You know, whenever you want to find out something really badly, it seems something always gets in the way. When you don’t want to know something, however, you are faced with that information everywhere you turn. That’s what happened to me Wednesday around 2:30 PM, when I was on my way to campus for class, and I was waiting to hear the estimated percentage of withheld votes for Walt Disney Company Chairman and CEO Michael Eisner, which were being counted during the conclusion of the Annual Meeting held that day. However, every time I tried to find a news bulletin, all I could find people talking about was the Democratic Presidential Nomination race or the current situation in Iraq. Not that those topics aren’t important, but as a Disney nut I needed my fix for up-to-the-second Disney news from my car and I just wasn’t getting it. It wouldn’t be long, however, until I found out that history had been made. Not just Disney corporate history, but U.S. corporate history in general.

Then I heard the magic number: 43. Forty three percent, to be exact. That’s the percentage of Walt Disney Company shares that were withheld of their support (one share = one vote) for Michael Eisner as board member and Chairman. Specifically, most wanted him gone completely, but he was running unopposed for the Board Member/Chairman position and his Chief Executive Officer job is an appointed position by the Board of Directors. The thought was that if at least 20% of common stock shares were voted against Eisner, the board would recognize that Eisner should be let go. However, the vote came back at 43%, well over double the number that was sought. Keep in mind that a no confidence vote of 20% is a lot, and a no confidence vote of 43% for an unopposed board member has never happened before in the history of American business.

So what did the Disney Board of Directors do? They requested Eisner’s resignation from his Chairman position. They then separated the CEO/Chairman title, created the Chairman of the Board position, and appointed the leading Board Member former Senator Mitchell to the position. Did they blame Eisner for the action required and the current situation of the Company? No, they simply said that because of the shareholder vote, the positions needed to be separated. I think that goes to show you how entrenched Eisner’s power is with the current Board of Directors.

To understand the “old” and “new” power structure, let me put in the context of the Federal Government, since most people understand the basics of how it works. Eisner, in his CEO and old Chairman position, was like the President (CEO). He is responsible for the execution of the company and to make sure it performs well. However, under the “old” system Eisner was at the same time the head of Congress (the Board). Now with the new separate “Chairman of the Board” position, former Senator Mitchell is now the head of Congress (the Board). To top it all off, since Eisner is a Board Member, he is also a Member of Congress. This time around, all members of Congress (the Board) were up for re-election; however there were no alternate choices for the voters (Shareholders) to choose from. In other words, the withholding of votes was just a political statement of how the voters (Shareholders) thought each Member of Congress (the Board members) was doing. There can be alternates up for a vote, but there just wasn’t any this time. To throw a curve ball into the mix, Michael Eisner’s Presidential position (CEO) isn’t elected on by the voters (Shareholders), rather he is appointed by the Members of Congress (the Board Members). Therefore, control Congress (the Board) and guess what, no one can throw you out of office!

This leads me into the reasoning behind this article and its importance in the series. It is definitely obvious by now that the Disney Board of Directors, or at least the unofficial leaders on the Board of Directors, is beholden to Eisner’s every whim. It was their duty to interpret for themselves what a 43% no confidence vote meant to them, but not removing him from the Company is absurd. I wonder what percentage of votes withheld would lead them to kick him out: 55%, 75%, 85%, 99.9999%? Perhaps no amount could, which is why I placed the following recommendation first.

#1 - Board Members Eisner, Bryson, Estrin, and Mitchell should resign

While Eisner got top media billing for the no confidence vote Wednesday, Roy E. Disney and Stanley Gold’s Save Disney.com efforts also targeted Board Members John Bryson, Judith Estrin, and former Senator George Mitchell. I truly believe that these members are the main power players on the Board. Both Mr. Disney and Mr. Gold have been on the Board before, and have seen the dynamics in action. Board Members Bryson, Estrin, and Mitchell were also up for re-election (unopposed of course), and received a no confidence vote of at least 20% each. This should send a clear message to each of them that, for the Company and Shareholder’s sake, they should step down gracefully. Will this happen? I think there’s a better chance of Walt Disney World giving half-price coupons in the mail. This goal may take alternate Board Member choices on the 2005 Annual Meeting agenda to force them out.

