The Ovitz trial puts the heat on Eisner
The Ovitz trial puts the heat on Eisner
NEW YORK (CBS.MW) -- The trial over former Walt Disney Co. President Michael Ovitz' severance package threatens to open old wounds and tarnish the image of the company's chief executive officer, Michael Eisner. Just as Eisner hoped to wind down his long, two-decade career at Disney, turmoil has dogged him for much of the past year. Under pressure from shareholders, he relinquished his long-held title of chairman following the company's contentious annual shareholder meeting in Philadelphia in March. He remains as its CEO.
Ovitz, Eisner and several current or former Disney (DIS) directors are being sued in the Delaware Court of Chancery by shareholders claiming the board failed to supervise properly when Ovitz was hired and later forced out of the company, only 14 months later, in December 1996. The trial began Oct. 20.
To the surprise of many observers, Ovitz walked away after his brief run at Disney with a huge pay package valued at $140 million. The investors want that amount to be paid back with interest.
Eisner was criticized by Disney followers when Ovitz exited. To Eisner's critics, it was a sign that he had trouble retaining talented executives. This criticism was leveled against him once again when Pixar (PIXR) head Steve Jobs declined to continue to do business with Disney.
Pixar was a crucial ally. It had made conceived a string of animated blockbusters for Disney, starting with "Toy Story" and running up to the current smash, "The Incredibles."
On Nov. 18, Disney reported net income for its fourth quarter of $516 million, or 25 cents a share, compared with $415 million, or 20 cents a share for the year-before period. See full story.
For the past several months, Eisner's legacy has been further complicated by the rampant speculation about which media executive would be tabbed to succeed him as CEO, and when the transfer of power would take place.
He has backed his long-time lieutenant Robert Iger, who has been mentioned prominently. But it's anything but a certainty that he will get the promotion.
Eisner has always tried to present a smooth, in-control image to the Disney shareholders and the outside world. He has been polished even in his most pressure-packed moments, such as when he appeared on "Nightline" immediately following his woes at the last shareholder meeting.
But the Ovitz trial has caused him headaches at an inopportune time.
"Isn't it fun?" quipped Ken Marlin, head of the media investment banking boutique Marlin & Co., speaking about the volley of charges that the two ex-colleagues are hurling at one another.
"Most Disney shareholders believe that Eisner did a terrific job in the '80s -- and they think it's time for him to move on and let somebody else run it," Marlin said.
The trial has been proceeding in tiny Georgetown, Del. Eisner has insisted that Ovitz was hard to work with and that he couldn't win the respect of his fellow senior executives.
By contrast, Ovitz has alleged that Eisner didn't help him steer through the rough waters of the Disney hierarchy. Before he joined Disney, Ovitz had been Hollywood's most powerful talent agent. When he hired Ovitz, Eisner had hoped that Ovitz could inject a dose of innovativeness into the company.
"Eisner did a credible job by saying that Ovitz couldn't play nicely with others," Marlin said. "Being a corporate chieftain is also about getting people to execute ideas."
While the trial isn't likely to affect Disney's share price, it could reflect on the perception of Eisner's stewardship of Disney. He has gained a reputation, fair or not, as a leader who has trouble keeping talented people in his camp.
The Ovitz trial is, at the very least, a big distraction for the Disney boss. At a time when Eisner would prefer to ride quietly into the sunset, a public trial of one of his most controversial and ill-fated decisions is the last thing he wants to have to worry about now.