HOW ETHICAL LEADERSHIP MADE DISNEY PIXAR INTO A SUSTAINABLE LEARNING ORGANIZATION *

JAMES M. HALEY* and MOHAMMED H. SIDKY**

This paper examines how ethical leadership develops organizational learning based on mutual trust and teamwork. Roy Disney, the nephew of Walt Disney, is an excellent example of how an ethical leader can transform an organization. Without him the successful merger of Pixar and Disney would never have happened. The box office successes of Disney Pixar such as the Academy Award winning Toy Story 3 shows that the merger is working, when most mergers fail. We believe that this applied research about ethical leadership and organizational learning at Disney Pixar provides many lessons to be learned by MBA students and business leaders about how to create a sustainable organization.

Introduction In our view, ethical leadership is required to organize a team of leaders such that a merger can become a sustainable learning organization. What is ethical leadership? According to Johnson (2012): (It) . Is a two-part process involving personal moral behavior and moral influence Both components are essential. Leaders must demonstrate such character traits as justice, humility, optimism, courage, and compassion They are also responsible for ethical behavior of others Leaders act as role models for the rest of the organization. The merger of Disney Pixar is an example of a new and larger animation organization that ethically combines the traditions of Disney with the talent and technologies of Pixar. Before Disney and Pixar could learn this lesson to combine into a learning organization, they had to share space just to talk to each other. Ironically, the Disney Pixar merger almost never happened because for a time there was little trust between the organizations. Roy Disney was an ethical leader who transformed the Walt Disney Company by making management accountable. He wanted the Disney Chairman and CEO, Eisner replaced because he
This paper extends the research, conducted about Exxon Mobils successful merger by Haley (kapuncensko51@comcast.net) and Sidky (msidky@pointpark.edu), first presented at the 2006 Strategic Management Society (SMS) Conference in Vienna, Austria and then presented at the 2007 International Business Research Conference in Sidney, Australia, included new research about the early success of the Disney Pixar merger. Research updated by Michael DeSantis, MBA. (Mldst12@yahoo.com) *,Ph.D. & MBA, POINT PARKS H.J. HEINZ ENDOWED, CHAIR OF MANAGEMENT **Ph.D. PROFESSOR OF MANAGEMENT, POINT PARK UNIVERSITY

lacked the necessary vision to lead the company. One of Roys concerns was Eisners failure to build constructive relationships with creative partners, especially Pixar. Disney was forced to resign from the companys board of directors. In his attached resignation letter in Appendix 1, Disney called for Eisners resignation. Roy believed that Eisner made Disney rapacious, soulless and always looking to make a quick buck. After Disney resigned as a director, he rallied investors to withhold 45 percent of the votes cast for Eisner remaining as director of the company. This vote o f no confidence is unprecedented and it forced the board to eventually strip Eisner of his role as Board Chairman. He then resigned as Chief Executive in 2005, a year before his contract was up. This led to a change in leadership provided by the new company President and CEO, Bob Iger. Since Iger succeeded Eisner, he extended an olive branch to Steve Jobs, the founder of Apple, which ultimately led to the $7.4 billion merger with Pixar, now making Jobs the largest investor in Disney Pixar but also a leader that Iger could work with to ensure a smooth transition to integrate Pixar with Disney. Clearly, unifying organizational leadership based on shared values is necessary to integrate different organizations. That is why it was helpful for Iger to state his core values. Iger promised to do what was right, not simply what was legal. But more steps had to be taken beyond opening communication to ensure that organizational learning emerged from the new organization. Iger was able to fix many of Disneys problems in animation by working more closely with Pixar. John Lasseter, Chief Creative Office for Walt Disney and Pixar Animation Studios, gives credit to Roy Disney for fostering creativity at Disney Pixar because he puts his heart and soul into preserving Disneys legendary past, while helping move the art of animation into the modern age of embracing new technology. Mergers are one means to acquire the operational knowledge that is specific to the new organization, making the strategic vision of the merger a reality. This creative change has been encouraged at the new Disney Pixar organization. Senior management led by CEO, Iger, has pledged to work with Lasseter, the creative leader of Pixar, (see Policies in Appendix 2). This committee was contractually committed to preserve and promote the brain trust that is the creative learning team of Pixar, headed by Lasseter (See Exhibits 1 &2). Thus a learning process emerged that so far has avoided the mistakes leading to failure of most other mergers. Why Most Mergers Fail According to Lundberg (2001) corporate combinations fail to achieve their anticipated benefits 70% of the time. Research conducted by Harding and Rovit (2004) involving over 50 case studies, 15 years of merger and acquisition data, and surveys of 250 senior executives found a 70% failure rate. The response rates for failure are as follows: 1. Ignored potential integration challenges (67%) 2. Over-estimated synergies (66%) 3. Had problems integrating management teams and/or retaining key managers (61%). (Harding and Rovit 2004).

