(FORTUNE Magazine) – Michael Eisner is more than the CEO of Walt Disney Co. He is a star. Strolling through the Disney-MGM Studios theme park in Orlando, his 6-foot 3-inch frame towering over an aide, he can't take two steps without being stopped. A boy wants an autograph. Mom wants her picture taken with Mr. Eisner. It's not just that he's on TV a lot--as the host of The Wonderful World of Disney, or promoting a movie during halftime on Monday Night Football, or talking about the 100th anniversary of Walt Disney's birth on Good Morning America. It's that like Bill Gates and Jack Welch and Ted Turner during CNN's heyday and Lee Iacocca back in the '80s and Walt himself--who, when you think about it, may have gotten the whole celebrity-CEO thing going when he became a TV host--Eisner has come to personify his company. The man is The Mouse.

So it's no surprise that Eisner's reputation, which rocketed to the sky with Disney's stock, has come crashing down lately as the company has stumbled. He has been so widely criticized for his ego, his arrogance, his outsized pay packages, his inability to keep key people, his control-freak predilections, and his weak board that it's easy to forget that only a few years ago he was lionized--no pun intended--and deservedly so. When Eisner took command at Disney in 1984, the company had lost its way; he and his team of gifted executives proceeded to dazzle even the cynics in Hollywood. Their triumphs really did seem magical--the way they could turn a hit movie like The Lion King into a blockbuster franchise that spawned TV spinoffs, books, toys, theme park attractions, and a Broadway show; or the way they dreamed up Disney stores and, poof, soon every decent-sized mall had one; or the way Disney spread like crazy over the Florida flatlands, with new theme parks, new hotels, new attractions, and even a "downtown" where people now party past midnight; all of it making Disney World the most popular vacation destination in the U.S. by far. Even a heart-bypass operation in 1994 couldn't slow Eisner down.

Along the way everyone made gobs of money. Disney shareholders certainly did--the stock grew by 27% a year during Eisner's first 13 years as CEO, and the company's market capitalization climbed from less than $2 billion to a peak of $90 billion in 2000. Eisner did too: He cashed in more than $750 million worth of options during the 1990s, enjoying some of the richest paydays in American corporate history. But, hey, as we said--he's a star.

Then, sometime around the mid-1990s, it all started to come apart. There were the people problems: the ugly Katzenberg divorce, the Ovitz-as-president debacle, the defections of numerous top executives. There were the business problems: the rising costs of feature films, programming failure at ABC, too much Disney stuff in the marketplace. The Internet turned out to be a big distraction. The advertising market collapsed. And then--talk about getting hit when you're down--the Sept. 11 terrorist attacks, coupled with the recession, grounded vacationers and whacked the theme parks, Disney's most dependable and best-run business.

No wonder the numbers look bleak--not just for the last quarter, but for the past five years. Operating income peaked at $4.5 billion in 1997; not until 2003, at the earliest, will Disney reach that level again. The company expects operating income during fiscal year 2002, which ends next September, to drop by 50% in the first quarter, and by as much as 10% to 15% for the rest of the year. Disney shares trade for a bit more than $20, just about where they were five years ago.

Can Eisner spark another turnaround at Disney? As usual, he is resolutely optimistic. Disney's problems are temporary and fixable, he says. Its executive team? Better than ever. Its creative output? Unparalleled. Its brands? The envy of the entertainment world. "Maybe I'm crazy, but I don't consider this a crisis," Eisner told me. "We're being buried a little prematurely here."

The thing is, he said that back in 1999, when FORTUNE called Disney the "world's most troubled entertainment giant." It remains just that today. Which raises another question: If the man is The Mouse, when will Michael Eisner be held accountable for Disney's woes?

When I checked into my room in the Animal Kingdom Lodge at Disney World in early December, I was so excited that I had to call my wife right away. Two giraffes stood outside my window. Then a kudu--at least I think it was a kudu--strolled lazily by. Later I spotted zebras and a pink-backed pelican. It reminded me of something that Disney's detractors often forget: This company can still make great entertainment.