#2 - Chief Executive Officer Michael Eisner should be removed once a replacement is found

Removing Eisner is the most critical step for the Walt Disney Company to take, and the Shareholders have already given their approval for that course of action. In fact, if you take into consideration that not every share of Disney stock was voted Wednesday, Eisner actually got a no confidence vote of OVER 50% of the votes that were actually cast. In other words, of the votes cast in time for Wednesday’s meeting, there were over 50% that were against the re-election of Michael Eisner. The 43% comes from the total number of shareholders, whether or not those shares were voted. The catch is, if you don’t vote your shares by the time of the Annual Meeting, the Board of Directors gets to vote your shares how they want to. That’s why all of the votes that were not cast in time were voted FOR Eisner and the rest of the Board of Directors. The proof of Shareholder will is there, and they resoundingly want Eisner to go away. However, I would caution the Board to not blindly remove Eisner right away without a successor in mind or at least a temporary replacement with a concrete plan for selection. The Walt Disney Company is still in a precarious position, and quick change without a solid replacement may spell corporate doom.

#3 - Spin off the Capital Cities/ABC assets and any other units that do not deal with the Disney name specifically

Like I said in the first article in this series, it’s about branding and keeping the message separate. Although Roy E. Disney had some sharp words during the Annual Meeting about branding, I believe the “branding” he is talking about is the attempt to take an icon and apply it to all sorts of markets without taking into consideration what the effect on the icon will be (i.e. creating a “Extreme Sports Mickey” show without understanding that Mickey’s historically been somewhat danger averse). Here, I suggest taking all of the problems with owning the Capital Cities/ABC assets and spinning them off into their own companies. Keeping the traditional Animation and Walt Disney Pictures studios, Disney-related consumer products, and Theme Parks and Resorts would be a must. All other assets could be spun off if they didn’t relate to the traditional Disney business line. To ensure that these former Disney children wouldn’t go against their parent by working with direct Disney competitors, a non-compete clause or something like it could be written into the new company’s(ies’) Articles of Incorporation. If necessary, the Walt Disney Company could own a large portion of shares in the new company(ies), the companies could withhold their shares from public ownership, or the Board of Directors could be the same as the Disney Board of Directors to accomplish this. What matters is that the Walt Disney Company be separated from these assets, while ensuring ease for synergy efforts, establishing non-competitiveness, preventing partnerships with Disney competitors, and the ease of asset use. This sounds hard, but can be done relatively easily through multiple ways.

#4 - Purchase Pixar Animation Studios before someone else does

Okay, if it can be done, this one really is a no-brainer. Pixar is now out in the open, actively seeking a distribution partner other than Disney. While their reputation precedes them, a renewed exclusive partnership with (or better yet ownership from) the Walt Disney Company would be in their best interest. Unlike the Capital Cities/ABC suggestion, however, I believe that Pixar Animation Studios should be wholly owned by the Walt Disney Company. The Disney name is synonymous with quality family entertainment, and Pixar is now known for its ability to come up with phenomenal storylines and unmatched Computer Generated Imagery. Their ability is now legendary, and needs to be a part of the Walt Disney Company. As part of the Walt Disney Company, Pixar would have access to any and all of the assets that it’s parent company has, and if given a “hands-off” mandate in the deal (which would actually be mutually beneficial) they could work in the same type of environment they do now. I believe this is critical since, if purchased outright without this protection, the Disney Board of Directors and other interests in the Company may exploit Pixar and cause them to falter like the traditional Animation division at Disney is starting to now. Semi-autonomy is critical for this to work. Technologically speaking, their software and technique innovations could be shared with elements in Imagineering and Consumer Products. Of course, their characters and creations would be made available to groups such as Imagineering for use in other business units. Best of all, this acquisition would allow the traditional Animation division to focus on traditional Animation, and not feel forced to dive into Computer Animation: that would then be Pixar’s job.

