In January 1996, Walt Disney Co. executives took a field trip to the company's theme park in Orlando. In keeping with tradition, the Disney brass, including chief executive Michael D. Eisner, rode around the park together in buses.
But, according to testimony Eisner gave Tuesday in a shareholder lawsuit being heard here, buses were not good enough for then-newly hired Disney President Michael S. Ovitz.
"We'd all take a bus and he'd ride in his limo," Eisner said during his second day on the witness stand. "The perception was that Michael Ovitz was a little elitist. . . . It was a bad vibe. Let's put it that way."
But Eisner also had kind words for Ovitz during the testimony, arguing that, while Ovitz's style and ideas were wrong for Disney, nothing he did during his 14-month tenure as president was so egregious as to warrant termination for cause.
Eisner's finely balanced testimony illustrates the strange alliance this case has created. While bitterly estranged after a 25-year friendship, Eisner and Ovitz are on the same side in this small Delaware courthouse.
Shareholders argue that Eisner and other Disney directors failed in their fiduciary duty to properly deliberate the merits of Ovitz's hiring and then allowed him to leave the company with a severance package valued at the time at $140 million. They say Ovitz was a disaster as president, abusing his expense account and making poor decisions, and that he should have been terminated for cause. Such a termination could have mitigated much of Ovitz's severance package, the shareholders say.
Eisner, while highly critical of Ovitz at times during his testimony, rejected that notion on Tuesday. He said that while Ovitz's hiring was viewed at the time as a masterstroke by the media and Wall Street, it became clear in just a few months that Ovitz's frenetic personality and swashbuckling business style would never suit the staid, fiscally conservative Disney.
"I had sympathy for him, and I still do," Eisner said. "It was a very difficult situation for him. . . . He wanted to make big deals, and I pushed him to focus on the operations of the company." Eisner added, "He didn't want to do the mundane work of operating the company."
Eisner also said he could have done a better job giving Ovitz a stronger hand with other top company executives. Ovitz testified earlier in the trial that just after agreeing to take the job at Disney he went to a meeting at Eisner's home. At the meeting, Ovitz said, Disney's chief financial officer and top lawyer welcomed him by declaring that they would never report to him.
Eisner corroborated the story, though he said Ovitz knew before the meeting that the two executives had refused to report to him. "Mike knew it, but it was so cold and so quick that even I was, like, shocked," Eisner said.
Eisner said Ovitz's problems with other executives grew after he began to develop a reputation for egotism. "A lot of people smelled blood and didn't make things easier for him."
Eisner on Tuesday also sought to rebut the argument that he failed to inform the full board of his plans to hire Ovitz, or to give them the details of Ovitz's contract. Under direct questioning from his attorney Gary P. Naftalis, Eisner listed calls he made from his vacation home in Colorado to Disney directors just before Ovitz's hiring was announced. He also said members of the compensation committee received full details about the nature of Ovitz's contract.
"Nobody was more discussed in the history of the Walt Disney Co. than Michael Ovitz," Eisner said.
Eisner also said he drove a hard bargain with Ovitz, declining to give him the title of co-chief executive and demanding that he accept 2 million fewer stock options than he wanted and no signing bonus. And Eisner sought to rebut the claim that he failed to share with other directors deep misgivings he had about Ovitz at the time of his hiring. "I thought it was a great idea," he said of bringing in Ovitz.
When it became clear that Ovitz would have to go, Eisner said, he did everything he could to figure out a way not to give his former friend the full severance package. But he ultimately concluded that the company was legally bound to pay.
"I wanted to honor our commitments, but I didn't like it," Eisner said. "Having to pay him was one of those things in business that you hate and seems completely unfair, but, on the other hand, that's why people make contracts."
The plaintiffs are expected to begin cross-examining Eisner on Wednesday. The case, in its fifth week, is expected to continue into at least early December.