Eisner and Mouse House Squeaky Clean Over Ovitz Payout

09 June 2006

Chancellor William B Chandler III of Delaware's Court of Chancery on Thursday conferred his judicial blessing upon the board of the Walt Disney Company.

At the same time, His Honor consigned to the outer darkness the dissident shareholders who questioned the $140 million (€110.7m; £76.0m) payoff of former Disney president Michael Ovitz - a one-time close friend and confidante of [the then] Disney chairman/ceo Michael Eisner.

In his detailed 89-page decision filed Thursday Chancellor Chandler's verdict caused a corporate sigh of relief that echoed from coast to coast.

Effectively on trial was the autocratic management style of erstwhile Disney emperor Eisner and his compliant board of directors, all of whom sanctioned the Ovitz payout.

The court ruling found "much to criticize in Eisner's 'imperial ceo' style of governance, [but] nothing has been shown to overturn the factual basis for the court's conclusion that, in the end, Eisner's conduct satisfied the standards required of him as a fiduciary."

Judge Chandler said Eisner had "enthroned himself as the omnipotent and infallible monarch of his personal Magic Kingdom."

However Eisner had acted in what he believed to be the best interests of the company when ousting Ovitz on a "no-fault" basis - a decision that meant the departing president was entitled to collect his eyewatering severance package.

The court's finding that Eisner and other Disney directors did not fail in their duty to the shareholders rests on the state's ultra-liberal "business judgment" rule.

This immunizes corporate officers from liability for mistakes as long as there is some evidence they acted in good faith in making decisions for the company.

Which goes a long way to explaining why America's second smallest state is legal host so many of its largest corporations.

Data sourced from Wall Street Journal Online; additional content by WARC staff