Emerging Issues in Management (Mgmt 440) Disney/Ovitz Case Study Professor Charles H. Smith Summer 2010

Case Study – Walt Disney Co. and Michael Ovitz See Brehm v. Eisner (In re Walt Disney Co. Derivative Litigation), 906 A.2d 27 (Del. 2006) – basically, board of directors has very broad authority to make decisions for corporation due to business judgment rule. This case 37 pages long so only read the summaries and headnotes at the beginning; see next slide for important points.

Case Study – Walt Disney Co. and Michael Ovitz cont. Facts – Walt Disney Co. (“Disney”) hired Ovitz as president for 5 years but Ovitz worked for only 14 months before termination without cause; severance payout = $130 million. Issue – Did Ovitz and Disney board of directors breach their fiduciary duties to the shareholders and commit waste? Result – Delaware courts said “no” to both.

Case Study – Walt Disney Co. and Michael Ovitz cont. Delaware law presumes directors acted properly unless shown otherwise. Even grossly negligent conduct is not a breach of fiduciary duties if conduct done in good faith. Fiduciary must act with “true faithfulness and devotion to the corporation and its shareholders” – conscious misconduct required for breach of fiduciary duties (see next slide).

Case Study – Walt Disney Co. and Michael Ovitz cont. How to show directors’ failure to act in good faith? –Acting with purpose other than that of advancing corporation’s best interests. –Acting with intent to violate applicable positive law. –Intentionally failing to act despite known duty to act (conscious disregard for duty). No waste unless contract so one-sided that no businessperson of ordinary, sound judgment could conclude corporation has received adequate consideration (“rare, unconscionable case”).