On August 9, 2005, Chancellor William B. Chandler III, in the Delaware Court of Chancery, issued a decision in the case of In re Walt Disney Co. Derivative Litigation, a case that awaited resolution for nearly a decade. The decision favored the Disney corporate directors, who were defending against allegations of breaches of fiduciary duty in connection with the hiring of Michael Ovitz as president of Disney in 1995, and Ovitz's non-fault termination in 1996 that entitled Ovitz to a severance payment worth $140 million. While the court's decision found that each of the directors "fulfilled his or her obligation to act in good faith and with honesty of purpose," the court also observed there were "many aspects of [the directors'] conduct that fell significantly short of the best practices of ideal corporate governance." 1
Although the directors won the lawsuit, the decision criticizes many aspects of the Disney board's process. The court's opinion is less about the rules themselves than about the expectations of the board and how those expectations have changed over the ten years since Ovitz's hiring and termination. Ultimately, the Disney board did enough to avoid civil liability, but not enough to avoid the time, energy, cost and reputational damage of the litigation.
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