When I started this column in February, I called it “The
Skeptical Investor” because I wanted to encourage skepticism toward
corporate behavior and disclosure. Now that I am back at work,
eager enough to pay off my gambling debts to beg for my old job
back, the column title has outgrown its original purpose. Enron has
morphed into WorldCom. ImClone has replaced Arthur Andersen. Our
outrage toward Kenneth Lay is now being channeled to Dennis
Kozlowski. By now, everyone is skeptical of everything that comes
out of any corporation.
A segment of Corporate America has been overdue for a
tar-and-feather makeover, and we need some new rules, but now it is
time to start being skeptical about the herd of commentators,
regulators, legislators, and investors tearing up the pillows and
boiling the pitch. With so many motives and constituencies, this
mob is bound to, if not do more harm than good, fail to do anything
especially effective.
The finger-pointers are getting ready to batter down the gates
of the Magic Kingdom. Attacking the Walt Disney Company and CEO
Michael Eisner is such easy sport that I would rather examine the
flaws of their attackers. Is this really news that Disney’s board
of directors stinks and Eisner’s skills no longer match the needs
of the company?
Disney’s latest problem stems from its disclosure last week —
part of a plan to improve its corporate governance — that three of
its “independent directors” had children on the Disney payroll.
Eisner has pledged to do better, implying some changes in the
board. (Of course, part of this could be cover for removing Stanley
Gold, whose daughter works for the company, and Roy Disney, the
founder’s nephew, both of whom brought Eisner in after deposing the
previous regime and are now probably his biggest critics.) The SEC
filing took pains to mention that the kiddies are all “adult
children.”
Pouncing on Disney for this latest problem is like telling
someone it is unsafe to drive a flaming car because the windows are
fogged up. Disney’s board of directors has bigger problems than
director Reveta Bowers’s son being on the payroll. Like the problem
of Ms. Bowers herself, who works as an elementary school principal
when she’s not overseeing the interests of shareholders of one of
the world’s largest media companies. (Two of Eisner’s kids are
former students.)
Of course, every director can’t have the qualities of a Warren
Buffett (though this company could have had Buffett himself, but he
sold out Berkshire Hathaway’s 50 million shares in 1999 rather than
lead a Captain Queeg-style court martial). Here are some of the
other directors Bowers can count on to help discharge her duties:
Monica Lozano, president of a local Spanish-language newspaper;
Father Leo Donovan, a theology professor; Sidney Poitier; and
Robert Stern, an architect who designed a bunch of buildings for
Disney, along with Eisner’s Aspen home.
Back in 1997, when Disney was still flying high, Eisner defended
these choices. “I would not suggest this board for a U.S. Steel,
but if you are building theme parks, creating Broadway shows, and
educating children, wouldn’t you want a priest, a teacher, an
architect, and an actor on your board?” There is a place for these
people — as consultants or employees. Father Donovan may well be
the moral compass Disney needs, but that doesn’t mean he is
qualified to evaluate management’s response to Disney’s declining
credit rating or whether Eisner is being paid too much
Disney’s most serious problem — bigger than post-dot.com
advertising, post-cable TV networks, and post-September 11
entertainment — is Eisner himself. A brilliant hands-on manager
with unrivaled talent in the details of movies and amusement parks,
Eisner has nevertheless surpassed Fidel Castro in his ability to
prevent anyone worthwhile from staying around to succeed him.
I know, it sounds like I’m savaging Disney and Eisner, which I
vowed not to do. (Technically, I said merely that it would be too
easy to attack them.) But everyone advancing these attacks has
ignored the obvious: these problems have been around for years.
Reveta Bowers has been a Disney director since 1993. Father Donovan
has been on the board since 1996. Stern became a director in 1992.
Poitier joined in 1994.
More important, Eisner has just stunk at getting and keeping
good people at the top. In 1994 — that was eight years ago, to the
critics of Disney who have suddenly focused on this — Frank Wells,
the company’s phenomenal CFO, died in a helicopter crash and Eisner
suffered a heart attack. Succession plan? Accuse studio chief
Jeffrey Katzenberg of a power grab and force him out of the
company. Eisner brought in Michael Ovitz as No. 2 in 1997, but he
lasted less than two years.
So the only thing new about all this is the sudden outrage. The
CEO’s and board’s top priority since at least 1994 should have been
finding, training, and keeping a good successor, not just to take
over but to assist Eisner in managing this increasingly troubled,
increasingly far-flung company.
This problem is the responsibility of Disney’s critics, and it
is half ignorance and half arrogance. Nobody hid Reveta Bowers’s
résumé or Wells’s death or Eisner’s heart attack or
the debacles involving Katzenberg and Ovitz. In fact, Disney’s
board for years has been accused of being one of the worst in
America, and the company’s management problems have been front-page
(of the business section, at least) news.
But arrogance has played a big role, too, and I’m not talking
about Eisner’s. When Disney was getting bigger and its stock was
going up, nobody cared about these obvious problems. Just like at
Enron, when the stock goes up, no one bothers to notice the
problems and risks, even if they are hiding in plain sight.
This corporate malaise may end soon, or it may endure. (With so
many problems taken for granted for so long, I’m betting on the
latter.) When it’s over, will we have investors and institutions
who learned from their own mistakes, or who can merely find someone
to blame after it’s too late to fix the situation? Again, the shock
and anger at Disney suggests the latter.
