If you were looking to buy a stock in September 1984, Disney would have been a great investment.
In that month the company made former Paramount Pictures President Michael Eisner its chairman and CEO. Under Eisner’s rein, Disney boosted revenues with improved theme parks that commanded higher ticket prices. The company built new hotels. It released the blockbuster films “The Little Mermaid,” “Beauty and the Beast,” “Aladdin,” and “The Lion King.” And it tapped a rich vein of new money by releasing classic movies on home video.
Over the first decade of Eisner’s tenure, a dollar invested in Disney stock multiplied to 10 dollars.
And then the magic ended, although few realized it at the time.
During Easter weekend of 1994, a helicopter crash killed Frank Wells, Disney’s president and chief operating officer, and Eisner’s most important collaborator. Eisner and Wells had been hired together by the company’s board of directors, which at least at the time realized the wisdom of putting the company in the hands of their partnership rather than just a solo leader. In Eisner’s own words, Wells was “keel” to his “rudder.” The two men, by one account, “were like right and left arms, one creative, impulsive, irreverent; the other measured, practical, decisive.”
Disney stock continued to climb for a while, but the seeds of future problems were already planted. Rather than seek a new business partner, Eisner lobbied for and received approval to assume Wells’ responsibilities and titles himself. He was now chairman, CEO, COO, and president.
A book Eisner and Wells had planned to write together emerged instead as Eisner’s vain, sanitized autobiography. Eisner either could not or would not find a new partner who would compensate, as Wells did, for his weaknesses. Failures to collaborate with Jeffrey Katzenberg and Michael Ovitz cost the company roughly $400 million and strengthened Disney’s competition.
By the summer of 2001, Disney’s finances had badly deteriorated, with its returns on assets, equity, and invested capital all down by more than 50 percent. Profits, which peaked in 1997 at $1.97 billion, fell to just $120 million in 2001. The stock, which traded above $40 per share less than a year before, fell to below $24 the day before the September 11 terrorist attacks shut down the market.
Eventually, Eisner lost the backing of his original sponsors. Stanley Gold and Roy Disney, who recruited Wells and Eisner as a team to boost the value of the company, finally determined Eisner by himself was at the center of the stock’s decline. “The problem is, following the death of Frank Wells in 1994, the company’s performance has been substandard,” they wrote in a letter to the board of directors during the 2004 fight for control of the company. “How long can Michael Eisner live on the company’s accomplishments from 1984 to 1994?”
The question was answered in March 2004, when an unprecedented 43 percent of shareholders withheld their votes to re-elect Eisner to the board. Within a year-and-a-half, he was unemployed. After Eisner, Disney’s board chose to separate the positions of CEO and chairman, making sure the company is led by two people, not one.
The moral to the Eisner story applies to more than just the leadership of a company.