Succession Planning Is No Fairy Tale For Bob Iger And Disney

Once again, Bob Iger rules the magic kingdom.

The longtime CEO of Disney returned to the executive suite mere months after Disney extended the contract of his handpicked successor, Bob Chapek. Chapek’s tenure was short (he became CEO in February 2020), and his results lackluster. Pandemic headwinds certainly didn’t help, but struggles within Disney’s burgeoning streaming unit, a recently filed antitrust lawsuit and poor box office performance—coupled with Chapek’s glib attitude during an analysts’ call about the company’s weak earnings, were the proximate causes of his downfall.

Yet, as much as the logic of Iger’s return is self-evident in many ways — who knows Disney better than the Bob Iger, the man who build its modern incarnation — Chapek’s rapid departure is a sign that mistakes were made in succession planning when Iger left the position the first time around.

The remarkable thing about Iger’s replacing Chapek is not that it’s happened — clearly something went off the rails at Disney — but that it has come about so soon after Chapek took the top job, a position for which he was groomed for by none other than Iger himself. This is a case of a hand-picked successor failing to fill his predecessor’s shoes. Now, it’s to Iger’s credit that he’s returned to try and fix the mess. Not only that, but he appears to be doing it out of a sense of personal responsibility to the company he stewarded for so long. His base compensation of $1 million salary plus $1 million target bonus is low for the CEO of a major corporation like Disney. Instead, the bulk of his potential compensation, an additional $25 million, will be made up of performance-based restricted stock units as well as stock options that vest only after he’s fulfilled his two year term.

Why does Iger’s compensation matter at a moment like this and what can we learn from how it is structured? For one thing, it indicates that he’s coming back, first and foremost, because he believes he owes it to Disney and its shareholders to make things right. He’s not taking charge of the company for a payday, although he may well get one if he’s successful. Second, his willingness to agree to such a package indicates that he believes he can hit the necessary milestones the board of trustees defined. Iger’s pay package signals that he feels personally responsible for the performance of the company, and he believes he can chart a course to calmer waters.

It’s important to be realistic and understand the full scope of the situation, of course. First, a primary job of a CEO, and the number one job of a board, is succession planning. Clearly, Iger and the board got it wrong with Chapek. He and the board are now asking shareholders and the company to trust them the second time around. This may turn out for the best, with Iger righting the ship and finding a viable replacement for himself. Based on his track record, Iger is the right person to come back and fix the company. However, this will require that he and the board avoid the mistakes that were made with Chapek. Indeed, as recently as June, Disney chair Susan Arnold said Chapek was “the right leader at the right time,” and that the board had “full confidence in him and his leadership team.” Clearly this was not the case.

Chapek’s departure is likely the result of multiple factors. Growing pains within Disney’s streaming unit are certainly one reason, as was poor financial performance. The moribund box office for recent Pixar film Lightyear certainly didn’t help. And morale has reportedly been low within the company since Iger’s initial attempt at retirement. A looming recession could strike at Disney’s theme parks, and the antitrust lawsuit, filed mere days before Iger’s return, alleges that Disney operates Hulu and ESPN in such a way as to stifle competition. The list goes on.

Whatever the exact combination of factors which led the board to bring Iger back, Chapek’s departure is a symptom of poor succession planning. When Iger and the board were first considering Chapek for the job, it was their responsibility to understand exactly what skill set a CEO of Disney is expected to have and to then study whether Chapek actually possessed that skill set. Iger should have known whether this was the case, because he and Chapek had worked together very closely for some time.

If Iger and the board believed Chapek had the right skill set — and that includes personality — then they made what they believed was the right decision. But they were nevertheless wrong. The board and Iger now need to study what they got wrong and take responsibility for it. If they believed Chapek had certain skills or aptitudes which he did not, in fact, possess, then they were wrong in how they evaluated his skill set and the requirements for the position.

Hopefully, this time around, Iger and the board will outline the Disney CEO skill set very, very carefully, and then determine whether the potential candidates for the job demonstrate those skills. This isn’t just an exercise, it’s a critical activity. This will mean digging deeper than just looking at streaming results or box officer performance for movies. They will need to understand what skills Chapek was missing which he ultimately would have needed to succeed. A good CEO should be equipped to deal with challenges. Knowing how to navigate difficult circumstances is a core part of the job. Iger and the Disney board have their work cut out for them to find that person.