The stock was in free fall when Walt Disney Co.’s board said Bob Chapek was “the right leader at the right time.” Five months later, the same board showed him the door. 

The unexpected ousting of Chapek on Sunday, and the rehiring of Disney’s former CEO Bob Iger, is the latest decision to prove the board of the world’s largest entertainment company hasn’t mastered the art of succession. 

The board repeatedly renewed Iger’s contract during his 15-year stint in the top job, driving away potential successors. By the time the directors lost confidence in Chapek, there weren’t any obvious internal candidates who could replace him, forcing them to go back to the former chief. 

“I’ve never seen a transition like this,” said Jessica Reif Ehrlich, an analyst at Bank of America Securities, who has followed Disney for years. “It’s one of the worst in history.”

The board will again face the challenge of appointing the right replacement in only two years, when Iger’s new contract ends. That might heighten calls for new board members who “have the moxie to effectively oversee the actions of the CEO” in the meantime, according to Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware. 

The 12-member Disney board is led by Chairwoman Susan Arnold, a longtime Procter & Gamble and Carlyle Group executive. WE Family Offices CEO Mel Lagomasino is the longest-tenured member, at just over seven years. The newest, besides Iger, is Carolyn Everson, former president of Instacart, who joined with the support of activist investor Daniel Loeb. Another activist investor, Trian Fund Management LP, is also seeking a board seat, according to a Wall Street Journal report.

A representative for Disney, along with Arnold and two other directors, didn’t respond to requests for comment on the board’s decisions. 

SMOLDERING RESENTMENT

Succession has long bedeviled Disney. The company’s founder and namesake Walt Disney fought with his brother Roy over management decisions. The company floundered under the direction of Walt’s son-in-law Ron Miller in the early 1980s. Roy Disney’s son led a coup to replace CEO Michael Eisner 20 years later. 

Disney’s board extended Iger’s contract four times before he finally retired last year. In the process, a number of executives left the company, including Chief Financial Officer Jay Rasulo, TV chief Anne Sweeney and parks head Tom Staggs, who was given the chief operating officer role in 2015. Kevin Mayer, who led the successful launch of the Disney+ streaming service, departed after Chapek’s promotion in 2020.

“It’s never been easy there,” said Jeffrey Sonnenfeld, who teaches leadership at Yale University.

As Chapek irritated Hollywood stars, theme-park fans, Disney employees and ultimately investors, the board mostly stood by him. Those moves included his initial decision to not oppose a Florida law that limits discussion of gender and sexual identity in schools and a management reorganization that took decision-making away from executives. 

Chapek’s decisions led to “long-smoldering resentment” from senior managers, according to Sonnenfeld. The board should have been aware of the issues and delayed his contract renewal and made it more of a “probationary review.” 

“They didn’t have to rush that, given that they had these issues of concern,” he said.

Heading into Chapek’s final weekend at the helm, Disney’s share price had dropped some 28 per cent, to US$91.80, during his tenure. The stock jumped 6.3 per cent on Monday with word of Iger’s return, and fell 1.4 per cent on Tuesday.

SEEKING SUCCESSOR

Iger is now being charged with finding and grooming a successor, according to a statement from the company announcing his reappointment. The fact that the board chose him at all shows how much of a challenge appointing a replacement has been for Disney in the past, according to David Larcker, the director of the Corporate Governance Research Initiative at Stanford University.

“When you bring somebody back, you’re basically saying you selected the wrong person and you really don’t have anybody internally who you can plug into this job, which is not great,” Larcker said. “You have to wonder what the board’s doing.”

--With assistance from Thomas Buckley.