INSTRUCTIONS: The objective of the integrated semester is to help you extend your knowledge of how the finance, operations, management, and marketing disciplines work, and how they integra

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W20696

THE WALT DISNEY COMPANY: SEXUAL HARASSMENT AND CONTROVERSIES ON SOCIAL MEDIA1

Wiboon Kittilaksanawong and Yiwen Chen wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.

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Copyright © 2020, Ivey Business School Foundation Version: 2020-08-27

“In a strange way, I am the brand manager of Disney.”

– Robert Iger, chief executive officer (CEO) of The Walt Disney Company. 2

Between 2017 and 2019, The Walt Disney Company (Disney)—a 96-year-old diversified multinational United States (US)-based mass media and entertainment conglomerate—faced two major scandals that threatened to damage its family-friendly brand image.3 Disney’s brand value had decreased by 5 per cent from 2017 to 2018, although it remained the most valuable media brand worldwide (see Exhibit 1).4 In

November 2017, John Lasseter, the executive producer who oversaw all the films made by Pixar Animation Studios (Pixar), was accused of sexual misconduct at Pixar. Following the allegations, he left the company in December 2018.5 Then, between June and September 2018 at Disney subsidiary Lucasfilm Ltd. LLC (Lucasfilm), Rian Johnson, the writer and director of The Last Jedi, a major instalment in the pop-culture

phenomenon Star Wars, posted unprofessional, aggressive, and insulting remarks on his personal Twitter account directed toward fans who hated the series.6 In April 2019, Iger announced that no new Star Wars movies directed or written by Johnson would be put into active development.7

Given that Disney’s nearly 100 years of global success had been built on its family-friendly brand image,

why did the company not take immediate action to address these two scandals? Instead, Disney chose not to make any comments about the scandals. Lasseter continued to work for the company for over a year after the sexual harassment scandal broke, while Johnson remained affiliated with the company for almost a year before the announcement that the development of his movie had been stopped. How could Disney mitigate the losses from these two scandals and prevent the same thing from happening again? What should Disney do to further grow its sustainably?

DISNEY

Founded in 1923 by Walt and Roy Disney, The Walt Disney Company was a multinational mass media and entertainment company. 8 The company’s debut film was Steamboat Willie, a short animation that featured the character Mickey Mouse. In 1990, Disney arranged for financing of $200 million from Nomura

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Securities Co., Ltd. to fund its growth.9 In 1991, it generated 28 per cent of its total revenues from its home video distribution, hotels, and merchandising activities. 10 In 1993, Disney acquired Miramax, LLC (Miramax Films) to broaden its movie offering for adults.11 In 1996, it acquired Capital Cities/ABC Inc.,

an American media company, in an effort to enhance its international competitiveness. 12 Disney’s

businesses experienced a steep decline during the global financial crisis of 2007–2008.13 In 2019, in one of the largest ever media mergers, it acquired Twenty-First Century Fox, Inc. (Fox). Disney expected to lay off 4,000 Fox employees after the merger.14

Alongside technological advancements, the global film industry continued to grow, with China being the largest growth market, followed by India and the US.15 The technological advancements also led to new distribution channels for animated films, ranging from cable networks to subscription video-on-demand

(SVOD) services. These new distribution channels changed customer expectations and opened up more opportunities for artists around the world to develop and distribute their own original content.16

Robert Iger

In 2005, Iger became CEO of Disney, following the resignation of Michael Eisner, who had been in the role for 21 years.17 Prior to Iger’s time in charge, Disney had not been performing well. In terms of innovation, its animation department had created only one new character during the decade ending in 2005. Meanwhile, the financial performance and rating of its major media subsidiary, ABC (American Broadcasting Company) networks, had also fallen behind its competitors.18 As a result, in 2004, Comcast Corporation

proposed a hostile takeover of Disney for $54 billion.19 However, the bid was not supported by investors, and it was rejected by Disney. During the 14 years of Iger’s tenure as the CEO, from 2005 to 2019, Disney’s

stock gained a total of 482 per cent, or 8.7 per cent annually.20 Iger’s strategic vision emphasized three pillars, namely generating the best creative content, fostering innovation and utilizing the latest technology,

and expanding into new markets around the world.21 Iger considered it his job, in the words of the late Steve

