Disney's Brain Drain

By MICHAEL KRANTZ

When a helicopter carrying Frank Wells, president of the Walt Disney Co., crashed in Nevada on Easter Sunday, 1994, Hollywood whispered that the tragedy had taken Disney's heart with it. It also left the now 56-year-old Michael Eisner, the company's brilliant chief executive, lacking a confidant and a suitable successor. In the past four years, Eisner has entertained a number of pretenders to the throne, notably Michael Ovitz and Jeffrey Katzenberg, only to ultimately discard them--painfully and publicly.

Now this corporate attrition appears to be accelerating. Last week's exit of Steve Burke, president of Disney subsidiary ABC Broadcasting, was the latest in a string of departures in recent months, including those of top strategist Lawrence Murphy, chief financial officer Richard Nanula and TV whiz Geraldine Laybourne. The losses of Burke and Laybourne were particularly surprising. Burke was considered a favored Eisner protege, and Laybourne, who before joining Disney turned Nickelodeon into one of the hottest channels on cable, looked like the perfect choice for developing the company's numerous disparate television properties. So Hollywood is still whispering: Is there trouble in Mouseland?

Wall Street may also be starting to wonder. After a long run as one of the brightest stars in the Dow firmament, the company's stock has slipped 10% in the past month. The good news is that Disney remains the world's most beloved entertainment brand name--a kind of profitability triple threat that uses movies, theme parks and merchandise to turn every hit into a volcano of revenues. But some analysts are worried that its fabled pre-eminence in the animation arena has eroded since its Lion King days and that its theme parks face newly ferocious rivals and, perhaps as a result, deliver lower profit margins than they once did. ABC, snapped up by Eisner back in 1995, has suffered its own turmoil and a ratings free fall (this past season brought the network the indignity of finishing behind Fox in the 18-to-49 demographic). The launch of Disney's cruise line has been delayed by shipyard snafus.

But does all this equal a company in trouble? Burke, who left after 12 productive years at the company (he is credited with turning around the troubled Euro Disney park in France), offers up some heartfelt pro-Eisner spin. "This whole situation is a lot less sexy and nefarious than people believe," he says. "Eisner is the most interesting combination of entertainment and business talent in the entertainment business--maybe in any business--and the company still has one of the greatest collections of business talent that I've ever seen." In fact, the defections can be seen as backhanded praise of Disney's own recruiting: headhunting as the sincerest form of flattery. In many circles Eisner is considered the best executive coach in the business--a boardroom Rockne who delivers wins in the form of profits. Says a spokesman: "This is testimony to the depth and breadth of our management talent."

But that will be cold comfort if the current brain drain continues. Wall Street is rarely satisfied with standing pat; it yearns for 1990s-style double-digit growth. Where will Eisner squeeze out sufficient future returns to keep shareholders like Warren Buffett from taking the money Eisner has already made them and running? Can assets like theme-park rides and Mulan dolls possibly accrue value in the next century as giddily as some hot new online start-up?

Maybe. But turning that trick ought to be the province of precisely the sort of smart young execs who've been leaving Disney for newer and potentially greener pastures. Katzenberg, for instance, has staked his future on his fledgling DreamWorks SKG studio; Burke will run the cable operations of Philadelphia-based Comcast; and Laybourne plans a company focused on the convergence of TV and the Web.

Enticing opportunities all. But Laybourne's sudden interest in starting from scratch hardly explains her departure from a company where, sources say, her hopes for starting a children's channel were thwarted by Eisner, who is a famous micromanager. Some stars remain, including Joe Roth, who runs the movie studio, and Robert Iger, who runs ABC. But insiders are worried that despite quadruple-bypass surgery, Eisner still isn't pondering his successor.

That has to change. Eisner's rejuvenation of Disney has made him one of the decade's most renowned (and richly compensated) corporate titans. But not even a rebounding stock, crowded theme parks and packed movie theaters will let Eisner escape his last and perhaps most unnerving duty to a company that he clearly loves. The ultimate, and oddly counterintuitive, challenge for any CEO is to make himself unnecessary by building an organization that can flourish long after he's gone.

--With reporting by Jeanne McDowell/Los Angeles

With reporting by Jeanne McDowell/Los Angeles