaged goods. The cautious
management style of the 1970s and early 1980s—sworn to protect the
company’s image and heritage—depressed the stock price in the short-term,
but created pent-up demand for its successors to unleash.

Current day management is emptying the vaults and prostituting the company’s
heritage. The company’s next leaders will arrive to discover not a trove
of underexposed characters and films, underutilized employees, and undeveloped
acreage, but stacks of IOUs.

Don’t misunderstand me. I am fully behind Roy’s efforts to improve the
Walt Disney Company for the long-term. I’ll publicize his every plea for
assistance, sign all the petitions, and march down Main Street. I just
hope it’s not too little, too late.