Chapter 12
Re-Creating the Magic
All the adversity I’ve had in my life, all my troubles and obstacles, have strengthened me . … You may not realize it when it happens, but a kick in the teeth may be the best thing in the world for you.
Walt Disney
Our professional passion for The Walt Disney Company began in the early 1980s, when many of our consulting clients were asking us to benchmark “best practices.” Disney would consistently emerge as one of the “best of the best,” not only in their legendary customer service but also in the areas of training, maintenance, and even production. (Disney owns and operates one of the largest laundry facilities in the world, the largest in the United States. It’s a production facility that processes thousands of costumes and linens every day.) Since the early 1990s, we began working with clients to create their own Dream, Believe, Dare, Do cultures.
During the past quarter century, we have witnessed a number of monumental events in The Walt Disney Company: the blocking of two hostile takeovers; an increase in the number of theme parks, from 4 to 11; a catastrophic helicopter crash; emergency bypass surgery; the re-birth, and then death of the classic 2D cell animation of the 1930s; the birth of the 3D computer animation; the acquisition of a major television network; fights in boardrooms and courtrooms; the company’s corporate image as both “prince” and “villain” of Wall Street. This list sounds like the making of a new ABC prime-time soap opera, “Desperate CEOs.”
From Zero to Hero to Zero
After Walt’s sudden death in 1966, his brother Roy postponed retirement to complete Walt’s last dream: the building of Disney World. Roy later insisted that the name be changed from Disney World to Walt Disney World, in honor of his brother. On October 1, 1971, Walt Disney World opened its first theme park, the Magic Kingdom. On December 20, 1971, Roy died, almost five years to the day after his brother passed on.
After Roy’s death, the financial and creative growth of the company came to a standstill. During the 18 years between Walt Disney’s death in 1966 and Eisner’s entry as CEO in 1984, a simple question would be asked among the ranks before any decision was made: “What would Walt do?” To be sure, this approach rendered the leaders indecisive, especially when Disney executives had no idea what Walt would do. Asking this question ad nauseam paralyzed the company. (See Figure 12-1.)
Then in 1984, Roy E. Disney, Walt’s nephew, convinced the board to hire Michael Eisner as CEO and Frank Wells as president and COO. Eisner and Wells were consummate decision makers. They quickly began to transform the sleepy little movie studio into a global entertainment enterprise now worth over $50 billion. (See Figure 12-2.) They had the Midas touch, turning everything in the company to gold, from television to baseball to book publishing to retailing—and, to the delight of the Big Apple, Broadway shows. Here are the results of the Eisner years:
Figure 12-1. The pre-Eisner years financial performance
Figure 12-2. The Eisner years financial performance.
Revenues from $2.5 billion to $30.8 billion—up 2,000 percent
Income from $294 million to $4.49 billion—up 1,600 percent
Cash flow from $100 million to $2.9 billion—up 2,900 percent
Market value from $1.9 billion to $57.4 billion—up 3,000 percent
Stock price from $1.33 to $28.40—up 2,100 percent
When compared with the other five media giants that now control the entertainment industry, Disney’s success attributed to Michael Eisner is even more heroic. Between 1984 and 2005, the combined reported losses of the five competitor companies exceeded $171 billion: Time Warner—$99.7 billion; Vivendi-Universal—$40.6 billion; Viacom—$21.2 billion; News Corporation—$7.2 billion; and Sony—$2.7 billion. Disney did not have a single losing year during this time period. Most CEOs would give their eye teeth for these results during more than a 21-year reign.
So, why wasn’t Michael hailed as a hero like Jack Welch in his retirement, instead of being relegated to the pile of discards as was Richard Nixon? Was it Wall Street’s obsession with short-term results? In 2000, the Disney stock price was up a whopping 3,500 percent from the 1984 price, not the mere 2,100 percent as it was upon Michael’s retirement in 2005. His critics fail to realize that in March 2000, the U.S. economy had slumped, causing a mild recession that was shortly followed by the horrific acts of September 11, 2001.
Was Eisner a victim or a villain? Did Roy Disney demand his resignation because of poor investment returns or was it because Michael was like the “wicked Queen,” feeding Roy’s family namesake company the poison apple?
