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.
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