If the failure rate is so high, why do businesses (80% of the Fortune 100 over the past 20 years) continue to engage in mergers and acquisitions? Harding and Rovit consider M&As as a necessary growth option for many companies: Unless you have a killer business model ... it's virtually impossible to build a world class company without doing deals. (Harding and Rovit 2004) According to some estimates, 85% of merger failures are related to the mismanagement of cultural issues. Awareness of cultural differences is then seen as an issue of primary concern when merging organizations. According to Miller (2000):
Once you develop an understanding of the current culture, and have compared that with the goals of the merged organization, it is time to think through what it will take to implement that strategy. This process requires consideration of a number of factors, including organizational structure, operating and decision-making apparatus, reward systems, and people related issues.

At the very center of this lies the task of creating a culture of learning, based on shared values, where continuous interaction with internal and external environmental changes take place and necessary adaptations made. Apparently, this learning process was never put in place at the merger of AOL and Time Warner. For example Time Warner Cables high speed Internet services, Road Runner, as part of its profitable cable operations was never integrated with AOL. Case (2005) explained :
At the time we felt that broadband was the most important strategic challenge for AOL, and a merger with Time Warner would help accelerate AOLs transition to broadbandIn my view AOL should have replaced Roadrunner as TWs cable broadband 5 years ago. That didnt happen, but partnerships with other high speed providers like DSL were made more difficult because people assumed AOL was in the cable camp. So instead of accelerating AOLs broadband push, it slowed it. Obviously, this was a big disappointment for me a nd others who believed in AOL and believed in broadband. (Case 2005)

The first AOL Time Warner Annual Report in 2000 claimed that it was fostering a nimble, entrepreneurial culture that recognizes that it can only succeed if everyone supports the new organization based on a, shared set of values and common goals. But the team -work necessary to integrate the two companies never happened, because Case, as Chairman of AOL Time Warner, was not a ethical leader, since he failed to provide a clear vision of what the merger should be. In fact he now admits the merger was a mistake and should never have happened. This failure was avoided in the merger of Disney Pixar. The integration of these two organizations preserved the Pixar culture and vision as a key objective of the steering committee in order to create a sustainable learning organization (see Appendix 2). Sharing a New Strategic Vision A bigger learning organization emerges if there are diverse learning teams embedded throughout the organization led by a team of leaders sharing a strategic vision that creates a sustainable competitive advantage. Then it becomes possible to manage the increased complexity of economies

