Disney Could Face Costly Search for Successor
Finding a new No. 2 executive may prove a complicated and costly task for Walt Disney Co., the world’s biggest media conglomerate.
Tom Staggs, once viewed as the heir apparent to Chief Executive Robert Iger, stepped down Friday as chief operating officer, a change Disney announced just last month. The company’s board of directors needs an executive ready to take command in two years, when the 65-year-old Mr. Iger plans to retire.
Board members will more seriously consider external candidates than in the past, people familiar with the matter have said. But an outside prospect for the No. 2 job may demand the CEO title by a certain date—or a hefty payout if he or she never takes command of the Magic Kingdom.
The unexpected exit of No. 2 Disney executive Tom Staggs has thrown the media giant’s plan for a successor to CEO Robert Iger into disarray. WSJ’s Lee Hawkins details the corporate drama.
Disney directors may take those steps to attract a strong second-in-command, according to someone close to the company. “It’s expensive to bring new leaders in from the outside,’’ the person said.
Some aspiring chief executives who came aboard as understudies have won such assurances. J.C. Penney Co. recently took this approach by guaranteeing Marvin Ellison a juicy consolation prize in case it failed to move him into the corner office quickly.
The struggling department-store chain picked the Home Depot Inc. veteran as its next leader in fall of 2014 and gave him a long transition period to come up to speed. Mr. Ellison initially held the title of president, with an agreement that Penney would elevate him to chief executive the following summer.
Under his employment contract, Mr. Ellison could have collected a multimillion-dollar severance package if he didn’t succeed CEO Myron “Mike” Ullman by Aug. 1 2015. He assumed command on schedule.
Mr. Ellison could have stayed at Home Depot. Known for his strong operational skills, he was considered for CEO before another insider was selected in 2014.
A Penney spokeswoman declined to comment about the Ellison arrangements.
Over the years, companies such as Motorola Inc., TRW Corp. and AT&T Corp. also have promised a new senior executive the highest job or a sizable departure payment—and occasionally paid plenty when the expected promotion didn’t occur. “Disney directors should offer those assurances to an external second-in-command,’’ said Robin Ferracone, chief executive of Farient Advisors LLC, an executive-compensation consulting company in Pasadena, Calif.
Still, Disney is one of the most successful and attractive companies in the world. If the board brings in a less experienced but promising executive to become chief operating officer who doesn’t necessarily expect to become CEO of such a large company soon, it is possible such assurances won’t be necessary.
Mr. Iger plans to retire in June of 2018, after the board asked him to extend his tenure past his original retirement date in 2015. Given the current timeline, board members could ask him to delay his retirement again so he can groom a different heir apparent.
The potential for such an extension could be a concern to prospective successors.
“If you don’t sweeten the pot, attractive candidates will have to take the risk that Mr. Iger doesn’t fulfill his 2018 retirement pledge,’’ Ms. Ferracone explained.
Substantial severance for a No. 2 executive recruited by Disney would show that the company is “very serious about making the CEO appointment happen in two years,” said Steven B. Potter, U.S. managing partner at Odgers Berndtson, an executive-search firm.
“The world is littered with broken promises about the CEO’s job, but it’s not always the company’s fault,” Mr. Potter said, noting that candidates sometimes fall short of expectations.
An outside prospect capable of running an enterprise as complex and creative as Disney will expect a compensation package that also includes a generous signing bonus and equity grant, another pay specialist suggested. By the time a candidate is further compensated for money left on the table at his or her previous position, “you could be looking at a package well north of $25 million,’’ estimated Frank Glassner, CEO of Veritas Executive Compensation Consultants in San Francisco.
Disney’s board of directors is expected to retain a search firm to look for inside and outside candidates to replace Mr. Staggs, but hasn’t yet done so, said a person with knowledge of the matter.
Disney senior executive ranks include several company veterans, but all of them took their current roles within the past two years. And no insider appears to be as well positioned to become CEO as Mr. Staggs was. Before becoming operating chief in February 2015, he was groomed for the job by gaining operational experience as chairman of the company’s parks and resorts business after a long tenure as chief financial officer.
In the No. 2 job, Mr. Staggs worked closely with Mr. Iger, but didn’t have any divisions or executives reporting solely to him.
He is to remain a special adviser to Mr. Iger through the end of Disney’s current fiscal year in early October. To retain certain equity awards and stock options, under the terms of his contract, Mr. Staggs must remain as a consultant to the company until six months after submitting his resignation “for good reason.” The provision also prevents the former COO from working for competitors during that period, meaning he wouldn’t be able to start another job until October at the earliest.