After nearly two decades as CEO and chairman of the board, Michael Eisner faced an internal corporate challenge. This work is aimed at researching organizational governance conflicts, disagreements in the highest echelons of power of Walt Disney, and leadership qualities. Also, the history of the conflict is closely connected with the persuasive authority of the CEO and the practical lack of independence caused by strong, friendly relations within the board of directors. The purpose of this case study is to analyze the governance of Michael Eisner as chairman of Disney.
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By 2003, the Board of Directors was composed of 13 members, four of whom were directly related to the company: Roy Disney, Stanley Gold, Robert Iger, and Michael Eisner. Roy’s professional career began in 1967 when he was elected to the Board of Directors. In 1984 Roy took over as Vice Chairman of the Animation Department. Roy Disney’s goal was to revive the tradition of animated films, and he succeeded in this endeavor by releasing Fantasy 2000, a sequel to Walt Disney’s famous Fantasy, published in 1940 (Downes, Russ, & Ryan, 2007). Stanley Gold has served on the company’s board of directors for 15 years, starting in 1984. He worked closely with Roy as his financial advisor. Now Stanley is chairman of the board of directors at Disney family company Shamrock Holdings.
Finally, Michael Eisner started his career as an office clerk at NBC but soon moved to CBS, where he was responsible for advertising on children’s shows. Already in 1976, Michael was appointed President of Paramount Pictures (Kagan, 2019) at the suggestion of his mentor. At an emergency board meeting convened on Saturday, September 22, 1984, Roy Edward and his financial advisor, Stanley Gold, proposed to replace former CEO Ron Miller with a new, highly professional manager with a well-known name and deep connections in business circles, who would be able to resist attempts at hostile takeovers.
Absolute unanimity in the board of directors and related structures indicates either low competence of the board members or some machinations that are secretly performed by at least some of them. At the time, Michael Eisner had full authority over Disney, as he was both the Executive Director and Chairman of the Board. Often, the board of directors of that composition is criticized for lack of independence and dominance by the head of the board. For example, according to a case study, Leo O’Donovan’s father was the honorary president of Georgetown University, where his son Eisner studied (Downes et al., 2007). In this way, Eisner closely associated himself with the company, and due to his authority, many of his decisions were made unanimously.
Effective management of corporate conflicts implies finding the most optimal and less painful way out of this situation. The dispute between Roy Disney, Stanley Gold, and Eisner revealed several possible scenarios between the CEO. First, he could, as called for by the first two, renounce the board and resign. Of course, this step would be regarded as a personal loss of Eisner, but it would surely restore the level of trust of the auctioneers.
However, then the board of directors would be in danger of being dissolved: after all, the new management might not appreciate the professional success of the department heads. Secondly, due to disagreements with the board members, Eisner could have resigned as chairman of the board, leaving the right to be CEO. This would alleviate the situation because it would limit Michael’s authority. This was the case: in 2004, former Senator George Mitchell was appointed as the new chairman, and Eisner continued his career as CEO for some more time.
Disagreements in large companies cannot bring financial success to companies. Although Disney’s real income tended to rise a few years before the 2003 conflict, the company’s profit was declining. This effect was probably due to Eisner’s diversification policies and a large number of companies under its control. These years were not successful for auctioneers. One of the most significant expenses of the company was Eisner’s salary. For example, between 1989 and 2004, the total wage combined with the Disney CEO’s compensation payments was over $105 million (Downes et al., 2007). Eisner’s compensation package when he left Disney was $8.3 million. Comparison with other directors shows that Eisner’s compensation package was not as high:
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- The CEO of Tesla, Inc. Elon Mask receives $513.3 million (Melin et al., 2019).
- The CEO of Tilray, Inc. Brendan Kennedy receives $256.0 million (Melin et al., 2019).
The minimum wage required to engage and retain a corporate leader must be present. The current financial policy for a CEO is to receive both salary and bonus payments at the same time if precisely planned successes are achieved. As everywhere else, as liabilities increase, the level of pay should also increase steadily. Nevertheless, to avoid the possibility of corruption and fraud, it is necessary to develop a specific payment scheme for each manager’s achievement. It is also crucial to offer competitive compensation packages to managers to retain them in the long term.
Corporate conflicts have a negative impact not only on the internal activities of the company but also on the efficiency of the shareholders and investors expressing their interests (Salacuse, 2017). The presence of such disagreements in Walt Disney hurts its market value. This can be partially noticed by analyzing Table 3 in the case study, which shows the decline in the value of the company’s shares with the rate of increase in corporate disputes (Downes et al., 2007). Conflict among board members may have led to a sense of anarchy and the potential collapse of the company. In practice, this would have meant a loss of investment, so shareholders were interested in resolving the conflict as soon as possible.
It is not just the shareholders who are affected by the conflict in management. Disney has repeatedly criticized Eisner’s meticulous management style by including employees and clients as stakeholders in the battle (Kagan, 2019). Clients are interested in a quality product, and according to Roy, Eisner invested in cheap parks, which could undermine the trust of clients (Downes et al., 2007). Disney’s partners may also have been affected by the conflict because of the lack of communication within management, and the absence of a clear policy prevents effective relationships between, for example, Disney and Pixar.
Robert Iger was elected by the board of directors to succeed Michael Eisner as CEO of Disney in March 2005. Stakeholders can see the company’s current leader as a conciliator as he reestablishes relationships with partners that were destroyed during the 2003 conflict (“Disney CEO Bob Iger,” 2019). During his tenure, Iger refuted skeptics’ speculation that he was not making his own decisions, but that he was continuing the Eisner case. Most of the employees associated with Michael have been demoted or dismissed. Iger changed his leadership style from centralizing to delegating responsibilities between company departments.
A succession plan is valid if it involves selecting the most competent person as the subsequent Director-General. A succession plan is a confidential document, which is usually only seen by authorized persons of the company (Sivapregasam et al., 2019). The company’s contract with Robert Iger expires in 2021, so it is assumed that its succession plan is currently under implementation. Such an idea is created for those cases when the current director suddenly loses his ability to work, and the existence of a succession program can reduce the impact of the loss of leadership.
Downes, M., Russ, G. S., & Ryan, P. A. (2007). Michael Eisner and his reign at Disney. Journal of the International Academy for Case Studies, 13(3), 71-81.
Kagan, J. (2019). Michael Eisner. Web.
Melin, A., Zhao J., Perry, J., & Sam, C. (2019). A 300% surge makes pot CEO no. 2 in pay ranking after Elon Musk. Web.
Salacuse, J. W. (2017). Negotiating leadership roles. New York, NY:Palgrave Macmillan.
Sivapregasam, S., Selamat, A. I., Rahim, N. A., & Muhammad, J. (2019). Value of CEO Succession Policy on CEO Transition. Asian Journal of Accounting and Governance, 11(1), 137-150.