Disney board members who were peripheral to the hiring and firing practices at the Mouse House testified Monday that they trusted the advice of CEO Michael Eisner about bringing Michael Ovitz on — and giving him the boot just over a year later.
In testimony in the ongoing $140 million shareholder lawsuit in Delaware, former board members Richard Nunis and Reveta Bowers said they were kept in the loop via individual phone calls with Eisner and through what chief counsel Sandy Litvack and members of the compensation committee told them.
The two never examined any detailed financial documents about Ovitz’s contract before he was hired, with Bowers saying she saw one spreadsheet when she peered over the shoulder of compensation committee member Ray Watson during a meeting.
Conflict-of-interest issues within the Mouse House also were explored, including Bowers’ relationship with the Eisner family in her post as head of the Early Childhood Development Center in West Hollywood.
Eisner’s children attended the school, as briefly did Ovitz’s. Eisner made a $50,000 donation to the school after his children graduated. In addition, the school applied for and received a $250,000 grant from the Disney Foundation.
Bowers testified that Eisner and then Disney president Frank Wells approached her to join the board due to her experience in early childhood development programs. Bowers believes, she said, that she was one of several educators interviewed about the post.
In addition, Bowers said she knew of Ovitz’s aggressive, wheeling-and-dealing reputation in the entertainment industry by talking to parents of students at the school.
“Sandy Climan, whose children went to the school, came up to me in the hallway to congratulate me and said that Ovitz was taking a pay cut to go to Disney,” Bowers said.
When it became obvious a break between Ovitz and Disney was inevitable, Litvack gave board members a rundown of what terminating the contract would mean.
Litvack “explained the value of the contract and had the advice that this contract needed to be honored,” Bowers said. “We did not want to have the reputation of being a company that did not honor its contractual obligations. We already had a reputation of not paying executives as well as other companies, of being tighter-fisted,” she testified. Litvack “was very credible, very sincere, in my experience a man of high integrity. I had no reason to doubt that he knew what he was talking about.”
Litvack is scheduled to appear on the stand this afternoon. His testimony is expected to take several days.
Bowers said she appreciated the fact that the two Mikes were friends and thought early on it would be beneficial to their business relationship.
“I got to see the interaction between Wells and Eisner,” Bowers said. “It was close, trusting, friendly. They had a wonderful repartee from opposite ends of the board table. I wished he would have that again with someone he trusted and enjoyed working with.”
Fourteen months later, Eisner made a round of calls to tell board members it was time for Ovitz to go. Nunis agreed, while Bowers said she was sorry the friendship between Eisner and Ovitz suffered.
“When you have the CEO and the president of the company not getting along, when you have top executives running major divisions not getting along, it’s not in the best interest of the company and certainly not in the best interest of stockholders,” said Nunis, former head of Disney’s parks and resorts division. “If you have turmoil at the top of the company, it’s eventually going to permeate down throughout the entire organization, to stockholders and eventually to the stock … if the CEO of the company wanted to make a change, I was going to support that decision.”
Bowers said shifting Ovitz to another position at the company was out of the question.
“It needed to be done with dispatch. It needed to be a clean break,” she said. “To have someone on the management team not perceived as a team player … or not adapting to the ethos of a school or corporation — it’s best to let that individual go away.”
Both Bowers and Nunis said they heard rumblings of discontent with Ovitz via the rumor mill but were never officially told by Eisner of Ovitz’s largesse when it came to expenses and business relationships. A tizzy was caused by an article in Vanity Fair that appeared right before a November 1996 board meeting that quoted Steve Bollenbach saying Ovitz shouldn’t “suck up resources doing things that are meaningless.”
“I was surprised Bollenbach did the interview. I was surprised at some of characterizations,” Bowers said. “The tone was very negative.”
Last week Bollenbach said doing the interview with Kim Masters was “a dumb idea.”