It’s sad to think that this creative, childlike executive of the early 1980s could possibly turn out to be the biggest villain in Disney history. Could the same person who showered the world with unforgettable tales of tribulation and grandeur told through captivating animation and music—The Little Mermaid (1989); Beauty and the Beast (1991); Aladdin (1992); and The Lion King (1994)—have also given us such mediocre and, for the most part, forgettable stories as The Emperor’s New Groove (2000); Atlantis: The Lost Empire (2001); Lilo and Stitch (2002) (which some might consider a moderate success); and Treasure Planet (2002)? Could the same man who once welcomed new ideas, not only from his staff but from anyone at any level in the organization, have hired a visionless array of MBA yes-men to fill creative posts that launched these disappointments of the big screen; have dismantled what was arguably the most accomplished team of storytellers and artists ever assembled; and, in addition, have severed ties with Pixar, the only Walt-like creative enterprise that the company could turn to after totally destroying its in-house animation capability?
Our goal here is not simply to recount the events of the past that led to Michael Eisner’s transformation from “hero to zero,” but rather to share our insights regarding his actions as well as the reasons for his demise. (For a provocative, detailed chronology of the “fight of the century,” CEO Eisner versus Walt Disney’s nephew, Roy, read James Stewart’s Disney War.)
The Eisner “Paranoia”
Merriam-Webster defines paranoia as “systematized delusions of persecutions or grandeur; a tendency toward irrational suspiciousness and distrustfulness of others.” This definition seems to fit the Michael Eisner persona from the late 1990s until his grand exodus in 2005. After Frank Well’s tragic death in a helicopter crash in 1994, Eisner’s inability to trust anyone became transparent in his reluctance to name a replacement for Frank. The whole Jeffery Katzenberg saga is a prime example. Jeffery had been Eisner’s protégé at Paramount and followed Eisner to Disney to head up the film entertainment division. Katzenberg wanted to be the company savior and replace the beloved Wells. One might reasonably chastise Jeffery for his inappropriate timing and total lack of respect for the late president. It is reported that he barged into Eisner’s office on the very day of Wells’ funeral and demanded to be named as his successor. Eisner claimed that Jeffery was not the right fit for the job, despite his apparent savvy in running a major portion of the business and launching one of Disney’s biggest hits of all time, The Lion King. The outraged Jeffery promptly exited the Disney organization, hauling it into court and forcing it to fork out hundreds of millions in unpaid bonuses due him from The Lion King. (By the way, Katzenberg appears to be doing just fine running DreamWorks SKG.)
We believe the seeds of Eisner’s paranoia were really planted at Paramount. (Who knows when it really began? Maybe he felt rejected being sent off to camp every summer.) In 1976, Michael became president of Paramount and aspired to be named CEO when his friend and mentor Barry Diller left the position to run Twentieth Century Fox. However, Paramount’s parent company, Gulf & Western, had other plans for Eisner. They said he would never be CEO of Paramount because he is too “child-like.” In 1984, Michael was terminated and went to the company that could best utilize the talents of a “child-like” executive: Disney.
But Michael’s paranoia continued at Disney. The seeds were fertilized during his initial negotiations with the company. The Bass family, one of Disney’s largest investors, wanted Frank Wells to be CEO and Eisner to be president. Eisner argued that the top spot should be a creative type like himself, not the typical numbers type like Wells. Much to Michael’s surprise, Frank agreed, and the two of them convinced the board of directors as well as the Bass family that this decision would be best for Disney. But there was one important detail that is overlooked by many. The board insisted that, as president, Frank report directly to the board rather than to Eisner. In many respects, Frank and Michael were true partners much like Walt and Roy were in their years together. Even though Michael’s public persona was that of “top dog,” in his heart he knew he was really sharing control of Disney with Frank.
Not only was Eisner envious of Wells’s coleadership position, but one could make the point that Michael was also envious of Frank’s business and financial acumen. Frank was a former entertainment lawyer and a Rhodes Scholar. Now, a healthy and secure person seeking to understand the financial workings of the organization may have asked his CFO for a crash course in reading the financial reports. But Eisner didn’t want to reveal any of his inherent weaknesses, and even made an attempt to enroll his wife in a local college’s hotel financial management course. When she refused, Michael ended up taking the class under an assumed name. Creative, yes; secure, no.
