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Lawyers fire at Mouse’s torpid board

Mitchell sez board used little scrutiny in hire

NEW YORK — A passive Mouse House board of directors asked few questions, checked few facts and acquiesced to management initiatives.

That’s the image that emerged from testimony Tuesday by George Mitchell, the former senator who served as Disney board chairman.

Under questioning by the attorney for Disney shareholders, Mitchell testified the board never scrutinized the credentials of Michael Ovitz. And a declaration by Ovitz’s personal rep that the CAA founder earned $20 million-$25 million a year seems to have been good enough for Disney’s board as they offered their new prexy one of the biggest stock option grants in the history of U.S. business at the time.

Mitchell said he could recollect only a resume attesting to Michael Ovitz’s professional and educational credentials as the board gathered to approve his being hired as president.

As Seth Rigrodsky, lawyer for Disney’s shareholders, hammered relentlessly on the board’s alleged lack of oversight in the hiring and firing of Ovitz, Mitchell acknowledged that at the time he was unfamiliar with the compensation package of Frank Wells, Disney’s former No. 2 exec. Wells died in a helicopter crash in 1994. Mitchell said that to his knowledge, the board never discussed Wells’ package, or even Eisner’s, for comparison purposes in crafting Ovitz’s deal.

He said he wasn’t aware of any report by compensation expert Bud Crystal circulated either before or at that board meeting on Sept. 26, 1995. He recalled that directors Ray Watson and Irwin Russell had some documents in front of them, but “I don’t remember if they were discussed with any member of the board.”

“You never said, ‘Hey, what are you looking at? Could I have a copy?’ ” Rigrodsky asked.

Ovitz quickly crashed and burned. And Mitchell insisted there was “no requirement or need for independent counsel” — nor did any director request it — when the company agreed after 14 months to a costly no-fault termination for Ovitz. The board relied solely on the advice of Disney’s chief counsel Sandy Litvack.

The bulk of the payout, worth about $140 million, came from 3 million stock options that were part of Ovitz’s employment contract and which vested immediately if his firing was “no fault,” as opposed to “for cause.”

Mitchell acknowledged he or any director could have called for a special board meeting to discuss Ovitz’s termination.

In response to a question, he acknowledged — indirectly — that the company could potentially have tried to negotiate a new exit agreement with Ovitz, different from the original contract.

“Right. But my own view is that we would have ended up in this court, only in another lawsuit.”

‘Thoroughly informed’

Mitchell said Eisner was always candid and kept the board thoroughly informed.

He reinforced the impression of an overly cozy board, with director Russell negotiating Ovitz’s employment agreement, Litvack advising on the terms of his firing, and consistent unanimity on motions where a dissenting voice might well have been expected.

He was supportive of Eisner’s basically lying on CNN’s “Larry King Live” when Eisner said he would hire Ovitz again. “I think he was caught (in having to go on a show when things) were developing inside the company that he was not prepared to discuss publicly.”

Had to renominate

Mitchell said the board had no choice on Nov. 25, 1996, but to nominate Ovitz for another three-year term as director — even when everyone knew he was about to the get the axe.

“Is that appropriate — to nominate a director the CEO is thinking of firing?” Rigrodsky asked.

“Yes. Until a decision was made, it was appropriate.”

“Well how about just not nominating that director until the issue was resolved?”

“I don’t think that would have been feasible, because it would have engendered concern by that director.”

Mitchell said Eisner had invited him to become president of the company before ultimately hiring Ovitz for the job. He told a Delaware court he had declined the offer for a variety of reasons, but agreed to join the board in the summer of 1995.

Mitchell’s statement expanded on Eisner’s testimony last week. Eisner said he’d considered Mitchell for the prexy job and that the two met a number of times. But Mitchell felt he wasn’t qualified for the post and, Eisner said, “I concurred.” Eisner never stated outright that he’d formally offered Mitchell the job.

Plaintiffs’ lawyer Rigrodsky asked if it was true Eisner, “had not consulted with the board when he “apparently made this offer to you.”

“I don’t think that was true. Not only did I talk to them, but I attended some meetings for the express purpose of (them) getting to know me and meet me,” Mitchell said.

“Who else was there?”

“Mr. Gold, Mr. Disney, Mr. Eisner. Maybe Mr. Watson. There were several members of the board there.”

Mitchell jumped from board member to Disney chairman last March. Eisner surrendered the title after a tumultuous annual meeting at which a large percentage of stockholders declined to re-elect him to the board.

Rigrodsky noted Mitchell also received a large no-confidence vote at the March meet. The judge, Chancellor William B. Chandler III, sustained an objection by Mitchell’s lawyer that these recent events were irrelevant to the hiring and firing of Ovitz nearly a decade earlier.

The court is off for the rest of the week. Testimony will resume Monday.

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