In the aftermath of Disney’s Bob Swap, firing Chapek and rehiring Iger, we’re now learning more about how things went down and the timeline of events as board members and company insiders have started talking. On top of that, Iger is already making changes to realign the company with his creative vision. This “Battle of the Bobs” post covers all of that, along with thoughts on what has happened and a few easy wins Iger could make as he reclaims the throne.
Let’s dig right into the palace intrigue, as this weekend’s firing and rehiring were set in motion months ago. Per multiple reports, some members of Disney’s board of directors were actually hesitant about extending Chapek’s contract over the summer. They started putting out feelers for an interim replacement who could lead the Walt Disney Company while conducting a more comprehensive search for a new permanent leader.
This was a result of Chapek’s comedy of unforced errors that we’ve already discussed in previous posts. This started with Chapek’s hamfisted handling and callous response to the bombshell Black Widow lawsuit filed by Scarlett Johansson against Disney. It was exacerbated by Chapek’s public flip-flopping on legislation in Florida that managed to alienate everyone, draw the ire of Governor Ron DeSantis, and culminated in Florida passing bills to dissolve Walt Disney World’s Reedy Creek Improvement District. The problems didn’t stop there.
Just as the Florida controversy was starting to die down, Chapek abruptly and crassly fired Peter Rice, the well-regarded chairman of entertainment. While this didn’t make waves with the general public, it was a hot topic in Hollywood trades. Critically, it fueled even more industry gossip that cast Chapek in a negative light, as someone eliminating potential threats to his power and who didn’t understand or care about talent.
According to the Hollywood Reporter, this led to some on Disney’s board wanting to replace Chapek and appoint Nike chairman Mark Parker–a member of Disney’s board–as a stopgap CEO during the search process. However, sources indicate that Parker declined the role multiple times. General Motors executive Mary Barra also advocated replacing Chapek at the June meeting of the board, according to THR.
However, not every member of the board was on board with replacing Chapek over the summer. Most notably, Board Chairman Susan Arnold advocated for Chapek. According to reports, she sided with Chapek from the beginning, even before Iger left. At every turn, she reinforced her belief that Chapek should be given a chance to run the company.
In the aftermath of Rice’s firing, Arnold released a supposedly unanimous statement of board “confidence and support” for Chapek. At that time, industry chatter noted that the statement was hollow without a contract renewal for Chapek, which was the true show of confidence. “You let the CEO get within a year of his contract being up,” one industry power player said at the time. “That by itself is a statement of non-support. A vote of confidence is nonsense.”
When the board discussed Chapek’s contract at the end of that month, some wanted to extend it for only two years. Arnold argued that would undercut Chapek, so a compromise was reached: Chapek’s contract was extended for three years but backdated. That left slightly more than 2 years remaining on his deal with Disney.
Despite that, Chapek did little to actually earn the confidence that the board purported to have in him. Things reached a tipping point, first with the most recent earnings call. Chapek delivered the fiscal fourth quarter results, and offered optimistic commentary that Wall Street investors called delusional and divorced from the actual results and forward-looking guidance. As a result of the misses on earnings, revenue, and the lowered earnings forecast, Disney stock plummeted over 13% to close under $87 the following day.
Three days later, Chapek sent a memo to executives regarding a hiring freeze, layoffs, and other austerity measures. The cost-cutting mandate reportedly blindsided multiple high-level leaders who felt they should have been given a heads-up, and were left scrambling to determine what spending was off limits. This led to more leaders becoming disgruntled and pushing back against Chapek.
Throughout it all, Iger’s disapproval of Chapek was a secret to no one. At a dinner shortly before leaving, Iger is said to have warned the company that the culture of Disney could be transformed negatively and rapidly in a speech that was interpreted by some as an indictment of Chapek’s leadership style.
Prior to that, Iger said at an annual retreat that “in a world and business that is awash with data, it is tempting to use data to answer all of our questions, including creative questions. I urge all of you not to do that.” That was also interpreted as a shot at Chapek’s decision making approach.
