Disney chief's reputation on the line in battle with shareholders

21 Nov, 2004

Controversial Disney Co chief executive Michael Eisner has been tough and unflappable defending himself this week against shareholder charges that he wasted 140 million dollars by taking on Michael Ovitz as president in 1995.
Eisner has put on a gala performance in the witness box in front of Delaware judge, Chancellor William Chandler, who will have to decide which of the array of star witnesses in the case is most credible.
Disney shareholders are suing Eisner, Ovitz and the board of directors of 1995-96 seeking the return of the 140 million dollar severance package paid to Ovitz - who lasted only 15 months at Disney - plus 60 million dollars in interest.
They accuse the two former friends of colluding in the hiring process and the directors of taking "wrongful inaction".
Under questioning Friday from shareholders' attorney Steven Schulman, Eisner said he understood his duty was: "You have to do what is right for your shareholders and what is right for your company - you can't do anything that is only in your best interest."
But shareholders have blasted Eisner's conduct in taking on the former head of the Creative Artists agency, who had been one of the most powerful figures in Hollywood.
They have highlighted the five million dollars Ovitz charged Disney for lavish entertaining, expensive gifts and an office remodelling.
Eisner, who described himself as more "frugal", approved the expenses, which he described as a problem of scale, not waste.
"Ovitz did not violate company policy," Eisner said, "There is no issue in this. I promise you this is not an issue. There was an issue in getting him to change his philosophy but not in getting approval."
But Eisner grinned as he noted that Ovitz "was the most expensive friend I ever had."
Ovitz once sent him a treadmill after Eisner underwent heart surgery. But as Disney policy was for the company to be reimbursed for personal gifts, Eisner had to repay the cost of the treadmill.
Eisner said he realised within weeks of taking on Ovitz in August 1995 that the appointment had been a mistake.
In his testimony last month, Ovitz said however that his moneymaking efforts for Disney were repeatedly aborted by Eisner and denigrated by Disney chief financial officer Stephen Bollenbach and general counsel Sandford Litvack. Bollenbach and Litvack told Ovitz at a welcoming dinner that they would not report to him.
Eisner has said he will retire when his contract ends in 2006, a decision that rebel former board members Roy Disney and Stanley Gold want speeded up.
Eisner says he favours current president, Robert Iger, as his replacement despite rumours of tensions between the two.
When asked by Schulman if he had a problem with Iger, as Ovitz suggested, Eisner said: "Not at all, not at all, the problem with Mr Iger was Mr Ovitz."
Eisner told the court that before Iger came to Disney as part of the 1995 purchase of Capital Cities/ABC television he may have told Ovitz that "maybe Iger wouldn't go all the way."
But Eisner said he soon changed his mind. He described a meeting the same month that Ovitz was hired. "He (Iger) was totally organised. Everything was put together," recalled Eisner, even though he had told Iger that a new company president would be brought in over Iger's head.
With his reputation on the line, Eisner also told the court about essays he has written about business ethics and requiring executives to attend conferences or workshops on the subject.
In a reference to Ovitz's testimony last month, Eisner said "I don't think the Hollywood as was depicted in this court room earlier, or cliched in books and newspapers, is the real Hollywood. I think the real Hollywood is the one that is the biggest export" in California.

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