The kind of details revealed in the last week of Iger’s undermining and the board’s poor governance will certainly not help with wooing a strong contender. — AP
IT turns out Walt Disney Co doesn’t just reserve the drama for the big screen.
The latest saga to come out of the Mouse House takes place inside its boardroom and perfectly captures the perils of bad corporate governance.
An in-depth feature from The New York Times earlier this week tells the inside story of how Bob Iger returned to the helm of Disney by ousting his handpicked successor, Bob Chapek.
No one emerges looking very good. Iger comes across as an egomaniac who can’t let go; Chapek reads as inept; and both seem downright petty.
But it’s Disney’s directors who fare the worst. A corporate board’s most important job is CEO succession, and we now have the details as to why Disney’s failed at it so miserably.
It didn’t just pick the wrong guy in Chapek; it allowed Iger to run the entire process and do it in a way that made his successor’s implosion inevitable.
The chaos and infighting that ensued hurt the company, leading to poor decision-making that damaged the business and morale.
A CEO reports to the board, but at Disney the directors seemed to work for Iger. They merely rubber-stamped his selection of Chapek.
From the Times article we get the shocking revelation that Chapek met with no board members other than then-lead independent director Susan Arnold.
Iger said Chapek was the guy to succeed him, and the board went along blindly.
“The idea that there was no time or no need to interview him to assess his capacity to serve as chief executive, not to mention explore his vision for the future of a company in the midst of profound change, seems inexplicable,” the Times reporters wrote.
The board also made a fatal mistake in allowing Iger to structure his post-CEO role exactly as he wanted, resulting in his retaining control and breeding confusion about who was truly in charge.
Iger would become creative officer and executive-chairman, with Chapek essentially tasked with all the parts of the CEO job that had grown tiresome to Iger.
The board initially pushed back on this arrangement, saying that Chapek should just be made chief operating officer. But it eventually acquiesced to Iger, as it so often seemed to do.
Ceding power
Both the Times piece and previous reporting by CNBC and others raise a critical question: Why was Iger in such a rush to leave the CEO job when he clearly wasn’t ready to cede his power?
In a highly unusual arrangement, Iger required that Chapek as CEO report to him rather than the board.
But the night before the CEO hand-off was set to be announced, the general counsel said that the bylaws required the CEO to report to the board.
Iger wasn’t willing to budge, so it was decided that Chapek would report to both Iger and the board.
In a sign of just how much Iger was driving the process, he demanded that the company not delay the announcement despite the last-minute change – even though the board had not discussed the new arrangement as a group or even approved it.
While some directors were unhappy with the arrangement, “as it had in so many instances, the board went along with what Mr Iger wanted,” the Times noted.
It’s clear that part of the problem was the composition of the board. By 2019, Iger had personally chosen every director and was close with several of them, as CNBC noted, including Nike executive-chairman Mark Parker and General Motors CEO Mary Barra.
Iger’s wife and the wife of another board member had been housemates during college. He wasn’t used to hearing “no” from them, and he was taken aback the few times the board chastised or stood up to him.
The resulting portrait is one of colossal ineptitude at one of America’s most valuable and iconic companies. And the riveting corporate intrigue has big implications for the future of Disney as it tries to get succession right the second time around.
It’s clear the company has learned at least some lessons.
The board now has a committee dedicated to CEO succession, led by new director James Gorman, former CEO of Morgan Stanley, who successfully managed his own hand-off.
Gorman is part of broader board refresh. And while Iger is back on the board as director, Parker is now chairman.
However, cynics have a case in questioning whether Iger has only consolidated his power further; many executives and board members who have departed are the ones who stood up to Iger, and Parker is one of his close allies.
Wooing a strong contender
The fact that Disney has yet again extended Iger’s contract signals that all is far from resolved – either that Iger is still not ready to give up control or that the board doesn’t have a serious candidate ready to step in to succeed him.
And the kind of details revealed in the last week of Iger’s undermining and the board’s poor governance will certainly not help with wooing a strong contender.
We’ve seen now how similar dynamics affected CEO succession at Starbucks, where former longtime CEO Howard Schultz acted as a serial meddler and underminer. The company was able to poach the highly coveted Brian Niccol from Chipotle, but only after making several big concessions: He was made chairman, he was not required to move to the company’s headquarters in Seattle and the company granted him a massive pay package.
Boards want to keep successful CEOs around during a leadership hand-off to retain and pass on institutional knowledge. But that shouldn’t mean allowing the outgoing executive to run the succession process or to continue to control the company after relinquishing the title.
If Disney can’t figure out how to get this balance right in the sequel to its succession drama, the board and Iger will be the ones who end up looking like villains. — Bloomberg
Beth Kowitt is a Bloomberg Opinion columnist covering corporate America. The views expressed here are the writer’s own.