That dinner in December was the last time Iger and Chapek spoke (if I recall correctly, this is why Chapek skipped the Destination D23 event). Rather than soliciting his advice in navigating the Florida controversy, Chapek opted to go alone and trust his own inner circle. As we all witnessed, that went really well.
December was also the last time that Susan Arnold and Iger had spoken since his final lunch with the board. That is, until she called him at 3 pm last Friday. The executive change came together quickly, blindsiding Chapek and his closest allies, according to CNBC.
A comprehensive article in the New York Times with a byline including James B. Stewart, the author of DisneyWar, assembled interviews with more than a dozen people, including Disney executives, bankers, investors, and members of the inner circles of both Bobs, all of whom spoke anonymously to the paper. According to their reporting, senior leaders at Disney were aghast about the quarterly results and Chapek’s delusional delivery of them.
The board’s outreach to Iger and discussion to replace Chapek came after the board married internal complaints about Chapek’s leadership with concerns following Disney’s most recent quarterly earnings report. One of the executives to express a lack of confidence in Chapek was Christine McCarthy, well-regarded chief financial officer, according to both CNBC and the New York Times.
McCarthy has served as the Walt Disney Company’s CFO since 2015, serving for Iger prior to his departure. As a result, she has an established relationship with the board given her longevity in the position. McCarthy telling the board that she lacked confidence in Chapek was likely instrumental in their decision to replace him. “He irretrievably lost the room,” said the leader of a Disney unit.
Iger also consistently heard complaints from former colleagues about Chapek’s leadership style and pulling away power from creative executives, according to the NYT. Several specifically noted Chapek’s plan to move 2,000 Disney employees from California to Florida, which was then delayed, showed a level of callousness toward employees’ lives that was incongruent with Disney’s family-friendly culture.
In addition to his not-so-secret digs, Iger had been privately railing against Chapek, sources told the New York Times. He lamented Chapek’s lack of empathy and emotional intelligence, which resulted in an inability to communicate with or relate to Hollywood’s creative community. Disney seemed to be losing its soul, Iger confided to one associate.
While some internal CEO candidates were identified who might be able to take the job over time, the board didn’t want to put someone new in that position given all various pressures on the company, CNBC reported. There are senior executives at Disney who could be groomed into chief executive material, including Dana Walden, Disney’s television chief, and Josh D’Amaro, Disney’s theme park chairman. Neither is quite ready, one source told the New York Times.
Perhaps most interestingly, Tom Staggs and Kevin Mayer, were also considered to replace Chapek as CEO. In case you’re unfamiliar with the naes, these are two previous candidates to replace Iger who left Disney when it became clear they’d be passed over for CEO. In an interesting twist, the two are now running the Candle Media startup together.
Earlier this year, Disney’s board put out feelers with them to see if, hypothetically, one or both be interested in returning to run Disney? Staggs and Mayer declined, likely in large part because it was not a viable offer. Any deal with either or both would have required Disney to acquire Candle Media, which would’ve required Chapek’s approval. He may not be the world’s greatest decisionmaker, but it’s pretty unlikely Chapek would’ve approved a deal to onboard his replacement. All of this left the board with only one serious option as a replacement or stopgap CEO: Bob Iger.
With that said, everyone is cognizant of the fact that Iger, who had previously extended his retirement on multiple occasions in part to close transactions and in part due to insufficient succession planning, is also not a long-term solution. In announcing his return, Disney’s board said in a statement that Iger was coming back with a mandate to develop “a successor to lead the company at the completion of his term.”
In speaking with the Hollywood Reporter, company insiders used more blunt terms: “Bob Iger messed up succession at Disney for 15 years. When he finally [stepped down], it was a colossal mess-up. It’s extraordinary that [Iger] is the guy they chose to come back. It speaks to his reputation and the board’s lack of options and ineptitude. How could they have gotten to this place? How could this happen?”
Several leaders at Disney were shocked at how Chapek’s ouster went down. One source, who was not a fan of Chapek, remarked that “he didn’t get to say goodbye or say, ‘I’ve decided to step down.'” The source drew a parallel to Rice’s unceremonious firing, adding that “I bet you [the board’s firing of Chapek] broke Chapek’s record of firing Rice in seven minutes. They called [Chapek] and said, ‘You’re out. Our lawyers will call your lawyers.’ No statement from him, no comment from him, no grace.” They closed by calling how it all went down “insane.”
