The decision was a victory for Disney in a long running class action lawsuit brought by investors aggrieved at the massive payout awarded to Mr Ovitz after just 14 months in the job. He was ousted in December Still the case did little to improve the company's reputation, airing some embarrassing testimony about the Machiavellian atmosphere inside the Magic Kingdom. Mr Ovitz said during the trial that he had been "cut out like a cancer" by the rest of the executive team.

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The facts surrounding the Disney saga are by now well-known. With respect to the hiring of Ovitz and the approval of his employment agreement, the Supreme Court held that the Court of Chancery had a sufficient evidentiary basis from which to conclude, and had properly concluded, that the defendants had not breached their fiduciary duty of care and had not acted in bad faith.

The Supreme Court flatly rejected the notion, advanced by plaintiffs, that lack of good faith could be equated with gross negligence, which is the standard for finding a violation of the fiduciary duty of care. The Court explained that both common law and Delaware statutory law have distinguished sharply between the duties of due care and good faith.

The Court explained that any definition of bad faith that would cause a violation of due care i. The Supreme Court identified two categories of fiduciary behavior that do constitute bad faith. Cases have arisen where corporate directors have no conflicting self-interest in a decision, yet engage in misconduct that is more culpable than simple inattention or failure to be informed of all facts material to the decision.

To protect the interests of the corporation and its shareholders, fiduciary conduct of this kind, which does not involve disloyalty as traditionally defined but is qualitatively more culpable than gross negligence, should be proscribed. A vehicle is needed to address such violations doctrinally, and that doctrinal vehicle is the duty to act in good faith. Ovitz as President. The Supreme Court also adopted the same practical view as the Court of Chancery regarding the important statutory protections offered by Section e of the DGCL, which permits corporate directors to rely in good faith on information provided by fellow directors, board committees, officers, and outside consultants.

Wolfe, Jr. Tumas and Mark A. Pittenger and Michael K. Both articles are available on our Web site. Careers Search. Wilmington Hercules Plaza.


Court Upholds Exoneration Of Disney in Ovitz Case

Chief Executive Michael Eisner for his role in the ill-fated hiring and firing of Michael Ovitz as president, but ruled that he and other directors did not betray their duty to shareholders. Chancellor William B. But while relieving directors of legal liability, the judge also scolded them in his page decision, reserving his sharpest comments for Eisner. The trial was unusual because most shareholder lawsuits, which carry a high threshold of proof and are difficult to win, are settled before trial.


Disney Affirmed: The Delaware Supreme Court Clarifies The Duty of Directors To Act In Good Faith

DIS - Get Report. The victory for the company comes in a class-action lawsuit that accused Disney's directors of putting their allegiance to CEO Michael Eisner ahead of their duties to look out for shareholders. The suit was sparked by the money Disney lavished on the former Hollywood talent agent over his brief tenure at the Burbank, Calif. The episode fueled growing investor disenchantment with Eisner's imperial rule.


Judge Rules for Walt Disney Directors in Ovitz Case

Ovitz as president of Disney in the mid's. A talent agent who turned out to be an awkward corporate manager, Mr. Ovitz held the No. The shareholders contended in their lawsuit that the company's directors should have fired Mr. Ovitz for a lackluster performance and withheld the severance pay. He failed to truly learn how Disney operates, they said, and company documents show that he charged lavish personal expenses to his corporate account.


Investors lose battle with Disney over Ovitz's $140m

Disney is the leading case on executive compensation. He had founded Creative Artists Agency , a premier Hollywood talent finder. Michael Eisner , the chairman, wanted him to join Disney in , and negotiated with him on compensation, led by Disney compensation committee chair Irwin Russell. The other members of the committee and the board were not told until the negotiations were well underway. Ovitz insisted his pay would go up if things went well, and an exit package if things did not. Irwin Russell cautioned that the pay was significantly above normal levels and 'will raise very strong criticism. Graef Crystal , a compensation expert warned that Ovitz was getting "low risk and high return" but the report was not approved by the whole board or the committee.

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