Jobs, the founder of Apple Inc., to build more “brand deposits” than “brand withdrawals.”22 He believed that a good leader should possess characteristics such as optimism, courage, focus, decisiveness, curiosity, fairness, thoughtfulness, authenticity, integrity, and perfectionism.23

Business Model

Disney had four main business segments: media networks, parks and resorts, studio entertainment, and consumer products and interactive media (see Exhibits 2, 3, and 4).24 According to Iger, “We’re in the

business of telling stories.”25 Disney’s business model involved building brands around its characters and stories. Since its establishment, Disney had created a lot of original characters, which were registered intellectual properties that allowed only Disney to produce any related products. Entertainment platforms paid fees to broadcast Disney movies. Disney leveraged its brands and licensed its characters to manufacturers for use in relation to their products, ranging from shows to souvenirs. Its business model was scalable because its brands fuelled many value propositions and generated diverse revenue streams.26

Disney’s business was, therefore, not just making movies but also creating and sustaining brands. The more

characters it developed, the more revenues it could generate from its brands. This logic led to Disney’s growth through an acquisition strategy. As Pixar, Marvel Entertainment, LLC (Marvel Entertainment), and Lucasfilm were all good at storytelling, Disney acquired them in 2006, 2009, and 2012, respectively. In

2017, Disney also acquired Fox, which, according to Iger, helped Disney “to penetrate international markets more deeply, more effectively.”27

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This document is authorized for use only by Heba Elwahsh in Disney Winter and Spring 2023 taught by Deniz Ozenbas, Montclair State University from Dec 2022 to Jun 2023.

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Human Resource Management (HRM) and Corporate Culture

Disney had to carefully plan ways to develop its HRM base to support its continuous expansion, especially with regard to its parks and resorts around the world. A series of acquisitions, such as the acquisition of BAMTech Media in 2017 and of Fox in 2019, required that Disney provide sufficient training for its newly acquired employees to understand Disney’s culture.28 Meanwhile, Disney had to ensure that its employees were kept up to date regarding newly introduced technologies.29 Disney was committed to encouraging a

culture of building inclusive, safe, and respectful working environments across its operations. Disney highly valued its reputation and its history of focusing on ethics, quality, and social responsibility. Its HRM was based on six principles:

Remember, everyone is important. [Disney utilized the acronym RAVE, which stood for “respecting, appreciating, and valuing everyone.” Employees were expected to greet each other with sincerity and to be ready to reach out to include everyone.]

Break the mold. [Disney’s structural changes, especially the integration of departments, had opened up various opportunities for the company and its employees in the long term.]

Make your people your brand. [Disney hired the best candidates by defining and selecting on the basis of essential qualities and skills.]

Create magic through training. [Disney implemented training and development at every level of the company. All employees would be trained until they could “feel the pixie dust” before they began to learn how to do a particular job.]

Eliminate hassles. [The leaders should identify and solve problems quickly.]

Learn the truth. [The leaders should never stop learning and experiencing new things.]30

Disney followed the philosophy of “Dream as a team.” Employees were divided into diverse groups that worked as a team to realize big dreams through brainstorming sessions known as “blue sky” thinking sessions. These sessions created a sense of belonging and inspired employees to contribute to the company’s

future. Employees became highly productive as they were more aware of their roles and free to think independently beyond their imaginations.31 Each group of employees was assigned a mediator who owned the project or problem to be solved. Each session was typically organized outside the routine office environment to ensure that the group members were free of any constraints, including budgets. The mediator then assembled all the diverse ideas and further divided the group members into smaller groups to refine their ideas and eventually come up with the most appropriate ideas for further implementation.32

Risk Management

Disney placed corporate risk management among its priority strategies.33 The process would begin with identifying, defining, and quantifying or assessing its risks, and it would move on to developing strategies to manage those risks and then implementing them through the leadership within business units as well as through partnerships with external resource providers. This risk management process focused on pure risks (i.e., absolute risks), which were reported through the corporate treasury.34 The treasury, finance, and

business units would manage financial and operational risks. Risk management specialists within the business units would report operational risks to the leaders of the business units. 35

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This document is authorized for use only by Heba Elwahsh in Disney Winter and Spring 2023 taught by Deniz Ozenbas, Montclair State University from Dec 2022 to Jun 2023.