For current and former Disney insiders, the change did feel insane, though welcome. Despite the surprise, “in a weird way it felt inevitable,” one source told THR. Another noted that Iger has already undertaken a reorganization to undo the one imposed by Chapek, who had shifted power over financial decisions away from creative executives. “I’m happy he’s going to revert everything back to the way it was,” this person says. “As though Chapek was never there.”
To that latter point, Bob Iger has wasted no time in reshaping Disney after returning as CEO. In a memo to division leadership, Iger announced restructuring will begin “in the coming weeks.” As part of that initiative, Kareem Daniel, chairman of Disney Media and Entertainment Distribution, will be leaving the company. Iger thanked Daniel for “his many years of service to Disney.”
In his memo to DMED, Iger said: “Over the coming weeks, we will begin implementing organizational and operating changes within the company. It is my intention to restructure things in a way that honors and respects creativity as the heart and soul of who we are. As you know, this is a time of enormous change and challenges in our industry, and our work will also focus on creating a more efficient and cost-effective structure.”
“I’ve asked Dana Walden, Alan Bergman, Jimmy Pitaro, and Christine McCarthy to work together on the design of a new structure that puts more decision-making back in the hands of our creative teams and rationalizes costs, and this will necessitate a reorganization of Disney Media & Entertainment Distribution,” Iger continued.
“Our goal is to have the new structure in place in the coming months. Without question, elements of DMED will remain, but I fundamentally believe that storytelling is what fuels this company, and it belongs at the center of how we organize our businesses. This is a moment of great change and opportunity for our company as we begin our second century, and I am so proud to be leading this team again. I can’t say it enough: I’m incredibly grateful for the tremendous work you do each day, and for your commitment to maintaining the level of excellence Disney has always been known for.”
It was widely expected that Daniel would exit Disney with the arrival of the revived Iger regime. Daniel was a top lieutenant of Chapek, and was named to his role back in October 2020 when Chapek controversially reorganized and created the Disney Media and Entertainment Distribution group. That took away profit-and-loss responsibility from the executives who run Disney’s movie and television studios, and gave it to Daniel.
This decision and control over how movies and television shows were released upset many longtime Disney leaders, and Iger reportedly disagreed with the move but was overruled. Making matters worse, Daniel was another executive with a consumer products background, and had minimal experience with media. Despite the internal angst, Chapek repeatedly insisted that his deeply unpopular reorganization was actually popular, with “100 percent buy-in” from Disney managers.
Disney Media & Entertainment Distribution is the one that contributed the $1.5 billion in streaming losses for the fiscal fourth quarter, so it’s also unsurprising that Iger would begin by firing Daniel. It’s expected that a good portion of Iger’s early emphasis will be to stem the bleeding and ensure that Disney’s streaming businesses are actually on a path to profitability.
Iger has agreed to serve as the Walt Disney Company’s CEO through the end of 2024. He will earn a $1 million base annual salary, Disney stated in a regulatory filing Monday. The compensation package includes an annual bonus target of 100% of his annual salary, with an annual target of $25 million for a long-term incentive award.
This filing also reveals that Disney “exercised its right to terminate without cause” the employment of Bob Chapek. So that should put to rest any “rumors” that he left voluntarily to spend more time with his family or any nonsense of that sort. “Mr. Chapek will receive the separation benefits payable in accordance with the terms of his previously disclosed employment agreement.”
Prior to his firing, Chapek had a base salary of $2.5 million, with an annual target of $20 million, which was increased from $15 million when his contract was renewed earlier this year. He is reportedly in line to receive a severance package of at least $20 million, consistent with his contract.
It’s also a near-certainty that Chapek’s contract contained mutual nondisclosure and nondisparagement agreements, so don’t expect a sit-down interview in which Chapek airs his grievances with Disney, Bob Iger, or fans. Instead, we’ll probably be treated to many more leaks like these, where Iger and Chapek speak through intermediaries and their inner circles.