of scale and scope in a unique way that is hard for competitors to easily copy. Mergers and acquisitions represent a means to accelerate this process. Often competitors merge without creating market power but still profit by leveraging the combined propriety knowledge of the merged firms. By combing different companies, each business organization saves both time and money, learning what the other firm knows about the technology, production, and marketing of expanded operations that result from the merger. The evolution of a business learning to be more efficient and effective is complex. It is thus difficult to copy another organization's proprietary knowledge. It is thus easier acquire another firms organizational learning by simply buying the company (Haley, 1986). Whether a learning organization emerges from a merger of two firms critically depends on team learning by corporate directors and senior managers leading the new business combination. Senge (1990, p.236) defines team learning as the process of aligning the capacity of a team to create the results its members truly desire. It builds on the discipline of developing shared vision. It also builds on personal mastery, for talented teams are made up of talented individuals. To make a merger work requires more than a team of leaders. Success depends on the emergence of learning teams throughout the new organization that is committed to implement the strategic vision of the merger. Our research reveals the following conditions for the successful combination of separate business organizations (Haley and Sidky 2005): 1. The catalyst that begins the integration of proprietary knowledge, resulting from mergers and acquisitions, is the organizational leadership provided by a team of leaders including directors and senior managers, which develops a shared strategic vision of how the newly combined organization should change to create a competitive advantage. 2. Continuity of management must be achieved, which includes keeping key managers and other knowledge workers from both merging organizations in order to preserve and combine everyone's essential know-how. 3. Product and process technologies of each organization should be similar or compatible enough for the new organization to integrate the shared proprietary knowledge that creates greater economies of scale and scope. 4. The combined business must organize a new system and culture for managing the people, products, and technologies which the competing organizations had been too small or undercapitalized to exploit by themselves. 5. The merged organization must be able to internalize the learning process, such that learning is no longer limited to reacting to change, but also in anticipating and planning for potential changes. The creation and institutionalization of many learning teams throughout the new company should have the potential for the emergence of a bigger learning organization. If these necessary operating conditions exist, effective and efficient learning can take place, as well as the potential for greater competitiveness. On the contrary, if these operating conditions do not exist, then failure of a business combination is almost guaranteed. Successful mergers and

acquisitions enjoy a sustainable advantage that is difficult to copy, because it is generally too hard to make most business combinations work. Acquiring Organizational Learning By merging, each business organization can save both time and money, learning what the other firm knows about the technology, production, and marketing of expanded operations that result from the merger. The dynamics of organizational learning to achieve increased efficiency and effectiveness is computationally complex. This makes it difficult to copy another organization's proprietary knowledge (Haley, 1986). So it might be better to acquire what a competitor knows. A merger is a cooperative strategy for integrating the learning process between firms through the sharing of firm-specific experience. This promise of synergy from merging critically depends on each organization's willingness to share what it knows. Bein g open to the realities of ... the needs, interests, and perspectives that exist in (competing organizations) may allow managers to search for organizational forms, and relations that more effectively accommodate (the merger's) people and processes... (Sidky & Kersten, 2001). Traditional economic theory and the resource-based view of business strategy do not effectively address these issues. Then importance of firm-specific knowledge is recognized as either a factor of production or a resource that creates value. According to a resource based view of competitive advantage, counting, copyrights, trademarks, patents, manufacturing plants, stores, employees and market share, are better measurements of success. So M&A activity should be like playing monopoly such that companies accumulate things that are tangible. Then why not simply count the number of deals that a company does? Clearly this view misses the point, because most deals fail. The resource based view (RBV) of a firms performance has evolved t o incorporate intangible resources that possess inimitability, variety, and nontradability (Cho & Pucik, 2005:556). But empirically it is hard to find confirmation of this more sophisticated RBV model of sustainable competitive advantage, which is limited by its mostly static framework of the firms organization (Newbert, 2002). Competitive advantage is a dynamic, not a static concept. The failure of these competing paradigms is that they do not explain how individuals, teams, and organizations actually learn. Creating a Learning Organization: Single-loops and Double-loops In our view, a more useful perspective can be found using a systems approach to organizational learning. Argyris and Shon (1978) distinguished between what they called single-loop and doubleloop learning processes. Single-loop learning involves the ability to detect errors and make corrections relative to preestablished operating norms. Dodgeson (1993:8) considers single-loop learning as related to activities which add to the knowledge base or firm-specific competencies or routines of the firm without altering the nature of their activities. Firm -specific competence is seen as individual to the particular firm, and is a crucial factor in affecting their competitiveness.

