These are dangerous days to be a media mogul. Vivendi just sent CEO Jean-Marie Messier to the guillotine, and Bertelsmann deposed CEO Thomas Middelhoff. At AOL Time Warner, once the biggest and baddest of all the sprawling media conglomerates, Jerry Levin and Bob Pittman have been cashiered. Most of the media bosses who survive—Rupert Murdoch at News Corp., Sumner Redstone at Viacom, and Charles Dolan at Cablevision—can't be fired because they essentially own the companies.
And then there is Disney's Michael Eisner, who survives against all odds, all explanation, and all common sense. The company that he has run since 1984 is sputtering on all cylinders. Theme-park attendance and bookings are down. The movie business is the typical hodgepodge of hits—Signs and Lilo & Stitch—and expensive misses—Bad Company. Television is similarly mixed. ESPN prospers, but the third-ranked ABC network is broken. (Its programming calls to mind what H.L. Mencken once said about Warren G. Harding's rhetorical style: "It is so bad that a sort of grandeur creeps into it.") Standard & Poor's has put Disney's long-term credit rating—historically one of its strengths—on watch for a possible downgrade. On Monday, Disney's stock slipped to levels not seen since 1994. In the past two years, and in the past five years, Disney has performed worse than all but three of the Dow stocks. (Eisner must go to sleep at night with warm thoughts for AT&T and Hewlett-Packard.)
Yet Eisner remains, bestriding the media world like a woolly mammoth. Indeed, he's the longest-serving CEO of all 30 companies in the Dow Jones industrial average, by a long shot.
For the first 10 years of his tenure, Eisner was a genius. In 1984, he arrived at a dispirited Disney, then worth just $2 billion. He revived its historic animation unit, invested in the theme parks, led the (ultimately) lucrative expansion into Europe, brought edgy Miramax into the fold, and generally made kids—and more important, investors—feel warm and fuzzy about Disney again. The stock performed miracles and vaulted him into the rarefied ranks of managerial genius. But like Neil Diamond, Eisner has been living off his early hits for an awful long time. In the past eight years, few bosses have matched Eisner's threefer of massive compensation, poor stock performance, and rotten management. He has committed pretty much every sin in the CEO's Book of Transgressions.
He engaged in a disastrous, expensive, and highly public failure to groom a successor. GE's Jack Welch was regarded as a great manager because he focused intensely on executive development and consistently promoted talented managers. Eisner, a control freak, has been unable to share the corporate toys. Since his colleague and pal Frank Wells died in a 1994 helicopter crash, he has been unable to identify understudies. He feuded with Jeffrey Katzenberg, the head of the animation department, who left and started DreamWorks SKG. According to Kim Masters, author of The Keys to the Kingdom: How Michael Eisner Lost His Grip, Disney was later forced to pay Katzenberg $270 million to settle a lawsuit over compensation. Then he brought in superagent Michael Ovitz as president. Unable to function in a corporate environment, Ovitz left after 16 months, taking $90 million in severance. Welch's protégés proselytize the Gospel According to Jack at the companies they left GE to head. Eisner's most prominent protégé lampooned him in Shrek.
Eisner bought a valuable asset and let its value erode. When Eisner snatched up ABC in 1995, it was the leading network, possessing an envied news organization and cutting-edge original programming like NYPD Blue. Seven years later, it's a lagging network with a potentially disposable news organization and programming like The Mole.
Disney stumbled in its core business: It botched a plan to build an American history theme park—Disney's America—near a Civil War battlefield, and then squandered millions on an expensive new California Adventure attraction at Disneyland, which has failed to draw significant crowds. And it has stumbled in new businesses. In an attempt to replicate Yahoo!'s portal, Disney invested heavily in its go.com network. In the end, Disney lost more than $1 billion on it.
Eisner's Disney has also been an exemplar of poor corporate governance. The board of directors includes Eisner friends like actor Sidney Poitier, architect Robert A.M. Stern, who has designed many Disney properties, and former Sen. George Mitchell, who consults for Disney. The board's poor judgment can best be seen in the obscene compensation packages it has awarded him. In the spring of 2001, Forbes concluded that in the previous five years, Eisner made $737 million. This was in a period when the company's profits fell and in which the company's stock performed poorly. Charts in Disney's 2002 proxy statement show that between Sept. 30, 1996, and Sept. 30, 2001, Disney trailed the S&P 500 and two peer groups: the S&P entertainment index, and the S&P leisure and entertainment index.
As expensive as Eisner has been to keep, he'll also be expensive to fire. His employment agreement, which runs through September 2006, calls for him to receive an annual bonus at least $6 million for the length of the contract, plus two years, if he is terminated by the company in a manner that breaches the employment agreement or if Eisner leaves for any "good reason." If he quits in September 2002, Eisner would be entitled to $36 million in cash.
How does he survive? Putting Susan Lyne, a former journalist, in charge of ABC, has surely helped guarantee positive courage from hopeful scribblers. And the goodwill built up by his early successes still seems to be paying dividends. Most importantly, Eisner's own missteps protect him. Disney's crony-heavy board, despite recent pledges to make it more independent, is quiescent. And Eisner ensured that all the executives who had sufficiently high profiles to challenge him have been dumped.