The paper trail of alleged ethics violations by Michael Ovitz took center stage Monday at the $140 million Disney shareholders’ lawsuit under way in Delaware.
Former Mouse House board member and Eisner personal attorney Irwin Russell’s fourth day of testimony focused on memos about Ovitz’s gift giving, personal expenses allegedly charged to the company, and how the former agent created a rift among execs in Disney’s upper echelon.
A copy of Disney’s ethics guidelines was presented to the court, signed by Ovitz, wherein he agreed to adhere to the Mouse House’s policy that no gifts valued more than $75 be accepted by employees. The policy also orders employees to not give gifts that could be interpreted as an inducement for future services.
Earlier in the trial — which court observers say could last four months — Ovitz testified he was overly generous when it came to gift-giving at Disney. Russell testified that he made notations on a list that questioned expenses like wine used by caterers at Ovitz’s house and 80 watches bought at a price of $300 each. Presented in court was a note from Eisner to Russell that read: “Michael is obviously not reporting gifts … please put on your list.”
One of the consequences of not complying with the ethics policy could be dismissal from the Mouse House, Russell conceded under questioning. He said he did not report the content of Eisner’s note to the other members of the board or to the compensation committee.
Cited as new evidence from the boxes of materials discovered just before the case opened was an essay by Eisner sent to Ovitz and Russell about ethics. In it, Eisner wrote: “Heroes cannot be wicket, (sic) nor can executives. Human error is survivable, but human wickedness is not. Everyone that holds power does not become a victim of his or her own greatness.”
Shareholders attorney Seth Ridrogsky attempted to portray the essay as a veiled warning to Ovitz to curtail his activities, a charge Russell denied, saying the writing was a rough draft for a book Eisner was writing.
In addition, Russell said he couldn’t recall if the compensation committee discussed paying $100,000 so Ovitz could keep the BMW he drove while he was at CAA.
“That car was never returned?” Ridrogsky asked. “Driving off in that BMW, without Eisner’s approval, is that considered good cause for termination?”
“When you’re employing a top executive and considering all the grounds for dismissal, you look at all the facts,” Russell replied tartly. “I know where you’re trying to lead me.”
Disney investors contend that the board did not do enough due diligence in the hiring of Ovitz and did not give adequate consideration to firing him for various indiscretions. All this set the stage for Ovitz to get a mammoth golden parachute from the company when he left after a year. When word of Ovitz’s departure package was leaked to the press, Russell wrote a memo to Eisner: “Everything in deep shit.”
On Monday it was revealed the Disney subcommittee responsible for giving preliminary approval to hire Michael Ovitz never saw a complete version of his contract.
“It would have been an imposition on the members of the compensation committee, if you ask me,” said Russell, who was chairman of the committee and helped negotiate Ovitz’s contract. “They are not trained lawyers.”
A short abstract of Ovitz’s contract was given to the committee members, including thesp Sidney Poitier, Ignacio Lozano and Ray Watson. Last week Russell testified the compensation committee formally approved the contract in September 1995, after Ovitz was already working at the company.