Double-loop learning on the other hand, adds an additional step to the learning process by incorporating means and methods though the operating norms of an organization can be questioned. (Dodgeson, 1993:8) sees double-loop learning as involving changing the firms specific competencies and routines. In double-loop learning, the organization must have the ability to ask serious questions regarding their operating norms. Morgan (1997:92-93) presents some of these questions: 1. What business are we in, is it the right business? 2. Can we create fundamentally new products and services? 3. Can we redefine the boundaries between different industries and services so that new niches emerge? 4. Can we structure our organization around business processes that reflect a customer viewpoint rather than the influence of traditional department structures? 5. Can we redesign business processes in a way that will increase the quality of production and reduce costs? 6. Can we replace our organizational hierarchy with a network of self-managing teams? Morgan (1997:83) says that all these questions contain a double -loop learning potential because they invite the questioner to examine the status quo and consider alternative modes of operation. They encourage us to understand the key organizational attributes from the standpoint of a new frame. Or as Peter Drucker first said: What is our business and what should it be? Rockefellers initial answer to these questions, when he controlled only 10% of oil refining after Americas civil war, was first to create the worlds largest refinery company. Standard Oil, by merging with other competing refineries, eventually gave him 95% control of refining. Once he achieved this mission he then realized that Standard Oil should become the worlds first , vertically-integrated oil company by backward integrating into oil production and distribution. Mergers and acquisitions again made this vision of the strategic control of oil possible. Is Disney-Pixar Creating a Culture of Learning? A modern merger that so far is creating similar synergies is Disneys acquisition of Pixar, involving $7.4 billion in stock. Clearly, this combination is seeking to backward integrate Disneys distribution and production of traditional animation with Pixars advanced t echnologies. To successfully manage this change Disney wants Jobs, the head of both Pixar and Apple, to join Disney as a corporate director and Disneys largest shareholder. Commenting on Jobs and the Disney Pixar merger, Safo, a director at the Institute for the Future says: Hes the only guy who has applied systems thinking to media, hes the only person who bridges both hardware and software, (The New York Times, January 21, 2006, p. B6). Interestingly, the new company is formally developing a team of leaders to integrate the Pixar with Disney. For example the merger will make Pixar Vice President, Lasseter, the chief creative officer of the Pixar and Disney animation studios. He will have the authority to green light films for both studios, although Disney CEO Iger has the final approval. To ensure these two leaders work with each there is a steering committee that includes Iger, Jobs, and Lasseter, whose job is to oversee feature animation at both studios, and to help maintain the Pixar culture, among other

duties. Obviously this is a formal way to unite the leadership of both organizations with a new shared strategic vision of what Disney Pixar should be. (See Exhibit 1). Pixars brain trust of seven directors and creative executives were a lso listed as company assets, and the agreement requires that a majority of them agree to join the combined company. Those employees include Finding Nemo director Andrew Stanton; Monsters, Inc. director Pete Docter; The Incredibles director Brad Bird; director/writer Bob Peterson; story artist Brenda Chapman; Editor Lee Unkrich; and sound designer Gary Rydstrom. The merger also sets up a steering committee whose job is to oversee feature animation at both studios, and to help maintain the Pixar culture, among other duties. The committee must meet at Pixar headquarters at least one full day every other month. The agreement protects Pixars right to eschew employment contracts, and mandates that the studio continue to be called Pixar. The branding of films made after the merger is finalized will be changed to Disney Pixar. The groundbreaking animation company will, however, stay in Emeryville, California, with a sign at its gate that shall not be altered from Pixar, the agreement said (Ke ating, 2006). So far it appears that Disney is enhancing, and integrating the technology of Pixars creative talent by protecting their autonomy from the rest of Disney. In this way the animation hits should keep coming from the brain trust whose creative culture is preserved by being structurally separated (Puranam & Srikanth, 2007; Haspeslagh & Jemison, 1991). Teamwork, leadership, and integration are continuing to make the Disney Pixar merger work. Disney has been working with Pixar for years distributing box-office hit movies such as Toy Story, Monsters Inc., and Finding Nemo to name a few. (See Exhibit 3). So Disney and Pixar know how to work with each other as they are now learning to integrate on many levels and still preserve their identities. For example, Pixars smash hit Cars characters are available for purchase on Disneystore.com and can be found as main attractions at Disneys theme parks. (See Exhibit 4). Steve Jobs, former CEO and current Chairman of the Board at Apple and acting member of the board of directors at Disney Pixar, brings proven leadership and additional integration ideas to the newly merged company and makes it possible for a synergy between Disney, Pixar, and Apple to occur. The Disney owned TV network ABC has made many of its hit television shows available exclusively on Apples subscription download site, iTunes. Walt Disney Records is making its music, as well as its soundtracks from both classic Disney films and Disney Pixar animated films exclusively available on iTunes. Leaders Learning to Change the Future Ethical leaders are necessary to create a learning organization that encourages creative thinking and creative problem solving. They recognize the central importance of knowledge workers in their acquisition of competing firms and businesses. According to Crossan & Vera (2004):
Leadership of organizational learning requires strategic leaders to frequently perform roles involving the development of high levels of learning across the organization.

