Michael Eisner is planning to go away, and investors are happy.
Eisner announced that he would step down as chief executive of the Walt Disney Co on Sept. 30, 2006, at the end of his current contract and after 22 years in the job. Some investors responded that it was not soon enough, but Disney's shares rose on the news, increasing US$0.30, to US$23.16.
PHOTO: AFP
On the surface, that reaction was odd. Few chief executives have done better for shareholders over such a long period. An investor who bought Disney shares on the day in 1984 when Eisner took the reins, and reinvested dividends along the way, would have done nearly twice as well as one who bought the Standard & Poor's 500.
The total profit over that period -- just a few days short of 20 years -- would have been 1,869 percent, compared with a gain of 1,009 percent in the S&P 500. Put in dollar terms, an investor who put in US$10,000 would have made US$186,937 in profits, $86,005 more than the index investor.
But Wall Street can be a fickle friend, and many investors long ago decided that Eisner's successes should be credited to others, while his failures should be viewed as his alone. Executives who have left Disney in recent years have tended to be scornful of him, and his efforts to choose a No. 2 executive since the death of Disney's president, Frank Wells, in 1994 have reinforced the negative opinion.
That death, in a helicopter crash on Easter Sunday, can now be seen as the turning point in the shareholder performance of Disney. Until that day, Disney shares during the Eisner-Wells regime had a total return of 1,015 percent, compared with a gain of 267 percent for the S&P 500.
But since then, through Thursday, Disney shares had provided a total return over more than a decade of just 77 percent, less than half the 202 percent gain for the S&P 500. Disney did not do as well as the market in the late 1990s boom and also did worse in the bear market that followed the bursting of the technology bubble in 2000.
Disney shares did outperform the market in 2003, gaining 44 percent, but that has done nothing to quiet Eisner's critics.
What went wrong? Theme park attendance has not risen as much as had been hoped, hit movies have been hard to find recently and some expensive acquisitions have not worked out well.
In retrospect, the easy profits had come from revitalizing the Disney brand and making a lot of money from selling videotapes of classic Disney animated movies.The Lion King, which revived the animation franchise, was released a few months after Wells died.
Months after that, Jeffrey Katzenberg, angry over not being tapped to succeed Wells, resigned as the head of the animation studio. He ended up suing and was paid more than US$117 million.
In 1995, Disney turned to Michael Ovitz, the Hollywood talent agent and power broker, as president. It was a disaster, and after 14 months he departed on terms -- a US$140 million buyout of his contract -- that are still being challenged in court by angry shareholders.
Disney's growth in the Eisner years has not been smooth. Its 1995 purchase of Capital Cities-ABC brought it a television network that is now struggling. Its partly owned Euro Disney subsidiary began operations in 1992 but has never lived up to expectations. A 1994 recapitalization plan did not work, and a new one this year has met resistance from some banks.
At this year's annual meeting, Roy Disney, a nephew of the company's founder, and Stanley Gold, a former director who played a role in hiring Eisner in 1984, led a proxy fight to withhold votes from him. With no other candidates on the ballot, Eisner's re-election was assured. But 45 percent of the votes were withheld from him, an embarrassment that led Disney's board to replace him as chairman, although he remained chief executive.
Disney and Gold, who both left the board last year, have said they will continue to oppose Eisner, and are expected to mount a proxy fight backing a candidate to replace him on the board at the 2005 annual meeting. His promise to step down may reduce support for the move, but it is still possible that by the time his contract expires he will no longer be a director.
That would be a sad end to the tenure of a CEO who made a lot of money for shareholders in the first decade he held the job.
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