Commentary: Eisner's Goofy Timetable

The Magic Kingdom needs a new CEO presto-change-o, not two years from now

Michael Eisner must have figured he had put his troubles behind him. His Sept. 10 announcement of plans to step down as chief executive of Walt Disney Co. in late 2006 would give the 62-year-old mogul two years to rebuild Disney's fortunes and restore his own tarnished image. The schedule also would give Eisner a hand in picking his successor. Not a bad move for a CEO who just months ago lost his post as chairman after 45% of shareholders voted against him at Disney's annual meeting.

But Eisner's waning days at Disney may not follow that happy script. Two more years at the helm won't fix what ails Disney. Dissident former board members Stanley Gold and Roy Disney, who spearheaded the earlier move to oust Eisner, have threatened to make more trouble if Eisner sticks around. They'll have plenty of support: Investors remain irate as the stock languishes, despite improved earnings. The ABC Network is a mess. And both Steve Jobs's Pixar Animation Studios and Harvey Weinstein's Miramax Studios want out of their Disney partnerships largely because of frayed relationships with Eisner. Says Sean Harrigan, president of the California Public Employees Retirement System and a longtime Eisner critic and Disney stakeholder: "It is not clear to us how a two-year lame duck CEO will benefit shareowners."

If only the board could see as clearly. Long criticized as yes-men to Disney's powerful CEO, board members face stark choices that will test their own credibility. Here are some ways they can win back investor support:

FIND A SUCCESSOR, AND FAST The board should ignore Eisner's schedule, plan an earlier departure, and begin a search for his replacement with or without Eisner's involvement. That doesn't mean Eisner's chosen successor, Disney President Robert Iger, shouldn't be considered. Though a strong No. 2, he has been tarred with ABC's lousy performance. To make the best choice, the board must hire an executive search firm and cast a wide net. Former Disneyites such as Gap (GPS ) CEO Paul S. Pressler and eBay (EBAY ) CEO Margaret C. Whitman are possibilities, as is News Corp President Peter Chernin. None of those top-flight outsiders will consider the job, however, if they think Eisner will continue to lurk for another 24 months.

That's not the only reason waiting until 2006 isn't an option. Disney could win back Pixar if it makes a decision by mid-2005, when Merrill Lynch analyst Jessica Reif-Cohen says Pixar needs to find a new distributor. And Iger's own contract expires in late 2005, meaning Disney might lose him as well by dithering.

STRENGTHEN THE BOARD Board chairman George J. Mitchell, a brilliant strategist as Senate Majority Leader, is no business expert, and he was reluctantly elevated to the top job after Eisner's no-confidence vote. The board is looking for a 12th member. It should add someone with the chops to be chairman, and it should turn to a true outside board member, such as Clorox Co. Chairman Robert W. Matschullat, to head the search. Some shareholders see Mitchell as too closely allied with Eisner to feel confident he won't influence a Mitchell-run search. And pension-fund representatives, who have been promised a say in choosing the next member, should be consulted.

CUT EISNER'S BOARD TIES Exiting CEOs have sometimes helped their successors make the transition to the job. But at many companies, including Coca-Cola Co. and Xerox Corp., the arrangement has been problematic, particularly when the outgoing CEO dominated the company culture, as Eisner has Disney's. The risk that Eisner will remain could hurt the search for a strong candidate. That's why directors also must set a date for Eisner to leave the board once they name a successor.

The good news, says Patrick McGurn, senior vice-president of proxy consulting firm Institutional Shareholder Services, is that after the board "wasted a decade," the end is at least in sight. Still, two more years of boardroom intrigue, management uncertainty, and investor unhappiness is too much. Time for Mickey and Michael to shake hands and say so long.

By Ronald Grover with Louis Lavelle in New York

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