That afternoon I asked Eisner what role he played in the design of the hotel. "I picked every piece of furniture. I met with every decorator, every designer. I hired [architect] Peter Dominick, and I passed on four versions of what he did. It looked too Moroccan. Or too cliched African." He rhapsodized about the totem poles and the skylight and the waterfall in the lobby, and said, "When the chairman is maniacally interested in setting a quality standard, so is everybody else."

Like the zebras outside my window, the famously hands-on Eisner, at 59, is not about to change his stripes. I can't help but admire his passion, his enthusiasm, his fanatical attention to detail, and especially his belief that high quality will win in the end. Those are all core values at Disney, a company that, unlike the other entertainment giants, won't turn cynical or exploitative to make a buck. After Disney merged with ABC, one of the first things Bob Iger, now Disney's president and COO, did was to take a trashy talk show called Jenny Jones (produced by Time Warner) off ABC's TV stations. Guided by Disney, ABC has resisted pressure to air cheesy reality shows. Says Eisner: "There are two ways to make money in entertainment, the high road or the low road. The low road is a road that I don't choose to be on."

Eisner guards Disney's reputation as if it were his own, which in a way it is. "My value is in the area of making sure that everything we do is ethical, moral, and creatively of the highest quality," Eisner says. He doesn't apologize for giving notes on everything from live theater productions to Disney's TV commercials to the costumes worn by "cast members" in the parks. "I consider myself the chief creative officer," he says. "We are a company that only succeeds or fails on the quality of its products."

Typically, Eisner homes in on trouble spots like the movie studio, where he has helped turn around a business that had lost hundreds of millions of dollars in recent years. "I discovered they had no idea how you could run the business profitably," Eisner said. He's reading scripts, going to weekly meetings, pushing family-themed movies, and driving synergy; the studio has developed no fewer than three films (Country Bears, Pirates of the Caribbean, and The Haunted Mansion) inspired by Disney theme park rides. Eisner has his eye on ABC, too. "I would love, every morning, to go over and spend two hours at ABC," he says. "Even though my children tell me that I'm in the wrong generation and I don't get it anymore, I am totally convinced that I could sit with our guys and make ABC No. 1 in two years."

No other entertainment giant is run this way. You can't imagine Jerry Levin of AOL Time Warner (parent of FORTUNE's publisher) fiddling with the ending of the Harry Potter movie, or Viacom's Sumner Redstone deciding which shows to put on CBS. But Eisner, unlike his peers, has been a creative executive all his life, and even his critics marvel at his instincts.

The question is, Can Disney attract and keep strong people if they don't have the authority and autonomy to do their jobs? Eisner says that's not an issue, pointing, for example, to Miramax, a thriving entrepreneurial division that he has largely left alone. "I've never had a problem with anybody who was truly talented," he says. As a young executive at ABC and Paramount, he liked working for creative bosses with high standards. Besides, the entertainment business is collaborative by nature. "This autonomy crap?" he says. "That means you're off working alone. If you want autonomy, be a poet."

As far as we know, no Disney refugee has turned to verse. But some have gone elsewhere because they felt stifled by Eisner's overwhelming presence. "People get tired of being second-guessed and beaten down," a former studio executive says. Whether by design or not, Eisner also has a way of putting two or three people in charge of a business unit, further blurring lines of authority and inviting internal competition for his support. Right now, committees oversee the movie studio, ABC, and the newly acquired ABC Family Channel.

Eisner also bruises people because he's a demanding boss. This has been a persistent complaint since the death of his trusted second-in-command, Frank Wells, in a helicopter crash in 1994. "When people came out of Michael's office wounded, Frank was the emergency room," a Disney insider says. In this regard, I've noticed something unsettling about Eisner as we've talked. When things go wrong, he tends to distance himself and blame others; when they go well, he takes credit. He also can't seem to find it in himself to be generous toward people who have left Disney. Notable defectors include studio chiefs Jeffrey Katzenberg and Joe Roth, CFOs Gary Wilson, Steve Bollenbach, and Richard Nanula, and TV executives Rich Frank, Geraldine Laybourne, and Steve Burke.

"Disney has not done enough to retain its key executives," says Steve Unger, director of the media and entertainment practice at the Heidrick & Struggles search firm. "There was a certain arrogance and hubris attendant to the success. Now it's compounded by a certain defensiveness."