In fact the research shows that there are different leadership styles that facilitate different types of organizational learning. For example, transformational leadership provides a clearer vision of the future that encourages the organization to change more rapidly to meet the challenges of new competitive environments (Tichy & Ulrich, 1984; Crossan & Vera, 2004). Conventional management practice establishes a top-down, bureaucratically controlled approach which encourages a narrow focus, limiting learning to achieve pre-determined objectives. A learning organization however, while requiring a sense of direction, also creates a space in which many possible actions and behaviors can emerge including those that can question the limits being imposed.(Morgan, 1997:95). Successful mergers and acquisitions, w hich bring together competing organizations, need to find this space, in order to determine which organizational norms are necessary for the continuing growth and development of the new organization, and which norms have to be pushed aside. The merger between Disney and Pixar has also created what seems to be an evolving partnership between Disney and Apple that provides more space to collaborate. Disney now has agreements in place to sell hit ABC prime time shows, such as Desperate Housewives, as we ll as content from ABC sports and ESPN on Apples popular iTunes music and video store. The 2006 Disney Pixar annual report states, With our groundbreaking deals last year to make our television shows and movies available on iTunes, as well as our new on-demand services provided through ABC.com and DisneyChannel.com, we have been at the forefront of responding to the consumer When the merger first occurred there was uncertainty about whether the initial success of this merger could be sustained. So far learning teams have emerged throughout the new company creating the magic of Disney animation on movie screens, DVDs, the internet, toys, and theme parks around the world? Keeping Pixars creative talent together was critical to ensure a learning process emerged that continues to create a new line of Disney animated characters that are as captivating as Mickey Mouse, Donald Duck, and Snow White. Clearly Pixar is putting the magic back into Magic Kingdom. Conclusion From the outside looking in, creating a learning organization by mergers and acquisitions seems so intangible and too vague to explain. But if you are a participant in combining organizations success or failure is very real. For example, the absence of a shared strategic vision and poor communication ensures almost immediate failure. The loss of key employees undermines longterm success. Mergers and acquisitions can make an organization that is willing to learn become aware that new and better ways of doing business are possible. In order to sustain the advantage of a learning organization so called intangibles like leadership, ethics, strategy, team work, and organizational communication still matter. At this writing however, the near future seems promising. Disney Pixar continues to be an example of how a learning organization becomes sustainable. A lesson that MBA students and business leaders should learn.

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Exhibit 1* Disney Steering Committee John Lasseter, Chief Creative Officer. Steve Jobs, Disney Board of Directors Robert Iger, Disney CEO Dick Cook, Walt Disney Studios Chairman Tom Staggs, Disney Chief Financial Officer Edwin Catmull, President of Pixar and Disney Animation

Policies for Management of the Feature Animation Businesses, Exhibit 99.1, Filed with the Securities Exchange Commission as of January 26, 2006, 1:34 PM ET. Found at http://www.secinfo.com/d14D5a.vCAq.c.htm.

