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Ten Years ago, Michael Eisner hired his close friend Michael Ovitz as the number two man at Disney, to run the Magic Kingdom. A little over a year later, Eisner fired Ovitz and paid him a $140-million severance package.
Major Disney investors were outraged. They filed a lawsuit against corporate directors, asking the court to order a reimbursement of the $140 million. They argued that the directors should not have approved such a payment.
The court ruled that while directors may have made a poor decision–in the eyes of the investors–they should not be held personally liable for the cash. The court said the board members, though they may have been guilty of ineffective corporate governance or of making poor decisions, should not have to pay personally.
While corporate “experts” decry the lack of accountability on the part of the directors, the real accountability lies with Disney’s owner, the shareholders. For many years, Eisner packed the Disney board with friends and associates, and the board was well known to be one of the least accountable boards in corporate America. It is my opinion that investors need to consider such facts before investing.
Yes, the hiring, firing and awarding of a $140 million severance package was a great business blunder. But blunders should not be labeled criminal, nor should punitive actions be taken by those who disagree.
If boards are punished for poor decisions or miscalculations, then they will strike out to cover their tracks. They will avoid high-risk and high-reward choices, fearing they will be called on the carpet if they err in decision making.
Courts should be used to bring justice for malfeasance in the Enron, WorldCom and other corporate criminal actions, but not to punish mistakes or bad judgment. Let the marketplace punish those companies and those who run them. Let investors speak loudly by taking their investments elsewhere.
Steve Marr is the former CEO of the fourth largest import-export firm in the U.S., a company which facilitated international trade for many of the largest companies in America. Currently, Steve consults with with businesses and ministries utilizing ancient Biblical principles for success in today’s marketplace. Click here to contact Steve, or visit his website at www.businessproverbs.com.
