End of the Ride
Disney's Eisner Will Quit in 2006 After Surviving Bruising Battles
CEO Won't Seek New Contract, Ending Two-Decade Reign;
Trying to Head Off Critics 'I'm Going to Disneyland'

September 10, 2004; Page A1

Michael Eisner plans to step down as Walt Disney Co.'s chief executive when his contract expires in September 2006. The decision signals the end of Mr. Eisner's two-decade stewardship of one of the world's best known brands, a reign marked by an expansion of Disney's empire, bruising corporate battles and a shareholder revolt that he narrowly survived earlier this year.

The timing of Mr. Eisner's exit gives Disney's board plenty of time to set in place an orderly succession plan.

It also gives Mr. Eisner, once seen as unassailable, more than two years to repair a legacy that has been tarnished by declining earnings, a falling stock price and a seemingly endless string of controversies. Important to that effort will be proving that the company's nascent financial turnaround is sustainable.

Announcing his retirement two years in advance may be a move by Mr. Eisner, 62 years old, to head off looming battles over his leadership. Dissident ex-directors Stanley Gold and Roy E. Disney, the nephew of founder Walt Disney, have vowed to continue a campaign launched last year against Mr. Eisner. It also was not certain that Disney's board would have offered Mr. Eisner a new contract if he wanted one, according to people close to the situation.

The move may make it more difficult for Mr. Eisner's opponents to seek his ouster before his contract expires. Mr. Eisner has earned a reputation as one of the business world's toughest fighters and may still have to endure continued attacks from critics.

In an interview, Mr. Eisner says Disney's crises -- including the campaign by Messrs. Disney and Gold and Comcast Corp.'s unsuccessful attempt to buy the company -- played no role his decision. It was "not asked for, not motivated by current circumstances at all," he says.

Mr. Eisner says the decision, which coincides with his 20th anniversary at Disney, satisfies both his personal and professional interests. "I want to position the company for the future," Mr. Eisner says. "I want to ensure that the company continues its strong cultural direction and fiscal direction. I have great affection for the company."

He adds that with Disney currently on the upswing, it seemed to him that "this was the time to give the board two years notice, so that there will be a comfortable period of succession." He consulted only with his wife, Jane Eisner, in making the decision, before discussing the matter with individual board members during the past two weeks.

The move begins a changing of the guard at Disney that many thought the strong-willed Mr. Eisner would never willingly embrace. Since the death of Disney President Frank Wells in 1994, Mr. Eisner has been criticized for hoarding power and failing to groom a successor. He will play some role in the coming succession process, but in the interview emphasized that the decision belonged to the board, not himself. Mr. Eisner wouldn't say whether he would seek to keep his board seat.

However, the California Public Employees' Retirement System called for Mr. Eisner's resignation from Disney's board, saying in a press release that Mr. Eisner's "continued presence on the board would prevent the company from the clean break that is needed to restore investor confidence."

The search for Mr. Eisner's successor, to be led by Disney Chairman George Mitchell, will likely survey a wide range of candidates, people close to the company say. Potential candidates include Disney President Robert Iger; former Disney executives leading other companies, such as eBay Inc. Chief Executive Meg Whitman and Gap Inc. President and Chief Executive Paul Pressler; and other seasoned media heavyweights such as News Corp. President and Chief Operating Officer Peter Chernin and Jeff Bewkes, chairman of Time Warner Inc.'s entertainment and networks group.

Whoever steps in will take over a company whose foundation and culture were laid by the late Walt Disney but which bears the stamp of Mr. Eisner. Disney flourished in the first 13 years after Mr. Eisner took over in 1984, as he and a team of hungry executives resuscitated a legendary company fallen into disrepair. Key to the turnaround was the revival of Disney's storied animation unit, the expansion of its theme parks, and the addition of a strong TV operation anchored by ABC, ESPN and the Disney Channel. Disney's 1984 market capitalization of $2.8 billion has ballooned to $58.4 billion today.

But Disney faltered in recent years as the performance of its animated films, ABC broadcast network and theme parks declined. The drop-off in its financial performance, combined with Mr. Eisner's combative style, made Disney vulnerable. After Messrs. Disney and Gold quit the board and mounted a brutal public campaign to oust Mr. Eisner, cable giant Comcast launched an unsolicited offer to acquire the company this year.

Mr. Eisner survived both fights but not without damage. At the company's March 3 annual meeting, 45% of voting shareholders -- a group that included major state pension funds and even some mutual funds -- withheld support for his re-election to the board. Later that night, Mr. Eisner surrendered the chairman's title, which the board awarded to a reluctant Mr. Mitchell.

Disney's board rejected the Comcast offer as insufficient, and it was later withdrawn. But the episode left the lingering impression that Disney might one day lose its independence and become a piece in someone else's media jigsaw puzzle.

Throughout, Disney's board stood by Mr. Eisner as chief executive, and the unstable environment of the spring settled into a calmer summer. Mr. Eisner's case was helped by a financial recovery at the company, which is on track to make good on its promise to deliver 50% earnings growth in the 2004 fiscal year ending Sept. 30.

Disney directors, however, have long been criticized for being beholden to Mr. Eisner, despite the company's efforts to revamp its corporate governance and add independent board members. Directors may not have been willing to risk their own reputations to extend Mr. Eisner's tenure.

"I should let the board speak for itself," Mr. Eisner says. "But I have felt tremendous support from the board. The board has voiced in many different ways how pleased they are with our performance and the strength of our management." Mr. Mitchell could not be reached for comment.

