The principal lesson from Disney appears to be that, with someone as clever and overbearing as Michael Eisner at the top, the most brilliantly designed governance rules in the world can sometimes mean zilch – nadda. Eisner’s approach to corporate governance can best be identified in his relationships to Disney’s Board of Directors.
- Fact: Although Disney’s bylaws require the BOD hire the president, neither the compensation committee nor the full Disney board reviewed or approved the agreement between Eisner and Ovitz.
- Fact: By the time Ovitz was fired, stock options had made Eisner the company’s second largest individual shareholder, eclipsing even Roy Disney and other members of the family.
- Fact: While Eisner’s ownership was growing, he had consolidated power by isolating board members, compromising their independences, and stripping them of any real oversight.
- Fact: Disney maintained that the other 12 directors were independent in the sense that they didn’t work for the company - a narrow and meaningless definition of independence.
- Fact: Board member George Mitchell earned a $50,000 consulting fee in addition to his board stipend, and his law firm earned hundreds of thousands in legal fees representing Disney on various matters. What was that about not working for the company?
So what is the correct corporate governance model? The answer: there is none? Even with a board that passes all the tests and meets all the established criteria of a particular governance model, ethical conduct can still come down to the individual personalities involved. There is more to effective corporate governance than simply maintaining a specific model and adhering to a set of bylaws. Simply having the mechanisms in place will not in itself guarantee good governance. Clearly put, no system of corporate governance can be totally proof against fraud or incompetence. The real test of any governance structure is level of accountability of each participant.
Oh, and remember – absolute power corrupts absolutely.
