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The Late, Great Tom Murphy & Bob Iger's Disney Encore
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When the news broke last week that Bob Iger had agreed to come out of retirement to replace Bob Chapek as CEO of The Walt Disney Company, the first person that I thought of was the late Tom Murphy.
That’s because Murphy, who worked with Iger at Capital Cities/ABC, faced a similar situation himself nearly thirty years ago.
From 1966 to 1990, Murphy transformed Capital Cities from a humble collection of regional television stations into one of the most powerful media conglomerates in the world. Then, at the age of sixty-five, he turned over the keys to his second-in-command, Dan Burke, and embarked on a well-deserved retirement. (Murphy remained chairman of the Cap Cities/ABC board.)
But, after Burke suddenly stepped down in 1994, Murphy had no choice but to put his own retirement on pause and return to the Cap Cities/ABC hot seat. He also elevated a youngish Bob Iger to president and COO of the company, with the 43-year-old widely seen as Murphy’s successor-in-waiting.
Murphy’s second stint atop Cap Cities/ABC didn’t last very long, but it culminated in one of the most consequential M&A moments of that era — a $19 billion merger with Disney in 1996. Murphy then took a spot on Disney’s board and settled back into retirement.
Iger, meanwhile, began climbing the ladder over at Disney — and, eventually, ended up as CEO in the aftermath of a power struggle between Roy E. Disney and Michael Eisner. His steady leadership restored peace and tranquility to the divided kingdom and ably guided Disney to new heights until he rode off into the sunset (or so we thought) in early 2020.
But, now, Iger finds himself in the same unenviable position that Murphy once did.
After a two-and-a-half-year “hiatus”, he’s been thrust back into the top spot and faces a difficult challenge to resuscitate Disney from its doldrums. (FYI: DIS 0.00%↑ is down 37% year to date.)
Sadly, Murphy passed away earlier this year at the age of 96.
So, while Iger can’t simply pick up the phone and ask Murphy for advice, he can study his one-time boss and mentor’s long career and recommit himself — and Disney — to the principles and values that Murphy lived by.
If Iger does that, his second go-round should be a successful one — and will set Disney back on the right track as the legendary company enters its second century.
(1) Control Costs
Every company, whether a fledgling start-up or an established industry titan, must aggressively control costs to keep financial wolves from the door. Tom Murphy never let Capital Cities’ success — or his own rising star — change that fact.
In the 1950s, Cap Cities bought WTEN — an Albany television station that just happened to be located inside an abandoned former convent. Emphasis on abandoned. By all accounts, the place was a real dump.
Cap Cities CEO Frank Smith felt that WTEN’s visible disrepair created an embarrassing image for the company, so he tasked Murphy with painting the exterior of the building.
Murphy’s solution was a lesson in cost consciousness: He painted the two sides of the convent that faced the road — and left the other two sides as is. Why waste the time and resources to pretty up parts of the building that no one ever saw?
And, when Cap Cities hit the big time, Murphy didn’t change one iota.
While the broadcasting industry was “limousine culture”, Murphy was a cab guy. He cut unnecessary perks at ABC, such as the executive elevator and private dining room, and eliminated lots of redundant staff. Murphy also consolidated offices and sold off real estate, including the $175 million Manhattan headquarters.
In all things, Tom Murphy shunned extravagance and unnecessary expense.
Bob Iger might need to conjure up a little of this Murphy magic when looking over Disney’s books. Especially when it comes to Disney+. Soaring content costs for streaming services have rocked the entire industry, so it will be interesting to see whether or not Iger seeks to rein them in at Disney.
Profitability and cost control have not been popular approaches in the streaming wars up until now, but they may be the surest ways forward.
(2) An Owner’s Mindset
Tom Murphy was the rare media magnate who preferred to work from the shadows, eschewing splashy magazine covers and other Hollywood trappings.
“I always ran [Cap Cities], for better or worse, as if I owned 100% of it,” he told Harvard Business School in 2000. “We really thought about our stockholders. We ran the company to do the best job for our stockholders.”
“We never ran it to be big. We ran it, if we could, to get our stockholders rich. We weren’t exorbitant in taking options in or in what we paid each other.”
“We didn’t worry about goodwill or all the things that might make it look bad for quarterly earnings. We never worried about any of that. We ran the company when it was public the same way we ran it when it had been private.”
That is music to investors’ ears.
And it’s exactly the way that Warren Buffett and Charlie Munger run Berkshire Hathaway. No surprise that Murphy became a close confidante to Buffett and sat on the Berkshire board for many years.
