Behind the scenes at Disney as it purged its favourite son
Thomas Staggs, the presumed front-runner to replace Bob Iger as CEO, is leaving the entertainment giant next month. Photo: Rick Bowmer
Thomas O. Staggs, then the chief financial officer of The Walt Disney Co.., was having lunch with Robert A. Iger and other high-ranking Disney executives in 2003 in the company’s boardroom when food lodged in Iger’s windpipe.
With Iger struggling to breathe and turning red, another executive started pounding his back, to no effect. Staggs leapt up, and applied the Heimlich maneuvre so forcefully that he broke one of Iger’s ribs. Out popped a piece of chicken.
Stanley P. Gold, then a Disney director, sent Staggs a note: “You’re a hero.”
It seemed Disney could stage its CEO succession as smoothly as its “Star Wars: The Force Awakens” premiere. But not so. Photo: Getty Images
In the byzantine world of Hollywood media conglomerates, not even saving the future chief executive’s life confers any job security. In a throwback to the tumultuous era of Disney’s former chief executive, Michael D. Eisner, who anointed and then discarded a series of potential successors, Staggs was purged this week.
Just a year ago, it appeared that Iger and Disney’s board had turned the page on Disney’s troubled past and executed the delicate task of succession at the top with the same flawless precision they brought to the December premiere of “Star Wars: The Force Awakens.”
In 2010, Iger named Staggs chairman of the company’s theme park division, broadening his management experience while putting him in a horse race with Jay Rasulo, who replaced Staggs as chief financial officer. Last year Staggs emerged the winner. Iger named him chief operating officer, and Rasulo departed.
Disney CEO Robert Iger with Minnie Mouse and Mickey Mouse: Will he extend his tenure now? Photo: NYT
It was literally a textbook case of a smooth succession: Stanford business school professor David F. Larcker used it as an example in the latest edition of his book “Corporate Governance Matters.”
Dream succession turns into nightmare
Disney “went through a process that seemed very sensible and effective,” Larcker told me this week. “Within a year it has all unravelled. That’s a nightmare scenario for the board and the company.”
An aerial view of the Enchanted Storybook Castle under construction at the Shanghai Disney Resort in Shanghai. Staggs will miss the June opening of his biggest achievement.
Disney said Iger, 65, who has been running Disney since 2005, still plans to retire as scheduled in 2018, a little more than two years from now. But there is no immediate successor within the company, and no obvious candidate outside it.
After six years of observing and grooming Staggs, 55, the board has to start over.
Iger and Staggs were close both professionally and personally. They seemed to have much in common: easygoing, personable, youthful-looking fitness buffs, lovers of fine wine.
They have children close in ages. They and their families vacationed together on the maiden voyage of the Disney cruise ship Fantasy, and shared several trips to Walt Disney World.
Staggs had every reason to believe he was on track to succeed Iger. During the year since Staggs was named to the No. 2 position, Disney had moved from one triumph to another: an Oscar for the revived animation unit’s “Big Hero 6”; lavish praise and box office success for Pixar’s “Inside Out;” vindication of the Marvel acquisition with another smash “Avengers” hit; the record-setting opening of “Star Wars: The Force Awakens.”
And then there is Disney’s most ambitious project of all: the imminent unveiling of its $US5.5 billion ($7.3 billion) Shanghai Disneyland resort, Staggs’ major achievement as theme park chairman. In the year that Staggs was chief operating officer, first-quarter earnings jumped 36 per cent to a record $US2.9 billion.
Board discussions
True, Disney’s stock price, along with market averages, was down. After peaking at more than $US120 in August, it was trading this week at just under $US100. But that decline was set off by Iger’s comments to analysts that growth at the Disney-owned sports network ESPN was slowing under subscriber losses. Until then, Disney had been the best-performing stock in the Dow Jones industrial average for 2015.
Iger also appeared to be laying the groundwork for his own next act: to lead the National Football League’s return to Los Angeles after a 21-year absence. Iger was granted options to buy minority stakes in the Raiders and Chargers and was named chairman of a holding company that would move the teams to Los Angeles and oversee the building of a new stadium and adjacent real estate development.
Iger met with NFL owners in Houston in January to pitch the deal. According to a detailed account in the Disney-owned ESPN the Magazine, Iger’s legendary charm fell flat with the league owners, who opted for a rival bid on January 12. Iger’s franchise options were terminated.
