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Thursday, Mar 28, 2024

Disney Ladder A Mouse Trap?

It’s the biggest question in Hollywood: Who will Walt Disney Co. find as successor to Bob Iger when he steps down as chief executive in two years? Thomas Staggs, the man groomed as Iger’s replacement, announced April 4 he will exit his post as chief operating officer of the Burbank entertainment and media giant, effective May 6. That leaves the global empire’s succession plan in tatters, spurring speculation of why Staggs is leaving and who will step into his frontrunner role. The announcement sent Disney’s share price down by 2.9 percent from the opening on April 4 through close on April 8. Disney isn’t saying much about the situation, only that its board of directors will identify and evaluate more candidates as eventual replacements for Iger. While internal candidates are being considered, the company could also look to external options. Tuna Amobi, an equity analyst at S&P Capital IQ, in New York, who follows Disney, said that chief executive transitions there have been volatile in the past and the current situation follows a pattern. “Bob Iger himself did not have smooth sailing when it came time for him to succeed Michael Eisner (in 2005),” Amobi said. Staggs had been named as COO in February of last year, a move that many saw as confirming his position to step into the chief executive role after Iger’s tenure ended in June 2018. Prior to the promotion, Staggs had been head of the theme parks and resorts division and was the long-time chief financial officer. The other internal candidate considered for Iger’s spot was then-Chief Financial Officer Jay Rasulo, who left the company in June after being passed over. Linda Henman, a Chesterfield, Mo.-based consultant who has worked with both Fortune 500 companies and smaller businesses on chief executive selection, said that Disney has lost its footing with both Staggs and Rasulo out of the succession picture. “Their executive team is looking pretty shallow and it is showing up in the stock prices,” Henman said. Analysts following Disney agree that Staggs’s departure was unexpected, but there the agreement ends. Amobi believes that uncertainty will affect share price in the near term. Wall Street held Staggs in high regard, which is why the share price retreated following his announcement, he added. Anthony DiClemente, a research analyst with Nomura Securities, in New York, however, predicted in a research note released April 4 no near-term effect on Disney’s business resulting from Stagg leaving. After all, DiClemente pointed out, Staggs had left the theme parks business in good financial shape and as COO was addressing issues related to television operations. “As such, while some may point to his departure as a headwind/distraction to the Shanghai park opening, we note that the completion of the Shanghai Disney Resort is nearly complete at this point,” DiClemente wrote in his note. The $5 billion Shanghai Disney Resort is scheduled to open in June. Cast of characters Since Disney’s founding as a small animation studio in the 1920s, the company has had only six chief executive officers. The first was Roy O. Disney, Walt’s brother, although the title was not officially given until 1968. Iger, now 65, had been president and chief operating officer when it was announced in March 2005 he would replace Eisner, then in the midst of a shareholder revolt led by Roy E. Disney, Walt’s nephew, and others. Among the criticisms lodged at Eisner was lack of a clear succession plan. He stepped down as chief executive in September of that year. During the 10 years of Iger’s leadership, Disney has been on a strong growth trajectory. The company got in early on distributing content via Apple Inc.’s iTunes, bought Pixar Animation Studios, Marvel Entertainment and LucasFilm Ltd., built the new China theme park, saw revenues grow from $34.3 billion to $52.5 billion and the share price hit $100 for the first time ever. “There is consensus that he has done a phenomenal job,” Amobi said. Given all that, stepping in as the replacement for Iger would seem a daunting task. The why behind Staggs’s departure is yet to be known. Speculation has abounded both in the entertainment trade publications and by analysts. Some theories: Staggs lost the confidence of the Disney board; Iger wanted to stay beyond 2018; studio leadership wanted him out; there’s another internal candidate; and that Sheryl Sandberg, Disney board member and chief operating officer at Facebook Inc. wants the job. “We want answers and we believe investors deserve answers beyond the PR spin Disney has pushed out-to-date,” Rich Greenfield of global financial service firm BTIG, in New York, wrote in an April 8 blog post. “We believe Iger must publicly explain how Disney ended up in this situation and why he and the board made a mistake in choosing Tom Staggs to be COO last year.” Probably the closest to knowing the real story comes from James Stewart, columnist for the New York Times and author of “DisneyWar,” a 2005 book about Eisner’s reign at Disney. An April 7 column related that there were board members who had been opposed to naming Staggs as COO and those reservations had surfaced from time to time. In March, Iger reportedly told Staggs the board and he were not fully confident he was the best person for the CEO job and that the board was going to broaden its search for a successor, Stewart wrote. “Mr. Iger didn’t say explicitly that Mr. Staggs was out of the running, but the message was clear. Mr. Iger made no effort to persuade Mr. Staggs to stay,” Stewart wrote.” “He offered no specific criticisms. … Instead, Mr. Iger offered only a vague reference to Mr. Staggs’s lack of vision.” Outsider challenges The situation at Disney is common among large corporations. Brian Kropp, human resources practice leader at CEB Inc., a managment and technology company in Arlington, Va., said a survey his firm recently did of the heads of human resources at Fortune 1000 companies showed that one out four respondents said there was no clear successor at their company. “This question of who is the next CEO is a huge issue that companies are dealing with from a succession perspective,” Kropp said. Henman, the consultant, thinks what Disney had in place wasn’t a succession plan at all but only a replacement plan. A true succession plan has the person being groomed involved in the issue and decision making of the company, she added. If she were advising the Disney board, Henman said her advice would be to focus less on experience in the areas that Disney operates in – films, television, consumer products and theme parks – and more on brains. “Open the search to people who have led large publicly traded companies and had tremendous success with P&L (profit and loss statement) responsibility,” Henman recommended. “The person may not know film, they may not know theme parks but the person needs to understand strategy and business growth.” That an outsider will be seriously considered is another factor that analysts agree on. “Maybe the board feels that an external candidate could bring greater diversity of background to the office,” Nomura’s DiClemente put in his research note. But when an outsider is chosen to run a company, they bring with them a set of challenges to overcome. One is they won’t have as strong an understanding of strategy as existing senior management would, Kropp said. Another is credibility and that a new CEO coming from the outside is not as knowledgeable about the inner workings of the company, he added. A third challenge is not knowing the senior leadership team well enough and being familiar with its quirks and work patterns, Kropp said. Finally, there is the risk of upper management leaving because by bringing in an outsider the board is telling them that they are not viewed as potential future leaders. “You tend to see a good chunk of turnover in the existing senior leadership team when you bring in a new CEO that is brought in externally,” Kropp explained.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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