Disney court case exposes Mickey Mouse governance

Michael Eisner received a memo almost 10 years ago, referring to a "dull but increasingly important subject". The note to the chief executive of Walt Disney from Raymond Watson, a director, raised the issues of corporate governance and boardroom independence. "I was urging them to get on with the task," Mr Watson told the Delaware chancery court this week.
He was the latest defendant to testify in an investor lawsuit claiming Disney's board wilfully neglected shareholders' interests with its brief appointment of Michael Ovitz, the Hollywood talent agent, as group president. Mr Ovitz was hired in October 1995 and fired in December 1996, with a $140m payoff.
The case has alarmed boardrooms across the US, raising the prospect of shareholder action over remuneration for directors elsewhere. It has also focused attention on US corporate governance, an area where Disney now claims to be in the top percentile on compliance after overhauling its board.
The company's record has been picked over in almost eight weeks of hearings, in which Mr Ovitz, previously head of Creative Artists Agency, heard himself described as a failure, a psychopath and a misfit.
Yet, dredging their memories, Disney directors remembered only his ability to exaggerate his own importance and his skills as a master of spin? They failed to recall a single instance of the pathological behaviour Mr Eisner mentioned in notes scribbled as his frustration mounted.
Sanford Litvack, Mr Eis-ner's chief of staff and top in-house lawyer, admitted in Delaware that Mr Ovitz had not stooped to the "malfeasance" required by his contract for a peremptory push out the door.
Mr Ovitz's dismissal raised questions about why a relative corporate novice was hired with a deal rated at the time by Graef Crystal, celebrity compensation expert, as the richest in US corporate history.
It was common knowledge, witnesses said, that he was "giving up a lot" by leaving CAA. He was rumoured to be paid about $25m a year.
But few knew that Mr Ovitz would carry on collecting rent on CAA's headquarters or that he would take the lion's share from an agreement worth some $200m to give his former employees control of CAA.
The only evidence he was paid up to $25m a year in his previous job was provided by his lawyer-executor, who led contract negotiations with Irwin Russell, chairman of the Disney compensation
committee. Mr Russell was also sole practitioner in a law firm that represents the Eisner family and negotiated Mr Eisner's pay deals.
Mr Watson, a one-time Disney chairman who also sat on the compensation committee, also worked on the contract details. Described from the stand as a man of impeccable integrity, Mr Russell was represented as the only available choice to negotiate with Mr Ovitz - a long-time associate and friend of the Disney chairman.