NEW YORK — Most outside Disney board members were too “unsophisticated” to effectively govern the company, former board member Stanley Gold admitted Friday after a sustained grilling by an attorney for Disney shareholders.
The naivete of Disney board members — specifically Sydney Poitier, Revata Bowers, Ray Watson, George Mitchell and Robert Stern — didn’t matter in the mid-’90s when the company racked up record profits, Gold testified.
But when Disney’s performance started to wane after the acquisition of ABC/Capital Cities, topper Michael Eisner closed ranks and shunned the hapless board, rendering them a rubber-stamp body.
Gold is in the difficult position of defending the actions of Eisner and the Disney board when it approved Michael Ovitz’s $140 million golden parachute in 1996, even as he criticizes their performance in later years as a leader of a campaign to oust Disney management.
In cross-examination by shareholder attorney Joshua H. Vinik, Gold walked a fine line, painting Eisner as the picture of a collaborative exec in 1996, while admitting his views had changed by 2003 when he wrote in the Wall Street Journal that Eisner “has never concealed his contempt for the directors to which he nominally reports.”
What followed was a near-Clintonian debate over the meaning of “never” and what Gold meant when he wrote in 2003 the board had done a dismal job of oversight for “nearly a decade.” “Nearly” and “never” meant about seven years in this case.
“They are references to the past but not to the 1995-to-1996 period,” Gold said.
Gold said he knew the relationship between Eisner and Ovitz was deteriorating fast just a few months after Ovitz became an employee. Gold said he told fellow board member Ray Watson that hiring Ovitz had been a “horrendous mistake.”
In order to defend his position that the no-fault termination was necessary, he portrayed the Ovitz-Eisner feud as a conflict of styles.
Eisner wanted to develop talent internally and liked to micromanage creative projects, including making the final calls on TV pilots.
Ovitz wanted to sign big-name, expensive outside talent and was willing to delegate details to subordinates.
Ovitz was secretive while Eisner was direct.
Gold urged Eisner to redouble his efforts to get along with Ovitz because it would cost the company a “boatload of money and a whole lot of bad publicity” to fire him.
But at a board meeting in the fall of 1996 they discussed the need to terminate Ovitz, and then voted to hand him a $7.5 million bonus package and nominated him for another three-year board term.
Chief legal officer Sandy Litvack had advised the board that according to Ovitz’s contact, it would be impossible to fire the former superagent for cause or to deny him the $7.5 million bonus.
Litvack later reversed his position on the bonus, infuriating Gold.
“I was upset,” Gold said. “I felt I had been treated like a fool. I said let’s reconvene the committee and rescind it.”
Gold said he suspected Litvack might have been wrong about the no-fault termination as well.
“I said if you made a mistake on this one, did you make a mistake on the no-fault termination?” Gold asked Litvack. “He assured me no, there was no way to terminate Ovitz without a no-fault termination.”
The trial resumes today with the first day of testimony from former Disney board member Roy Disney.