Disney executives say the so-called brain drain is a myth. Turnover rates are below normal, the company says, and top people like theme park chief Paul Pressler, studio chairman Dick Cook, strategic-planning head Peter Murphy, and CFO Thomas Staggs have been around for a decade or more. Iger and ABC's president, Steve Bornstein, are also veterans. "Disney is a place where people like to work," Eisner says. Surely some do. But in an industry filled with executives who want to be stars, others don't want to work at a place where there's room for only one.

It doesn't take anything away from his accomplishments to say that Eisner had a strong wind at his back during his glory days at Disney. Home video was a new business in the mid-1980s, so Disney sold millions of cassettes of its classic movies. Cable TV was exploding too. The boom economy fueled growth at the theme parks and the stores, and the best advertising market ever buoyed ABC.

These days the businesses are a lot tougher. For one thing Disney's success brought out new competitors. "We made $1 billion from Lion King," Eisner says. "And what happens? Everybody gets into animation. Everybody!" Other markets were saturated too. It turned out that the 516 Disney stores the company built in North America were too many, so more than 100 are being shuttered. The broadcasting and theme park businesses matured.

After Disney bought ABC, the company's sheer scale also put a drag on growth. "You become a victim of exuberant success," says vice chairman Roy Disney. "If I were to keep up 20% growth until the year 2010, I'd have to own the world and part of Mars."

It's tempting to trace Disney's problems back to that merger, but in hindsight the deal still looks smart. The ESPN properties alone--four cable channels, a radio network, a Website, a magazine, restaurants, and theme park attractions--are now worth more than the $19.6 billion Disney paid for all of Capital Cities/ABC. They're the best growth businesses Disney owns. And with ABC, ESPN, and the Disney Channel, Disney has more than enough programming muscle with cable system operators to force new cable networks onto the air. Two-year-old SoapNet, for example, is growing fast; it airs reruns of soap operas, so programming costs are low. It is, unexpectedly, another business that Eisner, a former ABC daytime programmer, cares a lot about. "I put on personally All My Children, One Life to Live, and worked on General Hospital," he explains.

The trouble with buying ABC was that it spread Eisner even thinner. Seeking help, he brought in Creative Artists Agency founder Michael Ovitz as Disney's president, ignoring advisors who warned him that it wouldn't work. It didn't. Meanwhile, the merger consumed key executives. Bob Iger says, "I didn't manage companies in the year after the merger. I managed the merger."

Now that he's made Iger his No. 2, Eisner's trying to run a much bigger Disney as he always has, by digging into the details, even as he admits that he can't be everywhere. Instead, he ought to be finding great creative executives and giving them the clout to run the businesses he can't. He could start with ABC, which slid into fourth place in the prime-time ratings last fall. As Who Wants to Be a Millionaire fades, Morgan Stanley analyst Rich Bilotti says the network could lose $400 million in fiscal year 2002. That's embarrassing, since Eisner and Iger both come out of ABC. And that's not all: One reason to own the network is to guarantee Disney's TV production studio an outlet for its shows. A studio can make a fortune by developing a hit comedy like Warner Bros.' Friends or Fox's The Simpsons or Paramount's Frasier and selling reruns in syndication. But Disney hasn't developed a hit sitcom since Home Improvement in 1991. That's a long dry spell for a company that, as Eisner puts it, "only succeeds or fails on the quality of its products."

"Michael Eisner used to be one of my heroes," Nell Minow tells me, "but he's made a lot of mistakes lately." I'm not sure where she's going with this, because Minow is an expert both on family film-going--she's written a book called The Movie Mom's Guide to Family Movies--and on shareholder activism. She's editor of a textbook called Corporate Governance.

Turns out she thinks Eisner is slipping in both arenas. The Little Mermaid and Beauty and the Beast make her "all-time best family movies" list, but the Movie Mom says most of Disney's recent movies have been "fair to mediocre." Others agree: Disney's last three full-blown animated features--Dinosaurs, The Emperor's New Groove, and Atlantis--neither captivated moviegoers nor made much money, though Monsters Inc., co-produced by Disney and Pixar, is a huge success. Worse, the Disney films were eclipsed by family-friendly fare from rival studios, including Katzenberg and DreamWorks' Shrek, with its pointed jabs at the Mouse House. Disney needs big, animated features to drive synergy.