Exhibit 2 Pixars Brain Trust Finding Nemo director, Andrew Stanton Monsters, Inc. director, Pete Docter The Incredibles director, Brad Bird Director/Writer, Bob Peterson Story artist, Brenda Chapman Editor, Lee Unkrich Sound Designer, Gary Rydstrom Writer, Michael Ardnt

Policies for Management of the Feature Animation Businesses, Exhibit 99.1, Filed with the Securities Exchange Commission as of January 26, 2006, 1:34 PM ET. Found at http://www.secinfo.com/d14D5a.vCAq.c.htm.

Exhibit 3 Disney Pixar Academy Awards and Movie Revenue

Toy Story (1995)- Worldwide Gross $358 Million o Special Achievement John Lasseter A Bugs Life (1998)- Worldwide Gross $362 Million Toy Story 2 (1999)- Worldwide Gross $483 Million Monsters, Inc. (2001)- Worldwide Gross $524 Million o Best Original Song- If I Didnt Have You Finding Nemo (2003)- Worldwide Gross $850 Million o Best Animated Film The Incredibles (2004)- Worldwide Gross $629 Million o Best Animated Film o Best Sound Editing Cars (2006)- Worldwide Gross $461 Million Ratatouille (2007)- Worldwide Gross $621 Million o Best Animated Feature Film Wall-E (2008)- Worldwide Gross $521 Million o Best Animated Film Up (2009)- Worldwide Gross $731 Million o Best Animated Feature Film o Best Music (Original Score) Toy Story 3 (2010)- Worldwide Gross $1.063 Billion o Best Animated Feature Film o Best Original Song- We Belong Together
Pixar, 2011. Feature films. Found at http://www.pixar.com/featurefilms/index.html. Disney, 2011. Disney Animated Movies Academy Award nominations and wins. Found at http://www.disneyclips.com/newsinfo/awardnom.html.

Exhibit 4 Pixar Themed Attractions at Disney Parks Walt Disney and Disneyland Resorts o o o o o o o o o o o o Monsters Inc. Laugh Floor Finding Nemo-The Musical The Seas with Nemo and Friends Block Party Bash Finding Nemo Submarine Voyage A Bugs Land Monsters Inc., Mike and Sulley to the Rescue Pixar Play Parade Turtle Talk with Crush Its Tough to be a Bug Buzz Lightyears Space Ranger Spin Buzz Lightyear Astroblasters

Wow, They Noticed! April 10, 2008. WDW News Today. Found at http://wdwnewstoday.com/archives/643.

Appendix 1** Roy Disneys Letter of Resignation

November 30, 2003 Mr. Michael D. Eisner, Chairman The Walt Disney Company 500 South Buena Vista Street Burbank, CA 91521 Dear Michael, It is with deep sadness and regret that I send you this letter of resignation from the Walt Disney Company, both as Chairman of the Feature Animation Division and as Vice Chairman of the Board of Directors. You well know that you and I have had serious differences of opinion about the direction and style of management in the Company in recent years. For whatever reason, you have driven a wedge between me and those I work with even to the extent of requiring some of my associates to report my conversations and activities back to you. I find this intolerable. Finally, you discussed with the Nominating Committee of the Board of Directors its decision to leave my name off the slate of directors to be elected in the coming year, effectively muzzling my voice on the Board much as you did with Andrea Van de Kamp last year. Michael, I believe your conduct has resulted from my clear and unambiguous statements to you and the Board of Directors that after 19 years at the helm you are no longer the best person to run the Walt Disney Company. You had a very successful first 10-plus years at the Company in partnership with Frank Wells, for which I salute you. But, since Frank's untimely death in 1994, the Company has lost its focus, its creative energy, and its heritage. As I have said, and as Stanley Gold has documented in letters to you and other members of the Board, this Company, under your leadership, has failed during the last seven years in many ways:

**

Text of Roy Disneys Resignation Letter, 2001. USA Today. Found at http://www.usatoday.com/money/media/2003-12-01-disney-letter_x.htm.

