Judge Clears Disney Board Over Ovitz Payoff

10 August 2005

Chancellor William B Chandler III of the Delaware Chancery Court - remembered as Lord Conrad Black's judicial nemesis - on Tuesday dealt in kinder fashion with the board of the Walt Disney Company.

Following a pre-trial legal process that had crawled lawyer-enrichingly for over two years, the hearing was concluded within a few days.

At issue was the $140 million (€113m; £78m) severance payoff in 1997 of former Disney group president Michael S Ovitz - and whether his eyewateringly expensive hiring and firing was a breach of fiduciary duty by the company's board.

Not so, ruled His Honor. The shareholder group, led by former directors Roy E Disney and his financial advisor Stanley P Gold, had failed to convince him that the company's directors and [then] chairman Michael D Eisner, now serving out his final weeks as chief executive, were thus neglectful.

The complainants maintained that Ovitz, hired fourteen months earlier by his close friend Eisner, should have been fired for "cause" [gross negligence and malfeasance] and without a payoff of any kind.

Chancellor Chandler didn't buy this argument. "Eisner's actions in connection with the termination are, for the most part, consistent with what is expected of a faithful fiduciary," he wrote in his ruling.

"It is easy, of course, to fault a decision that ends in failure, once hindsight makes the result plain to see," continued Judge Chandler. "But the essence of business risk is the application of informed belief to contingencies whose outcome can sometimes be predicted, but never known."

  • Disney Q3 Financial Results
       Meantime, ceo Eisner, loins girded for his departure in September, is set to exit accompanied by a triumphal fanfare, if the group's third quarter numbers are any guide.
        A 48% improvement in media networks profits accompanied by 6% growth in parks and resorts were more than ample to compensate for losses in film and home entertainment and reduced earnings from consumer products.
        Operating income from Disney' broadcasting units more than doubled to $269m, while cable, the division's main profit centre, showed a 38% improvement to $729m. Revenue at the theme parks and hotels increased 7% to $2.4bn, yielding $448m in operating profit.
        Proclaimed Disney ceo-designate Robert A Iger: "[The record quarter] provided a great sampling of the company's breadth and strength."

    Data sourced from Financial Times Online; additional content by WARC staff