Ovitz Defends Lavish Gifts

Michael Ovitz today said he lavished gifts on people during his short tenure as Walt Disney Co. president because it was needed to nurture executives and improved the company’s frayed relations with talent.

In his fifth day of testimony in Delaware Chancery Court, Ovitz said he often gave Disney theme park tickets, company merchandise and videos to influential people inside and outside the company to generate goodwill, stroke talent and keep top top-level executives happy. Among the gifts he gave to employees, he said, was a watch to current Disney President Robert Iger.

Ovitz, who said he kept Disney items in his briefcase and in his car, testified that when the company’s chief lawyer said to stop giving gifts to employees, he consulted Chief Executive Michael Eisner for permission.

Ovtiz was responding to questions about his spending and gift-giving contained in an auditor’s report commissioned by Disney.

The report has been cited by shareholders to bolster their argument that Ovitz engaged in lavish and questionable spending, which would justify denying him a big severance package when he was fired. A professor retained by the shareholders who reviewed the report concluded that Ovitz routinely violated the company’s spending and gift policy guidelines, which he has denied.

Ovitz was fired in 1996 after 15 months on the job, walking away with a cash-and-stock severance package shareholder lawyers value at $140 million. Plaintiff lawyers contend Disney directors rubber-stamped Eisner’s decision to hire and fire his former best friend. Disney directors say they acted properly and were contractually obligated to pay Ovitz because he didn’t commit acts of gross negligence or malfeasance.

Also today, Ovitz testified that he took care to protect himself from early termination and that doing so was “standard operating procedure” in the entertainment industry.

That desire, he said, was heightened by the fact that he was leaving behind the cash-rich talent agency he co-founded, Creative Artists Agency, which he said was “taking off like a rocket ship.”

“I was giving up a lot to take this position,” Ovitz said. “Protecting the downside -that’s drummed in your head from the time you’re a young executive in the entertainment business.”

Under his employment agreement, Ovitz received $1 million in base salary as well as in 5 million stock options, of which 3 million would be vested immediately if he was terminated without cause. Ovitz ultimately reaped $109 million from the cash and stock options he took with him when he left.

Ovitz is expected to conclude his testimony this afternoon. He is expected to be followed by Irwin Russell, a Disney director and member of its compensation committee during Ovitz’s tenure.