When Disney Decided to Dump its CEO, the Change Happened Fast

(Bloomberg) -- Bob Iger was adamant that he was done.

On the evening of Nov. 5, the former chief executive officer of Walt Disney Co. dined alongside Hollywood royalty at a gala hosted by the Los Angeles County Museum of Art. His retirement stubble was on show at the black-tie affair, and when asked between courses of beef tortellini and steamed cod whether he missed being CEO of the world’s largest entertainment company, Iger answered emphatically: “No.”

Elsewhere in the Disney empire, however, loyalists were missing him. Within days, Iger, 71, would be back at the helm of the company he ran for 15 years and Bob Chapek, his handpicked successor, would be gone, news that Disney announced to the world on Sunday evening. 

While Chapek’s rise to the CEO spot in February of 2020 came as a surprise to many, his departure this week was even more shocking. It came just five months after the board had unanimously voted to extend his contract. A series of missteps throughout his nearly three years as chief executive led to his ouster, but when the end came it happened very quickly, according to people familiar with the events of the past week. Representatives for Disney and Iger declined to comment. 

A Disney veteran with a reputation for figuring out new ways to squeeze more money out of theme-park guests through price hikes and special events, Chapek, 62, was something of a dark horse in the long race to replace Iger. The Covid-19 pandemic started almost immediately after his ascension to the top job, forcing him to send lay off notices to tens of thousands of employees he’d only briefly led.

But even outside the fog of crisis, Chapek made decisions that were unpopular among staff. Those choices included failing to initially take a stand against a Florida law barring discussion of gender identity in schools, and reorganizing Disney’s management structure so that longtime heads of the company’s TV and film units no longer had authority over when and how to release their work.

A backlash among Disney’s senior executives grew to the point it reached the company’s board. Susan Arnold, Disney’s chair, contacted Iger about the souring testimonials and sought his input. At the time, Iger was observing Disney’s performance as a shareholder, but he had no intention of returning. Instead, he planned to mentor entrepreneurs like those at Josh Kushner’s Thrive Capital venture capital firm, where he became a partner in September. He had also been in talks to join Gerry Cardinale’s RedBird Capital investment company as recently as last week.

Just days after the gala in Los Angeles, however, Disney reported dismal fourth-quarter earnings that stunned Iger, and Wall Street. The company disclosed a $1.47 billion loss at its direct-to-consumer business, led by the Disney+ streaming service. The following stock sell-off was Disney’s worst in two decades. CNBC host James Cramer began calling for a new CEO.

Chapek responded by announcing a cost-cutting drive, the severity of which surprised many inside and outside the company. He instituted a hiring freeze, told staffers to avoid all but essential travel and said job losses were to come. Several staffers at the company’s film division, who’d been working tirelessly on the marketing campaign for the company’s sequel, were astounded to find out they couldn’t go to the film’s premiere in London.

Executives, including Chief Financial Officer Christine McCarthy, began discussing with the board their loss of faith in Chapek. Nelson Peltz’s Trian Fund Management assembled a stake in Disney worth about $800 million and was seeking changes, the Wall Street Journal reported. It was the second such activist after Dan Loeb expressed his concerns to Chapek earlier in the year. In an agreement with Loeb, the company added Carolyn Everson, the former president of Instacart, as a board member in late September. 

After reviewing options with her fellow directors, Arnold contacted Iger late last week and asked if he would consider returning to lead Disney. Over the weekend, they agreed to a contract that includes $27 million a year over the two years Iger’s in charge. Upon agreeing to the terms, the board dismissed Chapek, effective immediately.

“It is with an incredible sense of gratitude and humility--and, I must admit, a bit of amazement--that I write to you this evening with the news that I am returning to the Walt Disney Company as chief executive officer,” Iger said in an email to Disney employees at 9:42 p.m. New York time on Sunday. 

A number of senior Disney executives were at an Elton John concert at Dodger Stadium in Los Angeles that was being live-streamed on Disney+ and read the email in disbelief. Chapek was supposed to introduce the performer to the stage. Some Disney staffers thought Iger’s email was a hack or prank. Poor cellphone reception at the stadium added to the confusion, with Disney employees unable to confirm the veracity of the email and the leadership change. 

Iger began the first full day of his second run as Disney CEO on Monday from New York, where he’s planning to stay through the Thanksgiving holiday. He wasted no time in reversing Chapek’s work: In the first edict of his new tenure, he told employees he’d be working in partnership with executives, including McCarthy, on designing a new corporate structure “that puts more decision-making back in the hands of our creative teams.” Kareem Daniel, a Chapek protege who headed the company’s film and TV distribution business, was shown the door.

At Disney’s global headquarters in Burbank and satellite offices, and at Hollywood’s major talent agencies, employees cheered the change as Iger sought to re-empower the creative zeal that founded Disney and has sustained it for a century. Former Disney CEO Michael Eisner welcomed Iger back on Twitter, and Adam Aron, chief of the largest theater chain, AMC Entertainment Holdings Inc., also applauded the move.

“Let me shout this from the mountain top,” he wrote on Twitter. “I have the absolute highest respect for Bob Iger.”

Disney shares gained 6.3% on Monday, adding some $10 billion in market value. The shares fell less than 1% to $96.84 at 9:32 a.m. on Tuesday.

Bank of America’s Jessica Reif Ehrlich, a longtime follower of the company, said she wants the leadership transition to go more smoothly when Iger leaves again.

“Bob Iger is a smart, savvy executive, he’ll have to truly pick a successor in the next go around,” Reif Ehrlich said. “He’ll need to groom someone.”

(Updates trading in third-to-last paragraph)

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