Walt Disney’s Corporate Governance

Sources of conflicts that plagued Walt Disney’s Company in the past

The Walt Disney Company is a prominent American diversified multinational entertainment and mass media empire. It was founded in 1923 by brothers Walt and Roy Disney as a small animation studio. After years of struggling and unsuccessful projects, it became a leading mass media corporation with Mickey Mouse as the official symbol of the company. Nowadays, this corporation embraces nearly one hundred seventy thousand employees and its annual income is close to forty five billion dollars. The purpose of this paper is to discuss organizational and governance strategies, as well as the concept of power abuse and its effect on the organizational structure.

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The crucial aim of the corporation is to stay one of the leading world providers of entertainment and production, implementing its portfolio of brands to make its content and services distinct. Initial financial aims of Walt Disney Company are to maximize revenues and cash flow and to distribute capital toward development of initiatives that will propel long-term shareholder value.

For the best consideration of governing strategy and conflicts that may occur between the board of shareholders and employees, it would be expedient to elaborate on the basics of good corporate governance. Successful corporate governance includes maintaining elaboration of corporate culture and values. It also presupposes proper performance of obligations towards stakeholders, employees, and customers. Good corporate governance postulates performance of the company to be the main purpose. It also should be under the strict control and supervision of shareholders. It is an important aspect, which will make sure that interests of company’s owners and shareholders are common (The Walt Disney Company, n.d.).

One may consider Walt Disney to be one of the most visionary entrepreneurs as he intended to make his corporation eternally prosperous thanks to unique entertainment strategies of creativity and high quality. He is known to become one of the most prosperous entrepreneurs in the USA, having a huge impact on the business corporate culture of the time.

Organization of corporate culture and development is the crucial point of the company’s prosperity and development. It is responsibility of the CEO and the Board of Shareholders. Michal Eisner, former Disney’s CEO, is considered to be the brightest example of conflict within the corporation based on power abuse. Eisner is famous for his monarchic corporate governance style, which led to the productivity and revenue decrease in the Disney’s company. He became the CEO in 1984. At the beginning of his work as the CEO, the company had high revenues. It is the main reason why the board of directors was not concerned about his attempts to search for monarchic power within the corporation. During this period, the corporation spread theme parks and its financial performance considerably increased. However, besides the financial performance, the Walt Disney’s company was widely criticized because of Eisner’s harsh style and tendency toward micromanagement.

It became one of the adverse crises that plagued the company in the past. However, when a new CEO evaluated Eisner’s mistakes and strategy, he declared that the main reason why Disney was plagued in the past was slow decision-making. Under the governance of Eisner, the company became too bureaucratic. The first time that made the board of directors reconsider Eisner’s position in the company was the Ovitz’s hiring and firing. Eisner hired his best friend Ovitz and made him a new president of the company. Eisner’s idea was to have as many people who were close to him inside of the boards of directors as possible, which would give him the possibility to control everything. His desire for ultimate power and monarchic way of corporate governance were crucial for the company’s development. Eisner controlled who got what information and in what form. In such a situation, proper supervision and monitoring were impossible. He created a structure of organization that promoted bureaucratic ideas and humbled innovative ideas by passing them through a long rage of top managers before coming to the CEO. This lengthy decision-making process damaged and slackened innovative development of the Walt Disney’s conglomerate.

The second and probably final issue was Eisner’s personal relationship with Steve Jobs, major owner of Pixar. It influenced his future failure as the CEO. Jobs threatened to find a new distributor because of his personal conflict with Eisner. In 2002, Michal Eisner stated that Pixar films were not good enough anymore and Disney did not need Pixar in his opinion. Jobs and Eisner were openly fighting in press. The company’s poor performance and decreased rates of income lessened Eisner’s support across the board of directors, even though the majority of them had been appointed by Eisner himself. In 2004, the board of directors decided to act and removed Eisner from the position of the board chairman with forty five percent of all votes.

This decision came from Walt Disney’s nephew, Roy E. Disney, who was the first to complain about the way Michal Eisner led the corporation. Roy Disney persuaded the rest of directors that Eisner had been governing the Disney conglomerate for many years in an imperial and independent way. The event of voting against one of the shareholders became highly disputed and criticized among American public companies. At that time, it was unusual to vote against the re-election of any board member. Notwithstanding, the Eisner’s firing was considered as an issue of board’s independence, which was typical for that time and was named the CEO shuffle. This event drew attention of the public to the company. The media started debating over the Eisner’s way of company governance, emphasizing the fact of his hiring of friends. The most arguable issue included hiring of an actor, a head of school, and an architect to the position of Disney’s company directors. One more issue that is worth consideration is his holding of a dual post, being the CEO and the head of the board of directors. There was a legal proceeding whereby the court declared that regulations in the Disney’s corporate governance could hardly be deemed the best practices. Thus, it could not hold the board responsible for not complying with these practices. The judge emphasized the fact that by hiring many of his friends Eisner had damaged objectiveness and decision-making functions of the board. One may conclude that Eisner violated the main aim of the Disney’s company to provide products of the highest quality and satisfy customers. He acted for his own revenues and interests.

