Law Professor Slams Disney Board Over Ovitz Pay-Off

21 October 2004

In what promises to be a revealing insight into corporate values among the Walt Disney Company's power elite, Delaware's Court of Chancery (which recently staged the Conrad Black show) is now host to another glitzy event – an action brought by Disney shareholders against the Disney board.

It was 'lights, camera, action' on the trial's second day, Wednesday, when Deborah DeMott, a law professor from Duke University and expert witness for the shareholders, made her entrance onto the set.

In terms of star quality, DeMott will face stiff competition from two of Hollywood's leading egos, Disney ceo Michael Eisner and Michael Ovitz – the company's former president, hired in 1995 by Eisner who reversed the procedure in 1997 after series of explosive mano-a-mano clashes. Ovitz' ousting was lubricated by a $140 million (€110.87m; £76.98m) severance package.

The latter, DeMott told the court, had breached the Disney board's fiduciary responsibilities to shareholders, and given Ovitz a "wasteful and unwarranted" pay-off.

The shareholder plaintiffs (whose number is thought to include former Disney board members Roy E Disney and Stanley Gold) are demanding that the board as individuals reimburse the company for the termination payment – a possibility said to have triggered a pandemic of nervous tics across corporate America.

DeMott revealed that the only record of a full board meeting to discuss Ovitz's ill-starred hiring was dated September 26 1995. This was "well after" his appointment had been announced to the media – circumstances that did not allow the board to review entirely the terms of his appointment or his suitability for the job.

Disney's legal eagles counter-attacked, stressing the lack of consistency in the "customs and practice" of corporate governance ten years back, forcing DeMott to admit she had no knowledge of how other company boards handled hirings and firings at that time.

Undeterred, the expert witness suggested the Disney board had breached its own corporate by-laws which stated that a group president must be appointed by the board.

One-to-one discussions between Eisner and other board members were not an adequate substitute for the process of informed collective decision-making, she argued. Such a situation could "sap" the board's ability to collaborate when required.

The case is expected to run for around four weeks.

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