NEW YORK — Former Disney board member Irwin Russell received a $250,000 fee for negotiating Michael Ovitz’s contract on behalf of the Mouse House and then voted to approve the contract as chairman of the compensation committee.
In so doing, Russell testified Friday, he was stepping outside the normal duties as chairman of Disney’s compensation committee.
“Normally, the compensation committee members do not negotiate agreements,” he said. “We would approve agreements but we would not negotiate them.”
But in this case, Russell took on that role rather than general counsel Sandy Litvack, who would normally negotiate contracts, because Litvack himself had designs on the No. 2 job at Disney. Litvack would have been Ovitz’s subordinate, and Russell believed Ovitz’s pay package would have to be richer than even Disney chief Michael Eisner’s, in certain respects, to wrest him away from Creative Artists Agency, the firm Ovitz founded.
Russell testified that Ovitz’s $140 million exit clause was appropriate, along with the 5 million stock options, because of the lucrative business he was leaving behind.
“The deal was less than I originally envisioned that we would have to pay,” Russell said, in justifying the package. “CAA today is even larger and more successful than when he was there.”
Russell is at the center of the Disney shareholders’ suit against the Disney board, which they allege did not scrutinize Ovitz’s mega-deal adequately and then wrongly gave him a no-fault termination rather than firing him for cause.
In Russell’s third day of testimony on Friday, shareholder attorney Seth Ridrogsky sought to shine a light on the director’s dual role in the Ovitz deal. Ridrogsky attempted to show that Russell failed to keep other compensation committee members — thesp Sydney Poitier and Ignacio Lozano — in the loop. As Eisner’s longtime attorney, Russell routinely negotiated Eisner’s contracts and then recused himself from any board vote on the contract. But in the Ovitz case, Russell said, Eisner recommended the $250,000 payment to Russell for his help in negotiating with Ovitz.
A change of life
During the negotiation, Russell testified he had a conversation with Ovitz to feel out whether the superagent was prepared to adjust to corporate life.
“He had been an entrepreneur and a boss and built a company from scratch and he could do whatever he wanted, and that corporate culture would be different,” he said. “I felt he should think about it carefully and make sure he could adapt to that.”
Russell said he shared his concerns with Eisner but no one else on the committee. Later, according to Russell, Eisner expressed his frustrations about Ovitz to Russell.
Eisner said Ovitz made suggestions that “made no business sense” and kept him in the dark as to what he was doing, Russell testified. “It was part of the failure to communicate with him what he was doing and disclose things of that nature,” Russell said.
Yet at the end of 1996, Russell recommended the $7.5 million performance bonus for Ovitz, largely because he felt the former superagent had worked hard over the year.
Russell said Litvack advised the board that Ovitz could not be fired “for cause” under the terms of his contract, which required a finding of gross negligence or malfeasance.
Earlier, an expert witness for the shareholders group testified that Ovitz could have been fired for lying and for misusing the company’s money. Ridrogsky noted that Ovitz billed the company for parties at his home, before he had officially started his job at the Mouse.