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Risk identification at Disney was a constant process that operated on a repetitive loop. Disney identified three key risk areas—property and business interruption, work injury or illness, and motion picture and television production—and applied various risk management techniques according to the levels of risk exposure. These techniques included risk mapping, risk modeling, and dynamic analysis and simulation. The company determined the level of risk tolerance and risk taking based on its financial, operational, and reputational impacts. A strong balance sheet and cash flow would increase the company’s financial tolerance. After identifying risks, depending on the nature of those risks, the company would determine whether a particular risk was insurable. The company used several types of risk financing; however, it would use commercial insurance for pure risks that could be economically transferred. To mitigate such risks, Disney developed long-term partnerships with insurers, made its partners understand Disney’s

businesses, and ensured compliance with respect to its people, processes, and infrastructure.36

MAJOR ACQUIRED ENTITIES

Pixar

Pixar was an American film studio that used computer animation to develop feature films. Acquired by Disney in 2006 for $7.4 billion, it was an industry leader with many world-famous animations and intellectual properties as well as diverse distribution channels.37 Prior to the acquisition, seven of its movies had achieved total box office sales of $3.8 billion. All of its movies had high box-office rankings. 38 The acquisition allowed Disney to recreate the Disney Renaissance (the period from 1989 to 1999), when it achieved great commercial success with animated films featuring classic and famous cartoon characters.39

Pixar’s key success factors included the balance struck between business and creative decisions, whereby the creative directors were given sufficient autonomy; the post-mortem system, whereby the developing team learned from its experience after each movie was released; and the in-house training facilities, which helped to improve the skills of its animators.40 According to Edwin Catmull, the president of Pixar, its management principles were as follows:

Care about people first. [Leaders were responsible for prioritizing and protecting their people as the source of ideas. This principle was similar to Disney’s HRM principle that “everyone is

important.”]

Focus on a purpose that makes people feel proud. [As long as Pixar focused on producing high-

quality films, it would continue to make profits and attract good employees.]

Encourage self-expression and delivery of thought. [Good movies were made from so many ideas

throughout the development of the stories. As the best ideas could come from anyone, the leaders

needed to remove obstacles to sharing ideas while also encouraging self-expression. This

principle aligned with Disney’s “blue sky” brainstorming sessions.]41

Disney and Pixar shared several cultural similarities, including valuing employees, open communication,

and continuous employee training. By positioning people as the priority and encouraging expression from every employee, the two companies focused on creating a sense of belonging so that valued employees produced better products. However, to keep each studio’s culture unique, they established an absolute rule that neither studio could do any production work for the other.42

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Lucasfilm

Disney acquired Lucasfilm for $4.05 billion in 2012 in order to leverage the Star Wars franchise.43 Five Star

Wars films were released after the acquisition, leading to total revenues of $5.92 billion. Among them, The

Force Awakens generated the highest revenue of $2.07 billion, followed by The Last Jedi with $1.33 billion (see Exhibit 5).44 The key success factors associated with Star Wars, which began with the first movie in 1977, were the innovative studio, business-minded orientation, and merchandise sales.45 When George Lucas, the founder of Lucasfilm, created the design for Star Wars, he also thought about selling character-related toys. Over the years, sales of Star Wars toys had made about $14 billion, twice the amount of the series’ box office returns, with more than 1 billion toys having been sold since 1978.46 However, in 2018, the number of retail orders for Star Wars toys, particularly for The Last Jedi, decreased by 56 per cent when compared with The Force Awakens and by 47 per cent when compared with Rogue One: A Star Wars Story. 47

