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Ovitz won job after Mouse K.O’d Katz

Daly, Semel, Diller considered

NEW YORK — It’s either comforting, or scary, that names tossed about to succeed outgoing Disney CEO Michael Eisner these days are the same ones that came up a decade ago when the Mouse was seeking a No. 2. exec.

According to testimony Wednesday by money manager and former board member Stanley Gold, Bob Daly, Terry Semel and Barry Diller were all discussed as possible replacements for Frank Wells, the Disney president and chief operating officer who was killed in a helicopter crash in 1994.

Inhouse, then-Disney studio head Jeffrey Katzenberg badly wanted the job. “The sense of the board was that he wasn’t the right person. He was awfully rough on his employees at the time,” Gold told a Delaware court Wednesday. “There was a general sense that we should look elsewhere.”

Disney’s then-chief financial officer Steven Bollenbach and general counsel Sandy Litvack were lobbying for the position. Litvack suggested that Ovitz be considered as president of ABC.

Taken with Mitchell

Gold said Eisner was also taken with former Sen. George Mitchell, the Mouse’s current chairman. But Eisner later told Gold that Mitchell knew naught about business and even less about the entertainment biz; that he’d be a better board member than an executive.

We all know, well into week four of what promises to be a tediously long trial, that Michael Ovitz got the job.

Gold, a once-close Eisner ally lately turned bitter foe, defended Ovitz’s contentious employment contract as a model of professionalism.

He said universal acclaim in the press and on Wall Street when Ovitz was hired, pending approval of some contractual details, “confirmed my feelings that this was something we should do. It was going to be big, large, expensive. But it was worth it if he was the right man for the company. I thought I was doing the shareholders a great service by bringing him over.”

Shareholders are suing Disney’s board for negligence in their handling of Ovitz’s employment in the summer of 1995 and his no-fault termination 14 months later, where he ankled as president with a severance package worth about $140 million — the bulk of the payout in stock options.

“I knew if he was terminated, and if the stock went up, it was going to cost the company a boatload of money,” Gold said.

He said the board’s compensation committee had kept him fully informed of the provisions in the contract.

He insisted Eisner was way too “cheap” to have sweetened Ovitz’s deal just because the men were friends.

Gold described the halcyon reign of Eisner and Wells. When Wells died, Eisner assumed both roles temporarily.

Gold said the board grew increasingly anxious about finding a new No. 2 at Disney — jitters that were exacerbated when Eisner had bypass surgery.

“Now we had one gone, and one wounded. It was a concern for board members,” he said.

Asked if he recalled Eisner expressing doubt about Ovitz’s appointment, Gold said no: “It was just the opposite. He was thrilled. He was delighted. He had the perfect candidate.”

But, as memos and letters from Eisner have shown, the relationship soured almost immediately.

Gold also said Eisner was confident he could manage any tension at the top created by adding Ovitz to the management mix.

Contractually, Bollenbach, Litvack and Ovitz all reported directly to Eisner. Ovitz said in earlier testimony that he had believed the other two would be reporting to him and the fact that they didn’t complicated his tenure immensely.

Difficult hires

“Lateral hires at this level are always difficult. Michael (Eisner) identified it early on, said he could deal with it, that he had a plan to deal with it,” Gold said.

Gold’s testimony will continue Friday. The court is closed today.

Earlier Wednesday, executive compensation expert Graef Crystal wrapped up his testimony, calling Ovitz’s pay package “far and away” the highest he’d ever seen for a No. 2 exec. At that time, it was one of fattest packages ever paid any executive.

He said he was particularly appalled by a $50 million guarantee included in the contract in case Ovitz couldn’t cash in on his stock options. “It’s like saying, there’s lots of money if you do a great job — and $50 million if you don’t.”

Crystal said at one of his meetings with the compensation committee, “Ovitz came in, closed my laptop, turned it upside-down and said, ‘You’re the one who’s causing all this trouble’ — which I interpretted as a joke.”

But he acknowledged that previous compensation is usually the key factor in determining how much to pay an incoming exec, and that Ovitz had been making as much as $25 million a year at CAA.

He also noted an irony. The options the Disney board awarded Ovitz had an unusually long vesting period, meaning they weren’t exercisable for years. As long-term incentive for an executive, that’s admirable, Crystal said. But the trouble is that that when an exec is terminated, all his options vest immediately and become part of a severance package.

“So by doing the right thing, they got stuck with excessive severance,” he said.

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