The Eisner family heritage is that of American royalty. Michael’s parents were the upper crust of society living in a sprawling apartment on New York’s famed Park Avenue. Both of Michael’s grandfathers had been successful self-made businessmen. On special occasions, young Michael was chauffeured to Broadway shows. Yet, prior to becoming Disney’s CEO, Michael confessed that he had never seen a Disney movie or visited any of the Disney theme parks. This could have been both an asset and a liability. On one hand, it afforded him an opportunity to be both critical evaluator and undaunted creator, aided by his reputed childlike eyes. On the other hand, his lack of familiarity with all things Disney might have exposed the brand to attack. Frank apparently would often squelch Michael’s ideas, reminding him that they would not fly at Disney.
To make matters worse for the psyche of Michael Eisner, Frank was known as “the popular guy,” the one to whom everyone turned upon fearing the wrath of Eisner. It seemed that only Wells was able to handle Michael’s frequent tantrums and excessive ego. The unflappable and loyal Frank applauded Eisner’s creative genius and graciously positioned him as the sole savior of this one-time modest studio. Frank was content to remain in the background and let Michael take center stage.
But, some may say Wells was the ultimate enabler. Creating this larger-than-life character in the person of Michael Eisner fooled everyone for a time, perhaps even Michael himself. Wells may indeed have facilitated Michael’s delusions of grandeur, believing he was a deified Jack Welch–like figure. In reality, Eisner, like his grandfathers before him, was a born entrepreneur: creative, impulsive, and a hands-on decision-maker. While these are desirable skills in start-up and turn-around situations, they could reap havoc in a massive, multifaceted, world-wide corporation.
One can only imagine what The Walt Disney Company would be like today if Frank Wells had lived and remained a key player. Katzenberg may not have left, which would have prevented millions from being drained out of the company coffers. DreamWorks would never have come into being, securing Disney’s monopoly in the animated feature film arena. Michael Ovitz would never have been hired, which would have eliminated another costly and embarrassing fiasco. The animation department would still be intact, and the string of mediocre films would have been replaced with modern classics in the tradition of Beauty and the Beast and The Lion King. And finally, Disney would have purchased Pixar during its start-up days for millions rather than the billions Disney ended up paying.
Like Walt and Roy, Michael Eisner and Frank Wells tended to the creative and business operations, respectively. Together, they produced a rare formula, allowing for the coexistence of a childlike entrepreneurial environment and a business-driven multinational corporation. As evidenced by Michael’s last 10 years at the helm of Disney, hard as he may have tried, he was unable to maintain this balance. It is interesting that Michael changed his stripes and gave way to his latent hard-core business drive. He became the tight-fisted bean counter, sacrificed quality, abolished creativity, and released unimaginative sequels such as The Lion King 1½. However, there were several flashes of creativity that emerged during Michael’s last 10 years: the creation of the Disney stage show along with the renovation of Broadway, the Animal Kingdom theme park, and the Pirates of the Caribbean film.
It’s refreshing, however, that in an era of the Enron and Arthur Andersen scandals where corporations have failed because of criminal mismanagement and fraud, the boardroom battle at Disney was about the culture and maintaining the legacy of its founder Walt Disney. In the end, Michael Eisner realized that only one man in the history of the “most magical place on earth” could capture the hearts and minds of people everywhere, and that man was Walt Disney.
Bring Back the Magic
Each year, we spend a good deal of time at Walt Disney World and Disneyland in a variety of activities from keynoting conferences to sharing the “magic” with clients, family, and friends. During the last years of Michael Eisner’s tenure at Disney, we had detected a slight decline in the level of service at the theme parks. Although this change may not have been discernible to the casual observer or occasional tourist, it is certainly apparent to those of us who have considered Disney as the pinnacle of service standards for years. When we questioned cast members about the boardroom battles between Michael and Roy, many reported to us that it was “an embarrassment” to the company but had little effect on their day-to-day roles and responsibilities. Our first trip to Walt Disney World after Eisner’s resignation was in January 2006. Bob Iger had been at the helm of the company for just over three months. Surprisingly, in this short period of time, we observed an increase in the level of service: it was as if someone had recovered the “pixie dust.” When we inquired about Iger’s impact on the organization, cast members responded enthusiastically, stating how he had publicly thanked them for their hard work, something they seldom if ever heard from Eisner. In our attempt to validate cast member perceptions, we were unable to elicit a response from one of Disney’s key executives. Understandably, he was protecting the Disney brand and attempting to close the book on the Eisner years. However, the Disney corporate office is amazed at the candor we unleash from cast members at the parks, many of whom have shared their thoughts and dreams with us for nearly a decade. It may sound corny, but loving what you do and loving the company you work for might mean the difference between providing good service and great service. Even though there were no immediate operational changes after Iger arrived at Disney, cast members seemed to regain the pride in their company and truly responded to one of the “suits” taking time out of his whirlwind schedule to compliment them on a job well done.
