Darkbeer
10-31-2003, 09:22 AM
Boards Beware! (http://www.fortune.com/fortune/ideas/articles/0,15114,526338,00.html) - Fortune, 10/27/03
QuikQuote: It has not worked out—not even close. Ovitz, you may recall, walked away with a severance package that was generous even by entertainment-industry standards. For 15 months of labor, he got $38 million in cash, plus stock options valued at $101 million. That package caused an uproar and triggered a lawsuit by Disney shareholders, who want their money back. Since then none of them—not Ovitz, not Eisner, not the company, not shareholders—has fared very well. Ovitz's next venture failed, Eisner's reputation soured, and Disney shares currently trade at about $22 each, the same price as when Ovitz left in '96.
We revisit this unhappy moment in Hollywood history seven years later not merely for its gossip value but because the shareholder lawsuit that it provoked has, improbably, taken on enormous significance for the boards of public companies. In a ruling issued in May that has become must-reading in corporate boardrooms, Delaware judge William B. Chandler III said that the suit can go to trial. His reason: The facts, as alleged, indicate that Disney's directors failed to make a good-faith effort to do their job when they approved Ovitz's contract and once again when they allowed him such a lucrative going-away present. The $140 million package represented nearly 10% of Disney's net income in 1996.
QuikQuote: It has not worked out—not even close. Ovitz, you may recall, walked away with a severance package that was generous even by entertainment-industry standards. For 15 months of labor, he got $38 million in cash, plus stock options valued at $101 million. That package caused an uproar and triggered a lawsuit by Disney shareholders, who want their money back. Since then none of them—not Ovitz, not Eisner, not the company, not shareholders—has fared very well. Ovitz's next venture failed, Eisner's reputation soured, and Disney shares currently trade at about $22 each, the same price as when Ovitz left in '96.
We revisit this unhappy moment in Hollywood history seven years later not merely for its gossip value but because the shareholder lawsuit that it provoked has, improbably, taken on enormous significance for the boards of public companies. In a ruling issued in May that has become must-reading in corporate boardrooms, Delaware judge William B. Chandler III said that the suit can go to trial. His reason: The facts, as alleged, indicate that Disney's directors failed to make a good-faith effort to do their job when they approved Ovitz's contract and once again when they allowed him such a lucrative going-away present. The $140 million package represented nearly 10% of Disney's net income in 1996.