Eisner Testifies At Disney Trial

Walt Disney Co. CEO Michael Eisner tried to turn back years of criticism Nov. 15 by insisting that he was neither rash nor selfish in hiring friend Michael Ovitz as president of the company in October

(The Hollywood Reporter) -- Walt Disney Co. CEO Michael Eisner tried to turn back years of criticism Nov. 15 by insisting that he was neither rash nor selfish in hiring friend Michael Ovitz as president of the company in October 1995.

Ovitz's disastrous 14-month tenure sparked the shareholders' suit that put Eisner on the stand as a defendant accused of orchestrating the hiring -- and a contract that made possible the no-fault termination that gave Ovitz a $140 million severance bundle.

The suit accuses Disney's then-board of intentionally failing to exercise proper oversight in hiring Ovitz, who was let go for poor job performance. The shareholders want the $140 million and perhaps as much as $60 million in interest returned to Disney.

Eisner denied that he kept board members in the dark, saying that Ovitz was only one of several candidates approached in the year after president and operations chief Frank Wells died in a helicopter crash.

"I was not in this alone," Eisner said in his first day of testimony in Delaware Court of Chancery. "This was going to be an expensive deal. I can't give you chapter and verse, but I know I spoke to others."

Those others included investor Sid Bass, who owned perhaps one-quarter of Disney at the time, as well as board members Stanley Gold and Roy E. Disney.

Disney, nephew of the late Walt Disney, also testified, putting him in the curious position of defending his support of Ovitz's hiring even as he now leads the campaign to have Eisner fired for allegedly using the board as a rubber stamp.

After Wells' death, Eisner had bypass surgery that added to the need to find a successor.

Hiring Ovitz, the Creative Artists Agency co-founder who was lauded as the "most powerful man in Hollywood," was not a new idea. Wells suggested bringing him onboard as president in the early 1990s, but Eisner rejected the idea as cumbersome.

After Wells' death in 1994, Eisner, with the backing of Bass, Gold and Disney, approached Ovitz again, this time pitching him on a plane ride to Herb Allen's annual investors' conference.

"I tried to talk to him, but he wanted to be co-chair, an equal, which is not an efficient way to run a company," Eisner said. "He was really impressive, and I was thinking [about it] through that whole year even though he had presented me with an impossibility of a deal. It didn't leave my mind."

Eisner pitched others, including his old boss at Paramount, Barry Diller. "I was obviously very concerned about my own mortality and thought that he would be a very good candidate. I made it very clear that Barry was the real thing; he was not just a legend, he really was great. I doubted I could get him, but maybe."

Diller rejected the idea, even when Eisner offered to step down to No. 2 -- though Eisner was not sure he meant it.

While much has been made at the trial about the Eisner-Ovitz friendship, the closeness of their families and their group vacations, Eisner downplayed the issue, saying they were not best friends in the literal sense.

"I was a good friend," Eisner said. "I was a reasonable friend. I liked him. I liked his wife. I was amused by him."

Eisner said he took board member Raymond Watson's advice and did not rush the executive search. Instead, Disney moved new talent into the positions under the president.

Eisner said he was nervous about Ovitz becoming a competitor if he took over MCA and Universal after arranging its sale to Seagram Co.

Even when that deal fell through, leaving Ovitz upset because his former CAA partner Ron Meyer took over MCA, Ovitz continued to drive a hard bargain with Disney, demanding parity with Eisner in such areas as stock options.

Eisner said Disney was all the more desperate for a new president when it bought Capital Cities/ABC.

"It is true we'd spent $19 billion on the biggest acquisition in history, and I had no idea how to manage it," Eisner said. "If I could get a guy who could make it work it was worth it. But I still felt I had some leverage."

And, as a result, Disney was able to get Ovitz for 3 million stock options, not the 8 million he originally wanted.

In his testimony, Roy E. Disney said he never witnessed any dishonesty or incompetence by Ovitz, as has been alleged by the plaintiffs. He also said that the huge severance did not affect his decision to back the removal of Ovitz.

"It seemed to be clear that the distraction factor in the company and the general unhappiness of a lot of people working there would more than make up for [it]," Disney said. "Getting that behind us would be worth the pain."

During his second day of testimony on Nov. 16, Eisner painted Ovitz as a consummate dealmaker who just couldn't adjust to the corporate culture or financial strategy of the Walt Disney Co.

One of the most embarrassing instances of Ovitz's "elitist" attitude came just three months after he became president during a corporate retreat in January 1996 to Walt Disney World in Orlando, Fla., Eisner said.

As 200 executives and staffers -- including Eisner -- took a bus, Ovitz insisted on a personal limo. Soon after they arrived at the park, chatter about Ovitz erupted on the employees' walkie-talkies.

"There [were] 30,000 acres of people saying, 'Who is this guy demanding this and demanding that,' " Eisner said. "He was in a non-Hollywood environment, acting a little special. It wasn't a big thing, but it was uncomfortable and certainly the grist for rumors and 'I told you so's' and 'He'll never make it' and all that sort of stuff."

Also, it became apparent that Ovitz was having trouble moving from the "sell" side, as a founder of CAA, to the "buy" side, as an officer of a public company that funded projects, Eisner said.

"He was a dealmaker in the best sense of the word," Eisner said. "He was the ultimate intelligent packager [at CAA] without having to worry about the capital employed. That was one of the issues that became more and more apparent as time went on. He was also not the boss."

Being No. 2 did not sit well with Ovitz, and it frustrated him, Eisner said. So, too, did the company's reluctance to pursue many of Ovitz's business plans, such as making music and book publishing acquisitions that made little business sense, he said.

To a degree, the corporate friction began six weeks before Ovitz started, during a dinner party at Eisner's house attended by CFO Stephen Bollenbach and operations chief Stanford Litvack.

"We sat down, and Stephen Bollenbach looked right at Michael Ovitz and said, 'This is great for Walt Disney Co., I'm thrilled to be a shareholder, the stock is going up, congratulations, and by the way, I'm not reporting to you. I'm reporting to Michael Eisner,' " Eisner said. "[Ovitz] knew it, but it was so cold and so quick that even I was shocked, and that was only the beginning. Then Sandy said, 'Me too.' "

Eisner said he stood by and let Ovitz hang out to dry because the hiring already had driven a wedge between the close and highly productive relationship between Eisner and Litvack.

"I felt it was one way I could help [Litvack] get over this change and make him happy," Eisner said. "I wished I had handled it better."

Ovitz was not a complete failure, Eisner said. He made some helpful suggestion,s such as noting potential problems with a proposed entrance at Disneyland, something Eisner said spared the company from making a mistake.

Still, getting Ovitz to leave the company was a drawn-out, difficult affair, Eisner said.

One hope had been that Ovitz would voluntarily leave to become an executive at Sony Corp. Instead, he came back with a renewed desire to make things work, Eisner said.

"I was frustrated that he blew the Sony situation; I thought it was monumentally foolish, and he had [the job]," Eisner said. "I was frustrated that he wouldn't listen, that he said things like 'chain himself to the desk' and those types of things about how committed he was."

Added Eisner, "It was unimaginable to me that I was talking to Michael Ovitz about leaving and it was as though I was talking about the weather."