1. The failure to bring back ABC Prime Time from the ratings abyss it has been in for years and your inability to program successfully the ABC Family Channel. Both of these failures have had, and I believe, will continue to have, significant adverse impact on shareholder value. 2. Your consistent micro-management of everyone around you with the resulting loss of morale throughout this Company. 3. The timidity of your investments in our theme park business. At Disney's California Adventure, Paris, and now in Hong Kong, you have tried to build parks "on the cheap" and they show it, and the attendance figures reflect it. 4. The perception by all of our stakeholders consumers, investors, employees, distributors and suppliers that the Company is rapacious, soul-less, and always looking for the "quick buck" rather than the long-term value which is leading to a loss of public trust. 5. The creative brain drain of the last several years, which is real and continuing, and damages our Company with the loss of every talented employee. 6. Your failure to establish and build constructive relationships with creative partners, especially Pixar, Miramax, and the cable companies distributing our products. 7. Your consistent refusal to establish a clear succession plan. In conclusion, Michael, it is my sincere belief that it is you who should be leaving and not me. Accordingly, I once again call for your resignation or retirement. The Walt Disney Company deserves fresh, energetic leadership at this challenging time in its history just as it did in 1984 when I headed a restructuring which resulted in your recruitment to the Company. I have and will always have an enormous allegiance and respect for this Company, founded by my uncle, Walt, and father, Roy, and to our faithful employees and loyal stockholders. I don't know if you and other directors can comprehend how painful it is for me and the extended Disney family to arrive at this decision. In accordance with Item 6 of Form 8-K and Item 7 of Schedule 14A, I request that you disclose this letter and that you file a copy of this letter as an exhibit to a Company Form 8-K. With sincere regret, Roy E. Disney cc: Board of Directors

Appendix 2
POLICIES FOR MANAGEMENT OF THE FEATURE ANIMATION BUSINESSES The following sets forth certain policies and principles which shall be adopted and implemented with respect to the management and operation of the Disney and Pixar Feature Animation Businesses, all of which are subject to the authority of the Disney Chief Executive Officer to take such actions as are in the best interests of the shareholders of Disney. Management Responsibilities Edwin E. Catmull shall be the President of Pixar and Disney Animation, heading the combined animation businesses of Disney and Pixar, reporting directly to Robert A. Iger and Richard Cook jointly. John A. Lasseter shall be the Chief Creative Officer of Pixar and Disney Animation and Walt Disney Imagineering, reporting to Robert A. Iger. John A. Lasseter will have green lighting authority for Disney and Pixar feature animation productions, subject to final approval by Disneys CEO. Steering Committee Upon the effective date of the Disney Pixar merger, a Committee (Committee) shall be immediately established to help provide oversight to the Feature Animation Businesses of Disney and Pixar. The principal objectives of the Committee are: (i) to help maintain the Pixar culture, (ii) to help supervise Pixar and Disney Feature Animation, (iii) to oversee Pixar compensation practices and (iv) to approve the film budgets of Pixar, all subject to final approval by Disneys Chief Executive Officer. The Committee shall initially consist of the following members: Edwin E. Catmull, John A. Lasseter, Robert A. Iger, Richard Cook, Thomas O. Staggs, and Steven P. Jobs. It is intended that the Committee will meet at the headquarters of Pixar in Emeryville for at least one full day during every other calendar month.

Policies for Management of the Feature Animation Businesses, Exhibit 99.1, Filed with the Securities Exchange Commission as of January 26, 2006, 1:34 PM ET. Found at http://www.secinfo.com/d14D5a.vCAq.c.htm.

Pixar Compensation Practices Pixar shall retain its existing compensation philosophies and practices, including not using employment contracts, the granting of employee stock options, the maintenance of executive employee bonus plans and employee medical benefits and other fundamental human resource policies and practices for at least five years or such shorter period as the Committee may decide. Branding Arrangements Pixar will continue to be called Pixar. The branding of Pixars previous films and products will not be altered. Future films produced by Pixar will be branded Disney Pixar. Location Pixars operations will continue to be based in Emeryville, California. The Pixar sign at the gate shall not be altered.