“We thought we had a responsibility to the communities that we served,” Murphy said, “and we figured that if we did a good job serving the community and our employees, then our stockholders would do fine.”
He was right: From the time Cap Cities went public in 1957 until it merged with Disney in ‘95, the company’s shares increased in value more than 2,000 times over.
(3) Canny Capital Allocation
Tom Murphy nimbly allocated capital according to what would ultimately work out best for his shareholders. When Capital Cities’ stock appeared undervalued, he repurchased it by the handful. Likewise, when other media companies looked like a steal, Murphy shifted into acquisition mode.
This willingness to adapt on the fly to changing market conditions proved that Murphy was no one-trick pony — and played a big role in Cap Cities’ outperformance.
Murphy will probably always be remembered for Cap Cities’ shocking $3.5 billion purchase of ABC in 1985 — an acquisition that the Wall Street Journal described as “Minnow Swallows Whale”.
He then topped that move with 1996’s “merger of equals” between Cap Cities/ABC and The Walt Disney Company.
But, on this point, the apprentice may have one-upped the master. Between 2006 and 2012, Bob Iger added some of the world’s best intellectual property and creative talent — Pixar, Marvel, and Lucasfilm — to the Disney portfolio at bargain prices.
With Iger’s astute capital allocation — at least in terms of acquisitions — Disney has grown into a content behemoth capable of running (and populating) multiple streaming services.
“I knew Bob [Iger] was good when I knew him at ABC,” Murphy once said. “I didn’t know he was as good as the record he’s made for himself at Disney.”
(4) Ethics & Integrity
The cornerstone of any successful company is a relentless focus on integrity and ethical behavior. Tom Murphy understood this more than most.
The Cap Cities/ABC credo included this passage:
You have heard a great deal about profits. You can miss your budget. You can make mistakes, but only honest mistakes. There is no second chance at Capital Cities/ABC if you discredit yourself and your company with unethical or dishonest actions or activities.
My fellow Warren Buffett fans will recognize that sentiment.
The Berkshire Hathaway chief said much the same thing when he testified in front of Congress about the Salomon Brothers debacle in 1991. When Salomon’s bond trading-related improprieties led to the resignation of CEO John Gutfreund, Buffett stepped into the breach and led the embattled investment bank to safety.
In what has become one of Buffett’s most famous lines, he pledged to Congress that Salomon employees had a simple mission under his watch: “Lose money for the firm and I will be understanding,” he said. “Lose a shred of reputation for the firm and I will be ruthless.”
For both Cap Cities/ABC and Berkshire Hathaway — and, hopefully, Bob Iger’s Disney — improper, unethical behavior that causes embarrassment (or worse) for the company is the red line that must never be crossed.
Much like Warren Buffett, Tom Murphy preferred to hire excellent managers — and then leave them alone to work their magic. This decentralized power structure was unlike other C-suite and VP-addicted media companies — and it created a culture of trust and accountability that the others lacked.
Or, as Dan Burke once colorfully put it, “Murphy delegates to the point of anarchy.”
My favorite Cap Cities story: Following one of the company’s management retreats, a bartender who worked the event went out and purchased some Cap Cities stock. When asked why he had done this, the bartender served up an interesting reply. “I’ve worked at a lot of corporate events over the years,” he said, “but Capital Cities was the only company where you couldn’t tell who the bosses were.”
Murphy especially appreciated how Iger put this principle into practice while running ABC’s primetime programming unit. The up-and-coming executive befriended the creative stars at the network and redistributed the power and responsibility to the men and women creating and producing content.
“He really has a talent for appreciating talent,” Murphy said of Iger.
Iger, for his part, throws the credit for that right back at Murphy. “Tom Murphy and Dan Burke taught me the importance of trust and managing people,” he said. “You could learn from them, but you also had the opportunity to go out and take those learnings and actually apply them on your own. There was a decentralized approach to the way they ran the company.”
And, on that front, Iger is moving fast. On his first day back at Disney, he removed Kareem Daniel from atop Disney Media and Entertainment Distribution (DMED) and announced a wider restructuring to restore decision-making and budgeting power to creative heads.
Bob Chapek had consolidated that power in Daniel atop DMED, as opposed to the more diffused structure that Iger preferred. That was one reason, among many, that Hollywood types never warmed to Chapek.
So it comes as no surprise that Iger’s first big move is all about decentralization.
Tom Murphy would be proud.
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