Judge Sides With Disney Board Over Ovitz
Tue Aug 9, 5:03 PM

Quote Originally Posted by Associated Press
WILMINGTON, Del. - The Walt Disney Co.'s board did not breach their fiscal responsibilities by agreeing to hire Hollywood superagent Michael Ovitz as president in 1995, then granting him a $140 million severance package when he left just 14 months later, a judge ruled Tuesday.

Chancellor William Chandler III said that while directors' conduct "fell significantly short of the best practices of ideal corporate governance," board members did not breach their duties or commit waste.

"It is easy, of course, to fault a decision that ends in failure, once hindsight makes the result of that decision plain to see. But the essence of business is risk - the application of informed belief to contingencies whose outcomes can sometimes be predicted, but never known," Chandler wrote in a 175-page opinion.

His decision closes a shareholder derivative trial that revealed the stormy inner workings of one of world's largest entertainment companies.

Trial testimony included details of Ovitz's lavish spending and the enmity he engendered among fellow Disney executives, including CEO Michael Eisner, who described Ovitz in company memos as a "psychopath" with a "character problem."

Ovitz contended that he loved Eisner "like a brother" but was micromanaged, undermined by other key executives and "cut out like cancer" before he had time to prove his worth.

Eisner and the company contended Ovitz wasted money, alienated executives with his arrogance and could not be trusted.

The lawsuit claimed that current and former members of Disney's board did not properly scrutinize Ovitz's employment contract after Eisner tapped him as president, then wrongly granted Ovitz a no-fault termination entitling him to a $140 million severance package just over a year later.

Chandler last year granted Ovitz summary judgment on the claim that he violated his fiduciary duties in negotiating the terms of his contract, noting that he was not yet a fiduciary of Disney at the time. The judge said, however, that there were "genuine issues of material fact" to be resolved regarding Ovitz's non-fault termination.

Lawyers for the shareholders alleged that Ovitz's performance was so poor that he should have been fired for cause and not paid the remainder of his contract. The defendants, including Eisner and Ovitz, said Ovitz's contract was given careful consideration, and that while Ovitz's tenure was stormy from the start, there was no gross negligence or malfeasance that would justify denying him his severance package.

Sanford Litvack, Disney's former chief of corporate operations and chief legal officer, testified that Ovitz's "total failure" as president didn't mean he could be fired for cause.

Litvack said that after Eisner told him he planned to fire Ovitz, he discussed the matter with in-house lawyers and outside counsel, and that they concurred that Ovitz couldn't be fired for cause.

Eisner said he passed along Litvack's legal advice to Disney's non-management directors during an unscheduled executive session after the company's November 1996 board meeting, as Ovitz lingered outside the glass doors of the conference room. The directors didn't adopt any official resolution regarding Ovitz at the executive session, and the full board never adopted a resolution granting Ovitz a no-fault termination before he was fired, Eisner said.

Litvack testified that formal action by Disney's board wasn't required when Ovitz was fired because he reported to the CEO.