Perhaps the timing was simply coincidence. A person close to the board said that the collapse of the deal had nothing to do with Iger’s evaluation of Staggs, and that Iger became involved with the NFL out of a sense of civic duty. Had the bid succeeded, it would have been at most a part-time job.
In any event, in the following weeks board discussions about Staggs’ future intensified. Unknown to Staggs, some on the board had resisted naming him chief operating officer the year before, but Iger had prevailed. Those reservations surfaced again periodically, focusing on whether Staggs was the ideal person to lead Disney over the next 10 years, a period likely to take the company into the uncharted waters of the continuing digital revolution and the post-cable era.
The ousting
In mid-March, Iger summoned Staggs to his office and dropped a bombshell: Staggs lacked the full confidence of both Iger and the Disney board, which had been discussing Staggs’ performance at recent board meetings. Iger told him Disney was going to broaden its search for his successor.
Iger didn’t say explicitly that Staggs was out of the running, but the message was clear. Iger made no effort to persuade Staggs to stay. He offered no specific criticisms, according to a person close to Staggs, who spoke on the condition of anonymity because he was not authorised to disclose company matters publicly. Instead, Iger offered only a vague reference to Staggs’ lack of vision.
(Both Staggs and Iger declined to comment for this story.)
The next week both men were away, spending spring break with their families. After they returned, they discussed the terms and timing of Staggs’ departure, which they decided would be announced this past Monday. In making the announcement, Iger praised Staggs’ contributions and called him a “great friend.”
Staggs has been publicly gracious. He said it had been a “privilege” to work at Disney, and he and Iger had lunch Tuesday in the rotunda of the Disney headquarters cafeteria, where they were visible to many employees.
Within the ranks of Disney, where Staggs continues to be widely admired, there was widespread shock. “Everybody on Wall Street loves Tom,” said Doug Creutz, senior media and entertainment analyst for Cowen & Co.
Staggs’ contract provides for a six-month period as a consultant. He will not be present June 16 for the gala opening of the Shanghai Disneyland Resort in China, his signature achievement during his tenure at Disney.
History repeated?
No one is perfect, and Iger may well have developed reservations about Staggs over the past year. But whatever his and the board’s motives in orchestrating Staggs’ departure, one thing is clear: Iger is now indispensable at Disney.
While Iger has said he intends to adhere to his decision to retire in 2018, the odds of that actually happening are considerably longer, given the task of finding and grooming a successor for a company as large and complex as Disney, a process that could easily take far more than the two years remaining on Iger’s contract.
For longtime Disney employees and observers, the situation is all too familiar. Among Eisner’s heirs apparent was Jeffrey Katzenberg, who left to found the rival studio DreamWorks after Eisner famously reneged on a promise to make him president.
Michael Ovitz, the superagent who was at the time Eisner’s best friend, lasted less than a year as president before Eisner undermined him and then had him fired. Pressed by the board to name a successor, Eisner cited entertainment executive Barry Diller, but then wrote a confidential letter to the board saying that “the fact he was a homosexual should have no weight,” which, at the time, all but guaranteed Diller would never succeed him.
Eisner was in the midst of undermining Iger, telling board members he lacked “stature,” when a shareholder revolt led by Roy E. Disney, Walt’s nephew, forced Eisner’s resignation.
While more facts may emerge, what is known so far “is fully consistent with Iger wanting to remain as chief executive,” Larcker said. “There’s a long history in business of picking a successor and then discrediting them.”
Disney insists that the decision had nothing to do with Iger’s wanting to extend his tenure. Given his superb track record at Disney, he could surely stay as long as he wants. Unlike the situation when Eisner left, Disney is by no means in crisis. The animation unit, film operations and theme parks, in particular, seem to be firing on all cylinders.
But the person who has close ties to the board told me that board members have been keenly interested in succession and, given Disney’s history, very aware of the perils of a chief executive who stays too long. With Staggs gone, and no other obvious candidate to take his place, the board may have little choice but to beg Iger to stay.
“If you’re a Disney board member, your workload has just gone up a lot and you’re going to get a lot of scrutiny,” Larcker said. “Now they have to get someone better than Staggs. That’s going to be a pretty high bar.”