Awful Truth

Last fall, on “Larry King Live,” when asked to respond to rumors that all was not well at the top of the Magic Kingdom, Walt Disney Co. Chairman Michael Eisner and President Michael Ovitz told the world that contrary to Hollywood talk, everything was hunky-dory between them.

As we’ve come to learn, that was an admirable performance, perhaps even worthy of an Emmy. At that very time, in fact, the two executives were privately discussing how bad things had gotten and what there was to do about it.

Is it any wonder people are so cynical about what comes out of the mouths of Hollywood’s most powerful movers and shakers when they have no compunction about intentionally misleading the news media or their shareholders?

It happens all the time.

As Times contributor Patrick Goldstein wrote in this newspaper three years ago: “Here’s the awful truth: In Hollywood, the truth doesn’t count for very much.”

The title of movie producer Lynda Obst’s recently published book is “Hello, He Lied: And Other Truths From the Hollywood Trenches.”

That said, the practiced art of lying is certainly not limited to Hollywood executives, though it makes for high drama in Tinseltown.

This week, Eisner made his first public admission that he had made “a mistake” hiring his then “best friend” as his second-in-command at the multibillion-dollar entertainment giant.

At Disney’s annual shareholders meeting Tuesday in Anaheim, where he was repeatedly attacked about the rich severance deal Ovitz received after a failed 14-month stint, as well as his own lucrative compensation package, Eisner conceded his personal regrets about making what he referred to as an error in judgment.

“I’d like to think this mistake thing doesn’t apply to me,” Eisner told the estimated crowd of 12,000 at the Pond arena. “And, at home I make that clear to my children. But in the office, it happens, as in the Michael Ovitz situation. Not good. A mistake. Won’t happen again.”

Later in the hours-long meeting, when asked once again to explain the huge payout to Ovitz, Eisner said: “It’s behind us. Be annoyed. Be angry. God knows I am. But there’s nothing we can do about it.”

Eisner and other Disney executives have been boasting this week about how quickly the company acted once the decision to fire Ovitz was made.

Quickly?

Disney director Ray Watson confirms that, as reported in the Wall Street Journal this week, Eisner advised him and a few other board members of his misgivings about Ovitz just a few months after hiring the former talent agent in August 1995.

As Eisner himself said in the Journal article: “I made it clear I had made a mistake, way before it became clear to the public and way before I acted. I knew that it wasn’t going to work and I did not want to leave a legacy of my mistake.”

Some folks are praising Eisner for being so bold as to admit he made a mistake when few executives in Hollywood, particularly of his stature, ever do so.

Yet this “admirable corporate behavior,” as an industry analyst said in one published report, is from the same man who spent the better part of a year vehemently denying to the news media, executives inside his own company and the public, that there was any serious management problem at Disney.

In an interview with The Times in September, Eisner used the word “ludicrous” four times to describe rumors of a rift between the two executives, blaming jealous competitors as the source of such speculation.

“It’s ludicrous. I’ve been in a lot of management in a lot of companies. I’m sitting here at a quarter to 10 in the morning on a treadmill feeling extremely comfortable about the trajectory of the company going forward.”

Eisner subsequently debunked the rumors wherever they surfaced. “I am very satisfied with his performance,” he told Newsday.

“From my point of view, he’s a talented, strong and effective executive. . . . Performance is the key. In my opinion we are performing so spectacularly and it is under the management of Michael Eisner and Michael Ovitz,” he told the New York Times.

In a Newsweek article he referred to the whole brouhaha as “infinitesimally unimportant.”

It now appears that Eisner was deceiving the news media, his shareholders, analysts and others at the time, believing early on, as he now indicates, that the Ovitz situation was not resolvable.

Some say Eisner was between a rock and a hard place. After all, what could he say?

How about a good old-fashioned “no comment” for starters?

Disney corporate spokesman John Dreyer, who also repeatedly denied rumors about Ovitz when reporters inquired, says: “Even though he [Eisner] realized this after a couple of months, you always make an ongoing assessment of people in new jobs and give them every chance to get used to an organization and every opportunity to make it work.”

Until a decision was made that Ovitz was going to leave the company, adds Dreyer, “it would have been inappropriate to say things that would undermine his opportunity to prove himself in the job.” Dreyer says Eisner’s obligation was “to inform people after a decision was made, which he did.”

Watson agrees that Eisner “did the proper thing and I applaud him. It was the right thing to do at that stage. He had uncertainty. The worse thing he could do was say he was uncertain. . . . It’s harmful to a company. It was a thought pattern he shared with a very few people at the time.”

Nonetheless, Eisner’s decision to deny what was really going on raises questions about a chief executive’s responsibilities to shareholders of a public company.

Federal securities laws require publicly held companies to “disclose all material information,” according to John Heine, deputy director of public affairs for the Securities Exchange Commission in Washington. That information, he explains, “has to be true, complete and not misleading.”

Joe Grundfest, a law professor at Stanford University and a former SEC commissioner, says the real issue is “materiality--is this information material to the shareholders and to the stock market?” Grundfest says he could “easily imagine that Disney would argue that it’s not material information,” given it’s such a huge, multinational, multibillion corporation involved in so many businesses.

But, there’s an argument to be made that the issue of management stability at the top of the biggest media companies in the world might in fact be pertinent. (Not to mention the companies financial obligations amounting to $90 million after Ovitz’s departure.)

Professor Henry Hu, who teaches securities law at the University of Texas, doubts such laws apply to Eisner’s denial of problems.

However, Hu points out that aside from questions of legality and common sense, “there are pure market incentives--market pressures--to play it straight.”

He suggests that “it’s really not a good idea and not good public policy, whether or not it’s material, to lie to the press, securities analysts, or shareholders, because you have to have credibility.

“I’m not saying Eisner lied,” Hu says. “But, credibility and a reputation for being upfront is even more important if you’re talking about a company that is embodied in one person.” Such is the case with Disney and Eisner.

He Said...Uh..He Said

Until Michael Ovitz’s well-publicized departure from Disney in December, Chairman Michael Eisner and Ovitz continually professed that things were swell between hem. It’s not apparetn that they made such statements long after they knew there were serious jproblems with Ovitz’s role at Disney.