The Mouse Keeps The Cheese

Walt Disney Co. directors and soon-to-be-former CEO Michael Eisner took a scolding from a Delaware chancellor before being let off the hook in a long-running shareholders derivative suit that sought repayment of a $140 million severance package given to Creative Artists Agency co- founder and former superagent Michael Ovitz.

Chancellor William Chandler III said that while the directors’ conduct “fell significantly short of the best practices of ideal corporate governance,” board members did not violate their duties or waste Disney resources.

While ruling for plaintiffs, Chandler chided Eisner – who leaves as CEO in September – for not adequately involving the board in business matters and having “enthroned himself as the omnipotent and infallible monarch of his personal Magic Kingdom.”

The Disney board agreed to hire Ovitz as president of the conglom in 1995 and cut him loose with the platinum parachute just 14 months later, citing extravagant spending habits and allegedly acting without specific authority or direction from the Disney directors.

The trial has been notable not only because it’s rare that shareholder suits reach trial, but also for the peek at the inner workings behind the Disney curtain.

Trial testimony included details of the enmity Ovitz engendered among fellow Disney execs, including Eisner, who described Ovitz in company memos as a “psychopath” with a “character problem.”

Conversely, Ovitz insisted from the stand that he loved Eisner “like a brother” but was micromanaged and undermined by other execs and “cut out like cancer” before he had time to prove his worth.

“It is easy, of course, to fault a decision that ends in failure, once hindsight makes the result of that decision plain to see,” Chandler wrote in his 175-page decision. “But the essence of business is risk – the application of informed belief to contingencies whose outcomes can sometimes be predicted, but never known.”

Attorneys for the shareholder plaintiffs said they plan to appeal the ruling to the Delaware Supreme Court.