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Bringing in an outsider as CEO may become necessary for the Walt Disney Co. after the abrupt departure of its no. 2 executive, but such a hire also would involve big cultural and other risks for a company with far-flung operations and a unique culture, experts said on Tuesday.
Following the Monday resignation of COO Tom Staggs, the top internal candidate to succeed Bob Iger when his contract expires in June 2018, industry and Wall Street observers predicted a tricky search process. Highlighting the difficulties for anyone tasked with taking over a big company with businesses in multiple fields, one executive search veteran said the fact that Iger leaves big shoes to fill creates an additional headache for the company. But he said that Facebook COO Sheryl Sandberg, who has been sitting on Disney’s board since 2010 and whose name was immediately mentioned as a possible Iger successor on Monday should the CEO not extend his tenure again as some suggest may happen, could be the solution.
“She has a 35,000-foot view of the business” as a board member of executive search giant Korn Ferry’s Bill Simon tells THR. “So she is sort of a hybrid between the insider and outsider person. I have no insight if she is in the running for this. But she bridges the insider-outsider issue.”
In an industry where such companies as Viacom, CBS Corp. and others are closely controlled, Disney’s board had signaled to Staggs that he wasn’t a lock as Bob Iger’s successor in the CEO role and would widen its search, according to analysts who discussed the situation with the company. That led most to predict that the company would seriously look for outside CEO candidates for the first time under the leadership of Iger, who was a Disney and ABC veteran when he took over from Michael Eisner, who had come to the company as CEO in 1984 and is the only outsider ever to run it.
Iger himself was known as Eisner’s hand-picked successor and won out after debate among board members, some of whom back then reportedly also favored bringing in a big-name external candidate. eBay CEO Meg Whitman was in contention for a while, but withdrew her name when the Disney board took its time with a decision and seemed set on Iger. The current CEO seemed to replicate that model of nurturing a successor until Monday’s surprise news that Staggs was leaving.
“For all of its whistle-while-you-work appearance, we think it is clear that the CEO succession process at Disney is highly competitive,” FBR & Co. analyst Barton Crockett writes in a report, highlighting that the company had lost another former top internal candidate in Jay Rasulo after Staggs was elevated to COO last year. “With [Staggs] and Rasulo now gone, we think the search is probably turning to outsiders.”
But he cautions: “The job of Disney CEO is an unusual assignment, and we cannot easily think of outsiders who are natural candidates, with Disney being very large and having a strong culture and history of financial discipline, coupled with unique stature in the movie, theme park, licensing and sports network industries. Still, at a time of massive change in TV and entertainment, we suppose an outsider’s perspective could be positive, if the right person is found. We are just surprised that the person has not easily emerged from inside a company as large and successful as Disney.”
Executive search giant Korn Ferry’s Bill Simon says companies must always decide whether to hire an outsider or promote an insider in succession debates.
“There’s a distinct advantage and a distinct disadvantage of being an inside candidate,” he says. “The advantage is they know you and you know them and everyone knows everyone’s strengths and weaknesses. The disadvantage is that some people maybe have had a bad experience or they don’t like you. There is some baggage and the question is, is the baggage checked or carried on.”
Adds Simon: “The challenge with Disney is it’s a really big company. An outsider coming in doesn’t know the culture. No way is there anybody who knows all the lines of business that Disney is in. The politics at a company like Disney are complex. Somebody coming in from the outside is going to have a difficult time getting acclimated into such a large and complex set of varied businesses.”
David Becher, associate professor of finance at Drexel University and a fellow at the Wharton Financial Institutions Center at the University of Pennsylvania, highlights that some organizations and companies can cause particular challenges for top executives. “This is not the first time that a high-powered executive has left [Disney] — think (former studio head, now DreamWorks Animation CEO Jeffrey) Katzenberg, (Michael) Ovitz, (Michael) Eisner — after a fairly public battle,” he says. “Some of this may be driven by the nature of the firm.”
Crockett echoes that notion, saying that “for all of the comfortable charm of Iger’s leadership,” it should be remembered that before him, Eisner’s tenure included “epic conflict and litigation.”
Concludes Crockett: “For whatever reason, CEO succession seems at times to be very difficult for Disney. Here, we understand that the board is showing its independence and a desire to be careful and put the candidate through hoops.”
Becher tells THR that “we have seen a generally increased pressure on boards to be more proactive on succession planning.”
Explaining boards’ approach to that, he says: “The key is not to just identify one candidate and stick with him/her, but to have an ongoing dialogue. As the needs of the firm changes, as the economy/industry changes etc., the ideal candidate to replace a CEO may change.”
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