Yesterday, Robert Iger, the longtime president at Disney, was named to succeed Michael Eisner as CEO, raising many a waxed eyebrow in Los Angeles and New York and a giant collective shrug elsewhere. And today, the Wall Street Journal reported that AIG CEO Hank Greenberg is going to resign and be replaced at the company by co-chief operating officer Martin Sullivan, a 34-year company veteran. All of a sudden, No. 2 is No. 1.
Is that good news for Disney and AIG shareholders? Iger's ascension will provide new fodder for countless Vanity Fair articles in the coming years. Can an executive who has spent years being browbeaten by the bully Eisner and forced to sublimate his own ego suddenly blossom into a brilliant CEO? Will he be Tom Brady, the overlooked New England Patriots backup who became a star when the starting quarterback was struck down with an injury? Or will he be Al Gore, who, after eight years in the shadow of a charismatic No. 1, couldn't score?
The promotion of a COO or president to head a giant corporation says as much about the departing CEO as it does about the elevated heir. Disney has violated the usual law of succession. When the CEO has made a muck of things, companies often reach outside the organization for someone untainted by the screw-ups. For successful CEOs, by contrast, promoting the COO or president is the best way to cap off a nice long run. It means the tough boss was able to develop and retain the talent capable of succeeding him. That was the general reaction when Louis Gerstner, having executed a turnaround at IBM in the 1990s, gave way to his president and COO Sam Palmisano in 2002.
So when a CEO resigns of his free will and is replaced by the president or COO, it's supposed to be a sign that there's nothing wrong at the company. But of course, we all know that there is something wrong at Disney. If there is any company that needed an outside rescuer, it's Disney. James Stewart's DisneyWar, which, as Moneybox predicted, has become a best seller, shows in great detail just how bad it is.
Stewart paints a portrait of Iger as a man who survives and rises largely by keeping his head down—his wife, Willow Bay, had a far higher public profile—and, more importantly, by not posing any kind of threat to Eisner. Indeed, he showed a masochistic ability to absorb the punishment and humiliation that Eisner routinely dished out. In 1999, when directors Tom Murphy and Stanley Gold asked Eisner about his succession plans, Eisner responded with "a long catalog of Iger's weaknesses and faults." The upshot, according to Eisner: Iger "can never succeed me" and didn't possess "the stature" to run Disney. Eisner seemed to take a certain glee at the perpetual underperformance of ABC, which Iger ran. When Iger fired programming head Susan Lyne last year, Eisner told Lyne: "ABC has destroyed Bob! Unless he fixes it, he will never be CEO. He can't even get another job in this town."
Is Iger fit to be CEO? The labor market suggests not. To wit: Headhunters in search of CEOs often seek to tap well-regarded presidents and COOs of very large companies. If Iger, who has been president since early 2000, were such a star, and was so fit to be running a company of Disney's size and stature, and he had mused about quitting, how come nobody tried to hire him? Ironically, the qualities that allowed Iger to survive at Disney—extreme loyalty to an abusive boss and a disinclination to threaten the status quo—may have made him unattractive for outside companies.
It's tough for promoted presidents or COOs to put their stamp on a company quickly, especially if they're following a legendary CEO. But when a company's business model is fundamentally sound and the outgoing CEO leaves a stable situation, a quiet nonvisionary heir can succeed by doggedly pursuing the established strategy, as Kenneth Chenault has done at American Express. Conversely, a No. 2 can have an impact if he's been thinking like a stealth CEO the whole time. Someone who has watched and learned from the successes and failures of his boss and possesses the insider's vast and intimate knowledge of the company and its culture can hit the ground running, as Jeff Immelt has done at General Electric. Iger may not be so lucky. His apparent problem is that he's a stable, low-key conservative in a company that needs change.
Clearly, nobody within Disney was satisfied with Iger as the presumptive heir. Last fall, when Eisner announced his intention to resign, the company hired Heidrick & Struggles to scour the global marketplace for executive talent. Stewart described Heidrick's hiring as "a blow to Iger's chances." After all, how would he stack up against potential competitors like Mel Karmazin, now the CEO of Sirius Satellite Radio, or Terry Semel of Yahoo!, or Meg Whitman of eBay? Iger may be benefiting from Disney's dysfunction. The company's problems may be so profound that none of these distinguished outsiders wanted to have to deal with them.
Eisner has his own answer about whether a No. 2 can ever be a good No. 1. "He is not an enlightened or brilliantly creative man, but with a strong board, he absolutely could do the job," Eisner said of Iger several years ago, according to James Stewart. And guess who is staying on Disney's board for at least another year? Eisner will remain to push Iger around for awhile.
Stewart also reports that Eisner paid Iger the ultimate backhanded compliment. "He will not get the company into trouble. He is a corporate executive." On the other hand, Disney's stock rallied today. At underperforming companies, investors are pleased to see a failed visionary replaced by an organization man. The last thing Disney needs right now is more of Eisner's "genius."