What did the Disney case say about directors duties with respect to executive compensation?
The decision of Chancellor William B. Chandler III, in the Delaware Court of Chancery, In Re the Walt Disney Company Derivative Litigation on August 9, 2005, favored defendants who had awarded outgoing CEO Michael Ovitz a severance package worth $140 million, even though Mr. Ovitz had by all counts undistinguished performance. Mr. Ovitz”s pay may have been wrong, but process that led to it was partly right, said the court. The Chandler decision confirms the importance of some very basic steps that every board must take to receive the protections of the business judgment rule. At the same time, continuing controversy over the case also suggests additional steps boards can take. The board made the decision to hire Michael Ovitz. Board members were not unduly influenced by him. “I do not believe that the evidence, considered fairly, demonstrates that Eisner actively took up steps to defeat or short-circuit a decisionmaking process that otherwise would have occurred.” (Disney 136) The com