#5 – Purchase the rest of the Jim Henson Company

To get you have to give, and I really think the rest of the Jim Henson Company needs to be aboard the Disney corporate ship. I still don’t know how on Earth Michael Eisner managed to buy the Muppets from the Jim Henson Company without the rest of the Company in the deal, but you have a major dilemma on your hands if the Jim Henson Company gets bought out. Think about Mickey and pals being bought by DreamWorks, say, and the rest of the characters (Princesses, Pixar characters, etc) stayed with Disney. They have been together so long, it is hard to see them as possibly apart. Again unlike the Capital Cities/ABC suggestion, I believe that the Jim Henson Company should be wholly owned by the Walt Disney Company. However, again as in the Pixar suggestion above, the newly bought company should stay Semi-Autonomous. Just as in the Pixar example as well, this would open up the entire line of Henson characters for use in other business units (such as Theme Parks) as well with synergy efforts and other opportunities.

#6 – Pump more money towards the creative side of the business, namely Imagineering and Traditional Animation

These talented people have seen their budgets whither down month by month, day by day. How can you expect someone in a creative role to actually come up with groundbreaking ideas and concepts when they are constantly worried about having a job tomorrow, or at the very least if their work will have enough funding to actually get off their drawing boards (pun intended)? Much more funding needs to flow this way, as this is where the Walt Disney Company derives its greatness and has historically built its empire upon.

#7 – Restructure the way Cast Members (Employees) are treated and compensated

Talented, hard working people can only tolerate a bad situation for so long. I have personally heard stories from Walt Disney World Cast Members who, after 25+ years of working in the parks, turned down management positions by their own choosing because in their words “The compensation wasn’t worth the additional headache.” How can an organization continue to grow and prosper when the employees choose to stay in their roles because “it’s not as bad as advancing”? At the same time, the leader of the organization is given millions of dollars for continued shoddy performance of the overall company and entire Animation studios shut down only to let the people that work there be hired away by the competition. This trend needs to stop.

#8 – Buy back some of the outstanding Walt Disney Company common stock and encourage / facilitate ownership among Cast Members

There are roughly 2.2 Billion shares outstanding today for the Walt Disney Company, and while that is a large number, it is about right for companies the size of Disney. However, shouldn’t more of the profit go to the very people that make the company great; the Cast Members (Employees)? Not only would this provide a direct emotional tie to the success of the company coming from their actions, but it would give them more of a vested interest in all of the Company’s actions. Instead of seeing that trash can as belonging to the Walt Disney Company, they would see it as belonging to my company, the company I am a part of. In addition, it would reduce the focus and drive for earnings growth at any cost, since the number of major institutional and purely investment-oriented owners would be reduced. I don’t know about you, but I’d bet that if Cast Members owned even a 25% stake in the company, the Walt Disney Company would be vastly different than it is today, and probably for the better.

The suggestions above outline what I see as the eight core initiatives that should be enacted to get the Walt Disney Company back on its feet and running towards a “Second Golden Age.” With a better management team, renewed focus on their core business, more creative products coming from Imagineering, Pixar, Henson, and traditional Animation, better treatment, productivity, and ownership from the Cast, as well as a slight de-emphasis on quick earnings growth at any cost, the Walt Disney Company would be the family entertainment powerhouse that it once was and could still be.

Wait, what’s that? Did I just hear you scream “What about Comcast factor, Dave!”? Ah yes, that is something that could significantly and fundamentally change the landscape of all of the recommendations above. How would the Comcast scenario work? Would they just take what they want and sell off the rest to the highest bidder? What would a merger/takeover mean to Walt Disney World and everyone who works in tourism in Orlando? Is there a chance this could be a good thing? Why does this bid scare the living beegeezus out of everyone? Well, it’s a good thing that next week’s article will deal with just that: the Comcast Factor.

Thanks for stopping on by, and I’ll see you next week!