Lucasfilm used several innovations during the production of the original Star Wars trilogy. These innovations included Dykstraflex, a computer-operated tool for mounting the camera and shooting the

movie; three-dimensional (3D) computer animation, the very first tool used to create incredible visual effects; go motion, a technology that allowed frames to be created using images of a moving object; THX, a quality assurance system for audio quality; and bluescreen technology, which allowed filmmakers to construct a comparatively seamless and realistic picture.48

Lucasfilm emphasized trust as the core element in managing people. The top talents would earn basic salaries, while sharing the profits from the movies. The profit sharing was based on trust rather than contracts. While Lucasfilm’s organization was generally flat, its creative units had an absolute top-down

culture led by Lucas.49 However, after the acquisition by Disney, Kathleen Kennedy became the president.

She reorganized the creative units by forming 11-member story groups to develop projects that were consistent with the existing characters and mythology.50

SEXUAL HARASSMENT AT PIXAR

The first harassment incident occurred in November 2017 when Lasseter, the chief creative officer of Pixar and Walt Disney Animation Studios (WDAS), was accused of workplace sexual misconduct. Aside from his brilliant work making animated movies, he was notorious for being vulgar and making explicit and offensive sexual references toward his female colleagues. His behaviour included lustful staring, suggestive comments, unwanted hugs and touching, and even unwanted rubbing and kissing on the lips.51 Many female

employees felt very uncomfortable but also felt they could not do much about it due to the “boys’ club”

culture of the studio.52 Nevertheless, Lasseter addressed his behaviour as a “misstep” and apologized to the victims, claiming that his intentions were harmless.53

The Pixar leadership tried to conceal the problem, although to prevent it from happening again, they banned Lasseter from being in a closed environment with female colleagues during meetings. Allowing the culprit to keep working freely may have hindered productivity and risked damaging the work environment and

career progression of female employees. It was clear that due to Lasseter’s experience and skills in making animated movies, the management team decided to protect him.54

Replacement of Lasseter

Rather than being immediately replaced, Lasseter was allowed to continue working on some titles even after the sexual harassment allegation was made public. It seemed that Pixar did not have qualified backup

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This document is authorized for use only by Heba Elwahsh in Disney Winter and Spring 2023 taught by Deniz Ozenbas, Montclair State University from Dec 2022 to Jun 2023.

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personnel resources available in case a top executive had to be replaced. Importantly, Lasseter had been working with Disney since 1979 and with Pixar since 1986, and he had exerted a significant influence on the company’s creative decisions, which had resulted in a very high level of achievement in the movie

industry.55 Disney’s strategy of not commenting on Lasseter’s behaviours in an effort to minimize the damage to its brand caused people to be even more upset, and it also negatively signaled to the public regarding the company’s ethical responsibility.56

Boys’ Club Mentality

As a leader, Lasseter was accused of having fostered a culture based upon a “boys’ club” mentality.57 There was a clear bias against women and in favour of male employees. Male employees acted like frat boys, while female employees became their targets. Several men other than Lasseter had been reported for sexually harassing behavior.58 Female employees were treated differently and not given much opportunity

to lead the company. For example, there was an instance where a female leader asked her team to work and

was ignored until she became emotionally exhausted and decided to give up. Later, the company replaced her with a male employee who led the team’s work on the same task.59 She was then given a review of “trying too hard” and “asks too many questions.”60 Female employees realized that speaking up, telling the truth, and asking for justice could lead to them being demoted or even laid off.61

SEXUAL HARASSMENT IN HOLLYWOOD

Within the US movie industry, around 94 per cent of female employees had experienced sexual harassment. Such behaviours included “unwelcome sexual comments, jokes, or gestures” (87 per cent), “being touched in a sexual way” (69 per cent), and “being shown sexual pictures without consent” (39 per cent). Even worse, 21 per cent and 10 per cent of them said they had been, respectively, “forced to do a sexual act” and “ordered unexpectedly to appear naked for auditions.”62 According to Leah Meyerhoff, the founder of Film Fatales, a non-profit organization working for gender parity in the entertainment industry and a communit

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