Disney fires Chapek, brings Iger out of retirement

I didn't think much of the results, I guess because I would expect Disney+ to bleed cash for a few years as it invests in infrastructure and a lot of really great content. I am still consistently impressed with what I get out of that service, and often Hulu as well. If you think in dotcom terms, there's usually not a lot of pressure to be profitable for the first years. But I also don't know what expectation they set, and if it was wrong, then I understand why the analysts are annoyed. Even the park miss of $100m out of $7.5b didn't seem like that big of a deal in the midst of crazy inflation and labor costs.

But I think the comments above, about how he has responded, with an apparent lack of candor or humility, may have a lot to do with it. He's just not much of a people person. He's a cold operator in a touchy-feely company, both from the perspective of employees and customers. A miss without that self-awareness understandably might spook investors.

(Disclaimer: I'm long DIS.)

I posted this elsewhere, but: The difference between the Bobs is that when one is fleecing you, you feel good about it, but when the other fleeces you, you don't.

I was surprised by the suddenness too. But without knowing much about business, I wonder if some of the large investments they've been planning require a certain stock price to secure the money needed to make them (new content, park expansion, perhaps an acquisition?) So better to make investors happy with blood so that they aren't dead in the water?

My opinion is that leaders shouldn't be entirely worried about the stock price, for two reasons. The first is that sometimes things take many quarters or even years to do, so that narrow lens with which investors and analysts look at things isn't really indicative of longterm outcomes. The second is that the markets are completely irrational when it comes to certain kinds of companies that elicit some kind of emotional response. Tesla was always overvalued even when it was months away from collapse, but the product was cool and futuristic. Doordash went nuts last year because of, I dunno, burritos to your door? Gamestop was a meme. Disney is mythical and magical, and I don't know why anyone would put a ton into it (I have 13 shares, which is probably too many, but it was emotionally motivated and I expect one of those irrational swings eventually).

Not sure I agree with Brian. There is a world of difference between the two Bob's, largely in the area of vision...which is a formidable skill for a CEO in the most creative business in the world. Iger, among other achievements, brought Pixar, Marvel and Lucasfilm into the Disney family...all of which have provided, and will continue to provide, content and IP for all of their business ventures for years to come. His personal responses to the alligator tragedy and the Pulse Nightclub massacre were in stark contrast to Chapek's handling of the Don't Say Gay Bill controversy.

That each of them also focuses on the bottom line (and this is a corporation after all, not a 501c3) is...well..basic and essential. For all the criticism of higher prices, premium pay options, etc the parks continue to be bursting at the seems.

Happy Thanksgiving week

Reservations still available!

Chapek was in a tough spot. Huge shoes to fill. And the man who had been wearing those shoes was still executive chairman of the board (so he was staying around). Iger still had a lot of relationships with senior management at the company who I expect were in contact with him about what Chapek was doing. And the company was facing real challenges (rather than hitting on all cylinders which makes for an easier transition to a new CEO). And Iger was critical of some of the decisions Chapek make. None of that is how Chapek would have drawn things up out of the gate.

Definitely were missteps (some of which happened before the board extended Chapek's contract for 3 years). Earnings release response wasn't good. Need to provide some sense that you understand the issue and have a plan to address it and move forward. He didn't do that. Cumulative issues that resulted in the board (and sounds like other senior management) losing confidence in Chapek.

CNBC says the board just approached Iger on Friday, and Chapek had no clue until shortly before the announcement. It feels like there's a bigger story there.

Or the Disney board is on par with Sea World. I think I heard a rumor that someone very important to the company was about to walk. Who that was is fuzzy but my short list of people important enough include Feige, Pete Doctor (Pixar,) Favreau and Dave Fioni (Star Wars D+ series heads.)

BrettV:

Happy Thanksgiving week

For some reason, this reminded me of when I was a kid, and one of the major news weeklies ran a story about roller coasters - this was during the boom of the 1970s. They quoted a teenager who said, "It's like sex - you wait hours and hours for that one wonderful minute."

wahoo skipper:

His personal responses to the alligator tragedy and the Pulse Nightclub massacre were in stark contrast to Chapek's handling of the Don't Say Gay Bill controversy.

I will absolutely grant you this. However, I think it's also fair to say that the first two happened in a more forgiving context. The DeSantis thing definitely did not go well, and probably could have been handled better, but I think there's a limit to how much better it could have been handled. Rank-and-file employees were demanding a public and vocal response, and any public and vocal response was bound to be squarely in DeSantis' crosshairs. That's a tough needle to have to thread.

The short version of a much longer thing I am thinking about: the level of societal anger and discontent is much much higher now than it was when the transition happened in February of '20. There were marked differences in how the two were able to deal with the public, but at least some of that is because "the public" meant very different things. How much is due to the individuals, and how much is due to their particular moments in time, I don't know.

If I'm reading between the lines right, I suspect there has been a lot of decision making going on in a vacuum. CEO's for a company that size have to set vision, but when it comes to the operational work, you need at least input from the people affected by the decisions, if not deferral of the tactical moves to them. I feel like I see this over and over again, even in smaller companies. Set the outcome, consult, but get out of the way with your qualified senior leaders.

Chapek did a reorg and fired a very popular TV exec, and everyone was pissed off. That's my first clue. The second is that the CFO apparently had no confidence in him.

Imagine if the CEO of Target started making changes to how things work at the front register. They shouldn't be that far in the weeds in the first place, but even if they went there, you've got mountains of expertise you could learn from first.

Looks like my read was correct. From The New York Times:

Christine M. McCarthy, Disney’s well-regarded chief financial officer, directly told at least one board member that she lacked confidence in Mr. Chapek. “He irretrievably lost the room,” the leader of a Disney unit said on Monday.

And Chapek's media reorg is going to be rolled back and its new boss is out:

Mr. Iger ousted Mr. Daniel on Monday. In a note to employees, Mr. Iger said a new company structure was on the way that “puts more decision-making back in the hands of our creative teams and rationalizes costs.”

Two years doesn't seem like a lot of time to groom a replacement, though they mention Staggs and Mayer (+1 to whomever called Staggs). This also I think lends some weight to my argument that great leaders do deserve to get paid because they have jobs so few people can do. Looks like Iger is getting a $1m base, $1m bonus and up to $25m in equity. All things considered, that seems like a pretty good deal. He could have probably score more if he wanted it, but I think this is about him fixing his biggest mistake.

But how much did Chapek get paid for his $h!t show?

Expectation is that Chapek is getting a buyout of at least $20 million:

https://www.hollywoodreporter.com/business/business-news/bob-iger-d...235266921/

Chapek's original contract, which was extended in June for three years, had a $2.5m salary. Annual bonus would be "not less than" 300%, so $7.5m each year. His equity award got bumped up to $20m annually in the June update. The way I read it, he'd get all of the base salary, the pro-rated amount of his bonus for this year, and it says he can get the RSU's through the end of the agreement if he meets performance conditions, which are at least partly the stock price. So salary and bonus is $10m-ish, and whatever RSU's they decide he can keep. So I guess around $20m total sounds about right. That still sucks for that kind of failure, but we've seen worse.

I mean the Orioles paid Chris Davis $23 million last year to sit at home. And he was just a crappy player on an historically bad baseball team. $20 million seems reasonable in comparison, but I'm sure the board would like a do over on extending Chapek.

I’ll concede that a good CEO should earn tens of millions of dollars if a bad CEO has to pay tens of millions of dollars.

I'll concede that $15 an hour should be minimum wage for good employees if a bad employee has to pay $15 an hour.