There are new storms on the horizon that threaten to further batter Mr. Eisner's standing. They may not be as potent as the ones that hit earlier this year, but they could reopen some old wounds.

Messrs. Disney and Gold have promised to continue their battle by running at least a limited slate of directors for election to Disney's board during the next proxy cycle. Such an effort could cost Mr. Disney another $20 million or more, on top of the millions he spent waging last year's campaign.

The men could declare victory on the heels of Mr. Eisner's pending retirement, but it's not clear if they will back off. They have been harshly critical of other Disney board members too.

Also looming on the fall agenda is an ugly lawsuit filed by shareholders against Disney that is expected to be tried in Delaware's Court of Chancery next month. The closely watched case involves Disney's hiring and firing of Michael Ovitz as president in the mid-1990s. Mr. Ovitz, a former Hollywood talent agent, lasted 14 months on the job and was fired in December 1997.

After Mr. Ovitz joined the company, key executives such as then-Chief Financial Officer Stephen Bollenbach refused to report to him. Mr. Eisner quickly laid the groundwork for driving him out of the company. Mr. Ovitz walked away with a severance package valued at $140 million. The resulting shareholder outcry marked the beginning of what became long-term discontent with Mr. Eisner's leadership.

A Delaware corporate law judge said this week he would soon rule on a motion by Mr. Ovitz to have his name removed from the list of defendants in the case.

The October trial will bring that period back to life in embarrassing detail. In thousands of pages of court documents, various characters in the Disney saga, including board members and major shareholders, recount private conversations with Mr. Eisner as he tried to control the damage. The plaintiffs portray Disney's board as asleep at the switch as it approved both Mr. Ovitz's hiring and his no-fault termination.

Disney's earnings have improved significantly this year, fueled by several factors: a modest turnaround in Disney's theme parks, which have been ailing since the Sept. 11, 2001, terrorist attacks; big sales of hit movies on DVD, such as "Finding Nemo"; the beginnings of a comeback in its consumer-products unit; and the success of the company's potent cable networks such as ESPN. Mr. Eisner says, "there are no performance issues" at the company.

But with the new fall TV season beginning, the primetime performance of the company's ABC broadcast network -- long a sore spot for investors -- will come under scrutiny. New releases from Disney's movie studio, including "The Alamo" and "King Arthur," faltered badly this year, which could mean disappointing sales of DVDs in 2005.

There are also question marks over two units that form the bedrock of Disney's heritage: animated movies and theme parks. After a string of underperforming movies, the animation studio is in the midst of a transformation from traditional, hand-drawn films to computer-generated movies like the ones made by Pixar Animation Studios. Earlier this year, Pixar said it would not continue its highly successful film-financing and distribution deal with Disney. One of Disney's first solo efforts, "Chicken Little," will be released next year.

While the parks have made gains in the past year, traffic from foreign customers hasn't returned to pre-9/11 levels. The willingness of domestic tourists to visit ebbs and flows with the government's terrorism alerts.

In the succession derby, the company's performance is especially important to one candidate: Mr. Iger. A longtime executive at Capital Cities/ABC before its sale to Disney, Mr. Iger become Disney's president in 2000. Mr. Eisner has suggested Mr. Iger is his personal choice. "I have not made it a secret that Bob is an excellent executive, a superb partner and a worthy successor," he says, while emphasizing the decision belongs to the board.

Some shareholders have signaled they want a fresh start, not a product of the current regime. Others think Mr. Iger lacks the creative chops. People close to the company, however, say Mr. Iger made gains with some board members with his cool demeanor during Disney's recent crises. His own contract expires in September 2005.

Mr. Iger will have plenty of competition. Mr. Mitchell earlier this year sought to demonstrate that Disney was taking succession planning seriously by creating what he described as a "more formal and frequent, and extremely detailed" process. People close to the situation say the board has focused on the pool of former Disney executives, people already familiar with the company's idiosyncratic culture.

Some on the board's wishlist come with complications. News Corp.'s Mr. Chernin just signed a new five-year contract. Others, such as Steve Jobs, who runs both Pixar and Apple Computer Inc., may fall into the category of wishful thinking.

An unanswered question is whether Mr. Eisner's planned departure will help improve strained relations with three key players in the Disney universe: Mr. Jobs, who was responsible for pulling the plug on Disney's venture with Pixar; and Harvey and Bob Weinstein, co-chairmen of Disney's Miramax Films unit, who are in the midst of negotiating their future roles.

Even with Mr. Eisner out of the picture, a renewed deal with Pixar is a long shot. Pixar walked away from Disney after it rejected a lucrative proposal that Disney probably isn't willing to revive. Mr. Eisner says only that, "in a company our size, there are always issues that you're dealing with. The Disney company always looks for happy endings in all of our issues."

In the meantime, Mr. Eisner says he won't pull back from his daily responsibilities. "I am an active CEO and will be for two years," he said. Tomorrow evening, he'll travel to Bristol, England, to see the first audience preview for a stage production of "Mary Poppins."

In a letter to the board announcing his decision, Mr. Eisner wrote that despite the "ups and downs" his "affection for Disney will never retire. And, like our campaign, suggested by Jane [Eisner] in 1986 that seems to resonate for so many, I can only conclude by telling you what I am doing next. 'I'm going to Disneyland!' "

Write to Bruce Orwall at bruce.orwall@wsj.com