Disney chief executive Bob Iger's contract is getting yet another sequel.
In a filing Thursday, the company's board gave the ruler of the Magic Kingdom another contract extension, moving out the date he will remain chief executive officer and chairman to July 2, 2019. The one-year extension is the third time the company has extended Iger's contract since 2013, when it moved an expected retirement in 2015 to 2016, and then later extended it to 2018.
The repeat contract extension was cheered by shareholders — the stock moved up slightly Thursday — and followed earlier comments by Iger that he was open to staying on. But it also served as a reminder of the steep challenge the board faces as it tries to fill one of the most complex jobs in corporate America with someone who can match Iger's stellar track record and well-regarded reputation among investors.
“It's one of the hardest jobs in business,” said Laura Martin, an analyst at Needham Securities who has a “hold” rating on Disney's shares. “I think it's a negative that [the extension] is not longer, but it's a positive that we've got him another year. It's a double-edge sword.”
Three contract extensions may be unusual for executive successions, but the thorny circumstances of this one make it not entirely surprising. For the past 11 years, Iger has overseen a vast entertainment conglomerate that includes everything from theme parks to movie studios to cable channels and consumer goods, making it hard to find a natural successor and creating some very big shoes to fill. His diversification in the film industry, buying up Pixar Animation Studios, Lucasfilm and Marvel Entertainment, has earned him wide praise from investors. “His strategic track record is spotless,” Martin said.
Moreover, there are only so many executives who can fill that broad mandate from the outside, especially in an era where more and more companies have been broken up into more simplified businesses. “Finding someone who understands entertainment and can run something that large, work across huge national divides, and understands everything from television to trinkets — that's a tall order,” says Michael Useem, a professor at the University of Pennsylvania's Wharton School.
Meanwhile, outsiders weighing the job might hesitate after seeing the fate of Thomas Staggs, Disney's former chief operating officer who had been groomed from a slate of potential insiders and was widely seen as Iger's heir apparent before his exit. Departures by other executives during the bake-off that elevated Staggs have also been seen as thinning the ranks of insiders positioned to take the job.
With that kind of precedent, says Peter Crist, chairman of the executive search firm Crist Kolder Associates, “it gives them pause. This is the greatest challenge companies have — dealing with an iconic CEO's succession and making the transition successful.”
Then there is Disney's history. The company has had only two CEOs since 1984, when it brought in Michael Eisner from Paramount Pictures to take the job, and the transition from Eisner to Iger was dramatic, even for an entertainment company. In a CNBC interview, New York Times columnist James Stewart, who wrote a book about Disney and Eisner, warned that “Disney does have a history, particularly with Eisner, of CEOs staying too long.”
In a news release, independent lead director Orin Smith cited Iger's total shareholder return, which has more than quadrupled under his tenure, and his global expansion of the company: “Given Bob Iger's outstanding leadership, his record of success in a changing media landscape, and his clear strategic vision for Disney's future, it is obvious that the company and its shareholders will be best served by his continued leadership as the board conducts the robust process of identifying a successor and ensuring a smooth transition.”
Smith is a particularly apt figure to be leading Disney's board as it navigates this handover: He was the CEO who succeeded Starbucks's Howard Schultz the first time the coffee magnate stepped down from the chief executive's chair in 2000. Though Smith was later succeeded by Jim Donald, who was running the company when Schultz took back the reins, Smith has “seen up close what executive succession — or its lack of success — can do,” Useem said.
With all the scrutiny facing this succession, the board seems focused on a patient approach. That's the right one, according to Yale School of Management professor Jeff Sonnenfeld, who says the extension shows they are “catching their breath, taking their time to select the right candidate. There is no ‘burning platform’ crisis with Disney, the best-led of all global media enterprises. Iger is healthy, 20 years younger than Rupert Murdoch, and universally revered as a highly effective leader.”
On Thursday, speaking at a conference at the University of Southern California's Annenberg School of Communications, Iger said he and the board agreed “we could use more time to not only spend on succession but to create a better transition,” according to Reuters. The statement was part of an interview conducted by his wife, Willow Bay, who is the incoming dean of the school.
Eventually, however, Disney will have to resolve this problem. Needham's Martin said that if any health problems arose for Iger, 66, it could lead to a drop in shares at the company. However great his track record has been, “somebody needs to run this company for the next 30 years, and it cannot be Bob Iger.”
Whether the third contract extension ends up being the charm, Iger indicated it should be the last. During the USC interview, Reuters reported, he said he “feel[s] great” about staying on, “but I'm serious this time around. ... I promise.”