Ovitz, Eisner Can Win and Still Lose

The mudslinging in a Delaware courtroom came to a close Wednesday and neither of the two men at the center of the case -- Michael Eisner and Michael Ovitz -- got away clean.

Eisner and Ovitz, whose long friendship dissolved during their brief partnership at Walt Disney Co., had hoped to use a shareholder lawsuit filed against them and other company directors to prove they were men of integrity and ingenuity.

For Eisner, now in his waning months as Disney’s chief executive, a strong performance could have restored some luster to a legacy tarnished by a 45% no-confidence vote for his reelection to the board last year.

For former talent agent Ovitz, who was fired after 15 months as Disney’s president, the trial offered a chance to rebut volumes of press clippings that he said had turned him into a caricature of a Hollywood power monger, ruining his reputation in an industry to which he wants to return.

But with the close of testimony Wednesday, observers say neither man can claim victory -- at least in the court of public opinion.

As veteran talent manager Bernie Brillstein put it: “It was a no-win, no-win.”

For the last three months, lawyers for the shareholders have tried to prove that Eisner and the company’s board acted improperly in paying a severance to Ovitz estimated at $140 million. They argued that Ovitz should have been dumped without a dime because his conduct amounted to either gross negligence or malfeasance.

The defendants countered that although the much-heralded hiring of Ovitz backfired, there were no legal grounds for denying him his negotiated severance package.

Now the matter rests with the presiding judge, whose ruling is not expected for several months.

In a statement Wednesday, Ovitz said: “I never really viewed the trial as any type of reputational battle. I simply wanted the real facts to come out -- under oath -- and speak for themselves. And I believe they did in this case. Now, I’m looking forward to putting this behind me and moving on. There are a lot of exciting things I still intend to do.”

Eisner’s attorney, Gary Naftalis, said the evidence at the trial simply reaffirmed his client’s “reputation as a CEO who cared deeply about the Disney Co. and whose actions were guided always by a steadfast commitment to serve the best interests of Disney shareholders and to insist that the highest ethical standards be met.”

A decision against the Disney directors would, of course, be damaging to the images and interests of both Eisner and Ovitz. But even a ruling for the defense cannot erase the unflattering portraits of the two executives’ styles and temperaments that emerged during testimony.

Eisner’s failings were especially striking. He had championed his friend’s hiring and, as CEO, had a responsibility to make sure Ovitz’s transition from freewheeling Hollywood agent to corporate president went smoothly.

Instead, Eisner created a messy chain of command that may have doomed his No. 2 executive even before his first day at the office. When two of the company’s top executives -- its chief financial officer and general counsel -- said they did not want to report to the new guy, Eisner didn’t stand up for him.

“There was no clear statement by Eisner to establish a pecking order,” said Patrick McGurn, executive vice president of Institutional Shareholder Services, which advised clients last year to withhold votes for Eisner’s reelection to the board. “He just allowed Ovitz to twist in the wind.”

Charles Elson, a corporate governance specialist at the University of Delaware, called the unusual management arrangement “a body blow” to Ovitz.

“If you tell your underlings that they don’t have to report to the No. 2, you’ve effectively destroyed that person’s authority,” Elson said.

Perhaps most damaging personally for Eisner was his admission that he was not “completely candid” on CNN’s “Larry King Live” when he said there were no problems between him and Ovitz at Disney. Telling the truth, Eisner suggested, may have undermined his efforts to try to unload Ovitz on Sony Corp.

“It’s imperative that anyone speaking for a public company needs to be absolutely candid and forthright with the public and investors,” Elson said. “If one believes that a statement is ill-timed, then it shouldn’t be made.”

Marty Kaplan, a former Disney production executive who is associate dean of USC’s Annenberg School for Communication, said Eisner’s behavior on King’s show spoke to the ethos of the entertainment industry.

“My sense is that Hollywood is made up of people who spend their days trying to get other people to believe things that may or may not be true, including trying to get audiences to see a movie when you know it’s the stinkiest bomb,” Kaplan said. “After a while, your grip on reality is compromised.”

During the trial, Eisner also was forced to confront several rambling memos he had written about Ovitz in which he portrayed his underling as an untrustworthy “psychopath” who lavishly spent company funds.

The plaintiffs said the missives proved that Ovitz could have been denied his rich payout. But on the stand, Eisner said his writings actually were filled with “hyperbole” -- another admission of being less than fully truthful.

For his part, Ovitz did little to win the hearts of his new Disney colleagues, who were well aware of his reputation as Hollywood’s premier predator -- someone willing to strong-arm studios and try to ruin rivals.

At Creative Artists Agency, which Ovitz built into a powerhouse by representing a battery of A-list stars and brokering deals across the corporate landscape, there was no question who was The Man. At Disney, he similarly tried to set himself apart from the rest, only to find that such conduct engendered resentment.

At his talent agency, Ovitz “was treated like royalty,” said Jane Sindell, formerly of CAA. “You were expected to be in lock step with his viewpoint.... It must be a shock to the system to realize that you’re not the master of your own destiny and have to fit into a corporate bureaucracy where things are done in a completely different manner.”

Eisner, during his testimony, recalled when Disney executives toured the company’s Orlando, Fla., theme park on a bus while Ovitz rode in a limousine. (Ovitz’s spokesman says it was a company sedan, not a limo.)

Eisner labeled Ovitz “a little elitist” for the Disney culture, where everyone from the custodian to the CEO is called by his or her first name.

“He was a high-profile, big-shot Hollywood guy,” said former Walt Disney World executive Steve Baker. “It was a bad fit from the beginning.”

In the end, some believe, the biggest thing to be taken away from the Eisner-Ovitz debacle is pretty simple: Be wary of mixing business and friendship.

“The degree of affection they had for each other going in predicted the rancor going out,” said Stuart Fischoff, professor emeritus of media psychology at Cal State Los Angeles. “You don’t really know someone until you live with them.”