Bob Iger’s resolution of companies organizational conflicts

Eisner’s successor Bob Iger is known for his successful conflict resolution strategies, which helped to solve Disney’s corporation organizational conflicts and increase revenues. His personal relationship with Eisner, who was his mentor, sped up his personal growth at Disney. Iger became the CEO in 2006 and began to implement his strategy of improving organization and governance in the company.

Considering the fact that Iger was known as a creative person full of ideas for the company’s development, he was the first to emphasize the reason of the company’s failure under the Eisner’s ruling. He began to rearrange the structure of the company in order to avoid slow decision-making in the future. Iger’s aim was to hear and consider proposals and ideas of managers of any rang. As mentioned above, Disney Corporation was losing profits because its Internet properties were flops and their theme parks lost their former popularity as only few new attractions were introduced. He decided to act quickly and his plan worked.

As the first move, Iger decided to disband the main office of the company, where strict rang division and bureaucracy prevailed, which interfered with innovative strategies. He fired many people and reassigned the best managers back. He did it because his main goal was to eliminate the long decision-making process, which was the main cause of Eisner’s failure. Any idea was sifting through different levels of managers, before coming up to the CEO. Iger’s organizational strategy presupposes an increased number of innovative ideas coming from the below.

Iger successfully implemented his organizational strategy of cutting unnecessary layers, which soon resulted in increased number of innovative ideas coming from managers. Evidently, divisional managers were working hard at the development of company’s prosperity and more willingly introduced new ideas to and approached the new CEO instead of being drawn into dealing with bureaucratic top managers.

The new strategy proposed by Iger resulted in rapid growth of income and prosperity of the Disney Сorporation. In 2010, the company acquired Marvel and it declared about new agreements with Apple, Amazon, and Google in 2011. Bob Iger has overcome and solved conflicts created by the Eisner’s monarchic strategy of ruling, which has considerably improved income.

Effects of power on organizational structure

Michal Eisner is the vivid instance of power abuse in the organizational structure. It resulted in reduction of the company’s profits and stoppage of the company’s development and growth. Such behavior in the organizational structure affected not only the financial side of the company. He slowed down innovative ideas of managers from lower levels and gave a rise to bureaucracy within co-workers. His desire to gain ultimate power and ensure his personal enrichment also influenced his relationship with shareholders. The fact that he hired unprofessional people with minimum experience who were his friends or acquaintances and put him at governing positions made the board of directors inefficient.

Sources of power

When examining effects of power on the organizational structure, it would be expedient to identify sources of power and provide some recommendations for the evaluation of organizational strategy in the global environment. One may consider different sources of organizational power. It is the authority as power that is provided on the legal grounds on which an organization is based. Another source of power is control over resources and information as access to strategic information and resources gives enormous power. The state of being irreplaceable and one of central figures in the organization is also a source of power. A person who controls decision-making has significant power as well. Moreover, one may state that a person who has the power of punishment and reward is considerably significant.

Such power may be used in different ways as the case with Eisner proves. It may be used for building and managing coalitions, making oneself indispensable, and associating oneself with the most powerful managers. It is also often used for the control of agenda, influencing the decision-making process and increasing one’s non-substitutability.

Power and politics have a great impact on any business, from controlling how decisions are made to how co-workers interact with one another. The effect of power depends on whether co-workers resort to positive or negative power to affect others in the workplace. For example, politics may have a direct influence on people with power and define whether the global culture of the workplace promotes productivity. Positive power in an organization includes encouragement of productivity. Workers’ retention rates are higher when they are given the possibility to express worries and work together in an organization. When employees do not respect a person who governs the company, a case of negative power occurs. Such rulers urge employees to work effectively by threatening them with firing or other punishments. Such leaders often demonstrate favoritism to particular employees and rarely show respect to hard work of many employees. Michal Eisner is considered to be an instance of a leader who had negative power, while Bob Iger is the one who resorts to positive power.

Recommendations on the evaluation of organizational strategy

It is significant to evaluate the organizational strategy of any corporation. Considering the Walt Disney’s internal organizational conflicts that have plagued the company and caused many problems, some recommendations may be given. First of all, it concerns strict control of future executives’ hiring. The board of directors has to take an active part in the performance of corporate governance duties. This may help to avoid problems with employment of inexperienced acquaintances as Eisner did for his personal benefit. Strict supervision of the employment process, as well as of the organizational structure will allow stopping the powerful CEO from gaining monarchic power. Before any employment negotiations, responsible people should request for pre-meeting materials and check them carefully. The organizational efficiency is important. That is why it has to be monitored by top managers and other people responsible for that.

Second, there is also an arguable issue of the CEO’s duality. It presupposes that one person is both the CEO and the chairman of the board of directors. The Eisner’s case proves inefficiency of this duality. Independent structure of the board of directors that has different people holding positions of the CEO and the board chair improves the board's aptitude to supervise top-level managers' decisions or actions, in particular concerning performance of the company.

Finally, relationships in any company require supervision to minimize managerial self-interest seeking and to avert potential conflicts of interest and controversial business practices. Besides, regulatory demands created to secure investors and support public confidence in the stock market have to be implemented. Formal processes have to be used in order to evaluate performance of the board to guarantee greater liability for improved performance.


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