I know executive compensation is a sore subject for many, but if anything, I think this whole debacle has been a case study in the right leadership being instrumental to success. Even if he had the business acumen, Chapek clearly was not cut out for the job. As Iger rightly points out, he lacked the emotional intelligence, creative instincts, communication skills, and so many other necessary qualities necessary to lead the Walt Disney Company. Iger made it look easy, but that’s simply because he was so good at the role. Iger easily adds $25 million in annual value to the company over Chapek. (To that point, the announcement of Iger’s return added $12 billion in value, as Disney’s stock jumped nearly 10% overnight.)
What I find most amusing about this is how several media outlets all had consequential articles with multiple insider sources published a day after Disney’s Bob Swap™️ was executed. I’m not surprised, as it’s pretty obvious that Iger had pieces placed in friendly publications for the last 2+ years, but the speed and sourcing is still impressive. What’ll be interesting is whether Chapek manages to reciprocate, because right now these reports are pretty one-sided. If his past comms efforts are any indication, perhaps he’s better off staying silent.
Beyond that, there are some interesting quotes and tidbits. While we’ve mentioned Staggs and Mayer as potential long-term replacements in the past, that was entirely a matter of wishful thinking–not an rumor. However, I’m happy to hear that Disney’s board actually has given it thought. Now that Chapek isn’t around to block the acquisition of their startup, perhaps it could actually happen.
In the day-plus since Chapek’s firing, we’ve observed a fairly noteworthy change already take place: improvements in Cast Member morale. A huge number of frontline Cast Members and other employees have expressed their joy that Chapek is gone and Iger is back. In yesterday’s post, we mentioned corporate culture and the top-down tone of Chapek v. Iger, but honestly, I didn’t think it would be this significant–and sudden.
For those who have asked, this is a good example of an immediate fix that Iger can “implement,” and it would be a savvy move to maintain this momentum with some symbolic and concrete changes. Low-hanging fruit would be cancelling the relocation of corporate offices from California to Florida. That move has already been delayed and appears to be on life support, announcing that it isn’t happening would be an easy way to take a win for something that probably won’t occur anyway.
At the corporate level, unwinding the DMED debacle is another inevitability. We’d love to see Iger announce that Disney is investing in frontline Cast Members–not only would this be a win for them, but it would be a way to continue improving morale, as well as help with reducing turnover and addressing staffing shortages.
Ultimately, it’s likely we’re going to hear a lot more in the days and weeks to come about what went down between Chapek, Iger, and the board–and what precipitated this weekend’s Bob Swap. As much as I enjoy the palace intrigue and have been happy to hear it for the last couple of years as it suggested Bob Iger was still trying to influence and wield power at Disney, I’d be fine with this being the end of the gossip. Iger has a lot of work ahead of him, with lots of damage to undo and major problems to fix. That should be the focus going forward.
While there has been the predictable cheering for the demise of Chapek in response to this news, there has also been a good amount of level-headed criticism towards Bob Iger. It’s obvious legacy is immensely important to him, and part of that means actually getting succession planning right this time, finding the right approach to make streaming profitable in an oversaturated market, dealing with the pitfalls of sports (broadcast rights and gambling), and navigating an economic downturn. It won’t be easy, but if Iger can manage all of that, he’ll be truly deserving of the legacy he earned for himself prior to 2020.
What do you think about the timeline and events that precipitated Disney’s Bob Swap™️, replacing Chapek with Iger? Thoughts on how it went down, the board’s decision to renew Chapek’s contract instead of replacing him over the summer, Iger’s succession plan, or anything else discussed here? Optimistic that improvements in Cast Member morale will result in better experiences at the parks? Are you bullish or bearish about the company’s future as the Walt Disney Company enters its 100th year? Agree or disagree with the firing of Chapek? Think things will improve or get worse throughout 2023? Do you agree or disagree with our assessment? Any questions we can help you answer? Hearing your feedback–even when you disagree with us–is both interesting to us and helpful to other readers, so please share your thoughts below in the comments!