Last week I, along with millions of other people, spent part of my Spring Break in California at Disneyland. While there I could not help but think about, and in fact reconsider my impressions of, the Disney decisions. Today when I refer to Disney I view it as a case with important corporate governance implications. Moreover, because I teach the Disney cases as well as the implications of the “vote no” campaign at Disney, I tend to view Disney in terms of its crisis points. As a result, I was frustrated by the final Disney decision, which appeared to enable that company’s officers and directors to get away with observing lax governance standards. However, I too often forget that Disney is a company that produces products that have a tremendous influence on people's lives and our culture. For many people, Disney represents the “magic kingdom.” And perhaps the fact that the kingdom remained in tact in the midst of Disney’s corporate governance troubles validates the business judgment rule’s application to what many viewed as less than ideal governance practices.
Indeed, by all markers, Disneyland appeared to be thriving--at least on the day I visited the park. There were many many children (and some adults) dressed in various Disney costumes, willing to stand in lines up to two hours long to get a glimpse of Mickey Mouse or ride on a simulated Star Wars ship. And visitors paid handsomely for their experience. In fact, I have been told that some days the park gets so full that it must close. Being in Disneyland underscores the fact that Disney sells a remarkable product that holds a special place for many in the US and abroad.
On the one hand, maybe this means that we should care more about the conduct of its board and officers because we want such an iconic company to be a symbol of best practices. On the other hand, so long as the Disney brand remains undisturbed, perhaps we should give the company room to make mistakes. Of course, that is what the business judgment rule is all about. And walking through the park, I could not find fault with such a rule. Because at the end of the day, it appeared that the conduct about which corporate governance experts spilled so much ink, did not impact the experience of park goers. In fact I feel certain that very few people in the park that day gave a passing thought to Michael Ovitz and a case called In re Walt Disney. And as long as that is the case, perhaps the business judgment rule has served its purpose.
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1. Posted by 2L on March 22, 2007 @ 9:55 | Permalink
so gently moving consideration from shareholders to stakeholders... terrific
2. Posted by 2L on March 22, 2007 @ 9:55 | Permalink
so gently moving the focus from shareholders to stakeholders... terrific
3. Posted by Jeff Lipshaw on March 23, 2007 @ 11:44 | Permalink
Of the millions and millions of people who goes through Disney World every year, I'm sure, as you observe, that almost none of them give a rat's tushie about anything related to Disney's profits or its corporate governance. They are customers, and are concerned about getting value for their entertainment dollars. And Disney has been non-pareil, at least in terms of the parks, in delivering that value. For some idea of this, see Tom Connellan's Inside the Magic Kingdom . The attention to detail from the tram operators knowing exactly where you parked by the time you came in to the nightly repainting of the posts on Main Street is astounding.
The real lesson is that no business can survive without providing value to customers, and that is management's prime responsibility. If management cannot do that basic blocking and tackling, the shareholders have a fundamental problem. The park has a HUGE value, measured in tremendous good will (like you, when we visited many years ago, and my now 23 year old daughter was 3, and she went up and hugged Mickey, I got all teary).
The tougher issues arise when the business model won't provide returns to the shareholders because the product or service line will no longer return that value. By and large the public markets recognize that and the stock price falls. Those are the "you earn your money" issues - the kind somebody like Ovitz was hired to decide. As to those issues, you can get into stakeholder discussions about the corporate responsibility to employees and communities when a plant, for example, is past its time, and has to be shut down, or when pay scales as against global competition make the product or service uncompetitive. But beyond that, those big issues, it seems to me, are shareholder issues, not customer issues.
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