Let’s give double thanks to that Disney shareholder lawsuit: for an eight-week autumn chucklefest, and for hastening the reform of corporate boards.
Experts say that, partly as a result of the suit vs. Disney directors and former prexy Michael Ovitz, many boards now hold so-called “Holy cow!” meetings to study employment contracts for the worst-case scenario — such as a topper getting canned after a brief tenure.
The trial is essentially over, but it may be months before the judge makes his decision.
Still, pundits enjoy handicapping the outcome (dubious whether the shareholders will win) and talking about the fact that Ovitz didn’t come off any worse than Disney topper Michael Eisner. (There was no smoking gun of any major Ovitz misdeeds, but Eisner’s decisions constantly came under question.)
Bizwise, l’affaire Ovitz resonates because the brevity of the former agent’s tenure (14 months) and his lofty severance package ($140 million) seems so completely out of whack. “The severance would have diminished over time. From the shareholders’ perspective, it was a worst-case scenario,” says Pat McGurn, senior VP and special council at Institutional Shareholder Services.
Disney’s board wasn’t (and isn’t) alone in crafting rich paydays. But today the Mouse and other public companies are more wary of contracts that could land an ousted exec a windfall.
Many boards have created nominating committees, which link directors more closely with hiring top execs and fellow board members. Disney didn’t have a such a committee when Ovitz was hired. Instead, Eisner steered the process.
Investors following the trial were actually surprised at how well-informed the Disney board was, as Eisner flooded a coterie of top-rung directors with phone calls and memos. The board wasn’t “somnambulant,” as suspected; it was “micromanaged,” says one.
A distinction: The board was informed, but not proactive. Most directors didn’t read Ovitz’s employment contract or interview him. Directors who testified all seemed to think Ovitz earned $25 million at CAA, apparently based on his lawyer’s word, while his tax returns showed $18 million.
Directors only met to approve Ovitz’s hiring after he’d started work at Disney. The board wasn’t briefed in December 1996 on terms of his exit package, although members said Eisner told them it would be costly.
Defense sympathizers argue that a CEO has wide latitude in hiring and firing. But this case may be more complex, since Ovitz was recruited as Eisner’s potential successor following the death of Frank Wells and the chief Mouseketeer’s heart attack.
“Mike Ovitz was portrayed as just another hire, (but) on an issue of CEO succession, the board should have been driving the process,” says one Wall Streeter.
“I view this as succession planning gone bad — as Eisner putting a person he considered a close personal friend in the next position … It seemed they were looking for the best athlete available, instead of looking for someone to lead the team,” he adds.
Still, legal eagles doubt whether Disney shareholders have a good chance at victory, considering the pro-business, pro-board slant of Delaware Chancery court, a specialized biz tribunal. Plaintiffs have asked that defendants personally pay Disney about $200 million.
“The court was willing to look at some creative arguments. But ultimately I think the standard that they set was pretty high and there haven’t been enough facts offered to lead to personal liability of directors,” opines McGurn.
“I think they’ll get a stern lecture.”
Meanwhile, Hollywood has the holidays to ponder some imponderables that were divulged during the trial — like Eisner’s elusive reservation at Mortons; Sandy Litvack‘s discourse on the nature of truth; Ovitz, lost in a limo in Orlando as more sporting Mouse execs rode the Disney bus at a retreat; former director Gary Wilson ordered to fire Ovitz on a Caribbean cruise, sneaking calls to Eisner from the boat.
If Ovitz was tough as nails, Disney was no slouch in backstabbing nastiness. Given Ovitz’s tortured exit, did Wilson or Eisner really never consider shoving him overboard?
“Hey Michael, check out those baby barracudas!” Splash.
(Pamela McClintock contributed to this report.)