On governance, Minow's criticisms are more pointed. She once applauded Eisner not just for reviving Disney but for taking a modest base salary of $750,000 and what she calls a "truly credible pay plan" based on escalated options. Now, Minow says, "the pay-performance link is so loose you could wrap it around the equator." Case in point: Eisner was granted 15 million options in 1996 at the then-current price of $21.10, meaning that if Disney stock climbed a mere $1 a year, or less than 5%, for the seven years until they vest, he'd collect $105 million. Of course, the stock hasn't even done that well.

Minow also faults Eisner for packing Disney's board "with cronies and dial-tones," giving the company "about as bad a board as we've seen." Of Disney's 16 board members, half are Disney executives, former execs, or people who do business with the company; others are Reveta Bowers, an elementary school principal, and the actor Sidney Poitier.

Eisner defends his pay package, saying it's "almost 100 percent options-driven," and adds that he has taken no bonus in two of the past three years. He calls the board strong and diverse, and notes that it includes three CEOs who've run big companies: John Bryson of Edison International, Gary Wilson of Northwest Airlines, and Tom Murphy, former chairman of Capital Cities/ABC. Several board members told FORTUNE that the directors solidly back Eisner. Even so, Murphy recently sold $38 million of Disney shares. Warren Buffett, once an advisor to Eisner, sold most or all of Berkshire Hathaway's stake in 1999. In fact, no institution or individual holds as much as 5% of Disney shares, according to the latest SEC documents, so Eisner's not likely to feel performance pressure from big shareholders.

For some time now, Eisner, Iger, strategist Peter Murphy, and CFO Staggs have been working on turnaround initiatives. They have curbed spending, reducing the Disney work force by 4,000 people even before Sept. 11. More job cuts are coming. Disney has also sliced capital spending, especially at the domestic theme parks.

New technology should drive growth. Sales of low-cost DVD players ought to spur consumers to buy DVDs from the Disney library. With video-on-demand over cable finally becoming real, Disney will soon have another outlet for its content. Disney songs, games, and characters are also being distributed to cell phones; more than two million subscribers in Asia pay $1 or $2 a month to download music or animation, and similar offerings have just been introduced in the U.S.

Overseas, Disney's cable and theme park units are expanding fast. The Tokyo DisneySea park that opened last fall is said to be fabulous, a second park is under construction at Disneyland Paris, and a park is set to open in Hong Kong in 2006. All are being financed by local developers, with Disney collecting management fees. If the company can get per capita spending on Disney stuff in Western Europe alone up to half the U.S. level, it would generate another $3 billion in revenue. "We have an unbelievable array of brands to drive growth and operating income," says Iger. "We just have to maximize them."

There's more: New ways to book Disney vacations online. An affinity club, called Club Disney, to encourage frequent customers to spend more with the company. New cable channels for kids. A recent acquisition, called Baby Einstein, which makes entertainment products for very little kids--and which company executives say could grow into the next Miramax.

All of which is why Eisner is as sure as he can be that nothing is fundamentally wrong with Disney. He's been faulted by analysts for not making acquisitions, on the Internet, say, or in cable programming, but he's always preferred to build from within--and ignore the critics.

"I spend my life being Odysseus," Eisner says. "I tie myself to the mast, and I don't listen to the Sirens. The Sirens in my business are agents, investment bankers, the media, people saying that your testosterone level is gone because you haven't made an acquisition in the last ten minutes.

"We've solidified our company, going forward," he says. "When the economy turns, and when the fear of flying goes away, when we get a couple of hits on ABC--and because of how lean we've made the company--I believe it becomes a gusher. I want to be here to take advantage of all the work we've done and all the crap we took. When it all comes out in the wash, we'll still be the premier growth company in our business."

Perhaps. He's revitalized Disney before, when it was in much worse shape than it is now. But these are different times, and this is a different company, and he's the same Michael Eisner, still convinced he can do it all. He can't. Like any star, he's only as good as his supporting cast.

REPORTER ASSOCIATE Noshua Watson

FEEDBACK: mgunther@fortunemail.com