Can Iger bring back the magic? It’s too soon to respond accurately to such a question, but clearly he is saying all the right things out of the gate. In a recent interview with the Wall Street Journal, Iger cited “Five Tips for Managing Creativity”:
1. Don’t take a hierarchical approach.
2. Don’t create an approval process that’s unduly rigorous.
3. Be careful not to water ideas down or lose people’s passion.
4. Let those directly in charge make decisions.
5. Put the spotlight on the company, not the individual.
Having been on the job for less than four months, Bob Iger surprised the business community by purchasing Pixar for $7.4 billion. Iger explained that the revelation to purchase Pixar came to him while watching a parade at the opening of Hong Kong Disneyland:
Disney, home of Mickey Mouse, Snow White, and Cinderella, hadn’t created any recognizable animated characters in the past decade. It really hit me hard that we had had 10 years of real failure. Keeping animation strong is incredibly vital. Animation creates more of a ripple effect. Characters from Pixar’s Toy Story create opportunities for merchandising and theme-park rides, such as the Buzz Lightyear Astro Blasters ride at the Hong Kong park.
Iger also announced that John Lasseter, founder and creative genius at Pixar, will become the creative head at Disney. Lasseter is charged with reviving the Disney animation department, whose staff was cut by almost two thirds during the Eisner cost-cutting rampage, when the animation staff plummeted from 2,200 down to 800. Disney studio chairman, Dick Cook, who worked closely with Pixar during their 15-year partnership, commented, “I was talking to a group of animators when the announcement came out, and they let out a big yell. The reaction has been genuinely huge. John is that rarest of talents. Everything he touches becomes better. He is selfless in his desire to make things great.”
Will Bob Iger and John Lasseter become the Roy and Walt of this era, a perfect blend of business pragmatist and creative genius? We can only hope. It remains a mystery if Apple CEO Steve Jobs (who became Disney’s biggest stockholder after the Pixar purchase) will be content to be a Disney board member—where he can continue to provide visionary thinking with introductions like iTunes and the sale of short films, music videos, episodes of smash hits like ABC’s “Desperate Housewives,” and “Lost” for downloading onto video iPods and other mobile devices. Or, will he want more control in the day-to-day running of the company?
There are many unanswered questions, but Bob Iger is already making his mark on Disney. There are lessons to be learned from the Disney brothers, ones we hope Bob will take to heart. First, as Walt believed: never compromise quality. Today, the Disney mission statement reads: “We create happiness by providing the finest in entertainment for people of all ages, everywhere.” That means producing the “best of the best” stories, music, theme parks, animated feature films, television programming, and so on. Finest means superior in quality, not acceptable or as good as the competition. Our final hope is that Bob Iger also gives credence to Roy’s words, “When values are clear, decisions are easy.”
Perhaps Bob realizes he has more than the keys to the kingdom. He is the quintessential protector of an American icon. Disney is as much a part of the American landscape as Mount Rushmore. May he never forget the true meaning of the dedication of Disneyland spoken over 50 years ago:
To all who come to this happy place: Welcome. Disneyland is your land. Here age relives fond memories of the past … and here youth may savor the challenge and promise of the future. Disneyland is dedicated to the ideals, the dreams and the hard facts that have created America … with the hope that it will be a source of joy and inspiration to all the world.
—WALT DISNEY, JULY 17, 1955
The culture that Walt Disney created over three quarters of a century ago has withstood the test of time and history. Now, Bob Iger has a formidable challenge and responsibility for upholding the Dream, Believe, Dare, Do principles that were part and parcel of Walt Disney’s success credo. All eyes are upon him.