The primary subject matter of this case is corporate governance, and The Walt Disney Company is used as an example of the strengths and weaknesses that can be found in governance systems. Secondary issues examined include CEO role duality, board independence, entrenchment, and succession planning. The case has a difficulty level of four and is most appropriate for undergraduate or graduate-level business education, either in strategic management or leadership. It is designed to be taught in 11/2 class hours and is expected to require 1-2 hours of outside preparation. Specifically, students should first become familiar with the federally-legislated Sarbanes-Oxley Act of 2002 and would be well-served to read the case titled Michael Eisner and his Reign at Disney, which can be found in this issue. The case here seeks to demonstrate that what appears to be strong governance may in fact be a facade, by elucidating the subtle components of corporate governance that can slip under the radar but which are crucial if governance is to be effective. When is meeting the letter of the law enough, and how is that determined by shareholders?
This case discusses the corporate governance practices at The Walt Disney Company. It discusses the company's governance issues and mechanisms prior to the breakout of scandalous activity in corporate America, which began with the crisis at Enron in 2001. We discuss the years that immediately followed, with particular attention to the changes in the governance landscape--that is, the new expectations imposed on US businesses, either voluntarily or by federal legislation or stock exchange regulation. Among the topics discussed are board independence and board size, fees for services, succession planning, diversity, entrenchment, and CEO duality. We then address the steps that The Walt Disney Company has taken towards complying with these new rules, not only to highlight how far the company has come but also to show how much more needs to be done in order to restore investor confidence and corporate reputation. In a separate case in this issue, we discuss the conflicts that arose among the company's CEO and two of its board members, which may have contributed significantly to negative perceptions regarding Disney's governance practices.
1. Review The Walt Disney Company's definition of board independence, which can be found on the company's website. Are there any inconsistencies in the way "insider" and "independent" are defined? Which directors could be seen as taking advantage of those loopholes?
(Disney's definition of board independence appears below the response). The case stated that director Robert A.M. Stern did not qualify as independent, since he provided professional services to the company. Interestingly, George Mitchell, the other fees-for-services recipient and former US senator, was deemed independent and was subsequently appointed to the outsider position of presiding director. This has critics questioning the consistency with which the "independence" standards are enforced. Neither did Stanley Gold qualify as an independent director, although he did not receive fees for services rendered to Disney. His connection was to a Disney family member--Gold was President and CEO of a company owned by Roy Disney. Yet, as a result, Gold was no longer eligible to chair the Governance and Nominating Committee of the board.
Additional Instructor Information: According to the 2003 Proxy Statement, none of the members of the Compensation Committee have been officers or employees of the Company, but it makes reference to what might be considered possible exceptions. Committee member John Bryson's wife is an executive at Lifetime Entertainment Television, which is half-owned by Disney. Director Raymond Watson, whose son is employed at the Disney Channel, served on the Compensation Committee in 2002, as did Director Thomas Murphy, former Chairman and CEO of Capital Cities/ABC prior to its acquisition by the company in 1996. …