While this might have seemed a long shot at this juncture, Ovitz insisted he still had a chance. “I’m a very tenacious guy,” he testified, which was, if anything, an understatement. “They weren’t going to stop me. I was going to make this work. I knew if I could get through the middle of December and I made my presentation that he would give me the time that I needed to do it…since we were best friends for all those years I actually expected him to do it. And I thought he had an obligation to the company to take the shot to let me do it because…you can’t decide if someone can do something on a macro basis in 11 months.” Ovitz redoubled his efforts at the company, meeting with department heads, trying to keep the Sony joint venture alive, trying to recruit a new executive for Hollywood Records.
Eisner was dumbfounded that Ovitz was continuing to act as though nothing had happened. On Halloween, he’d met with board member Gary Wilson, Ovitz’s best friend on the board apart from Eisner himself, in an effort to enlist Wilson’s help in getting Ovitz to face reality. He described the failure of the Sony plan, mentioned an aborted effort by George Mitchell to get Ovitz appointed by Clinton as a special trade representative, and finally concluded, “that for the best of the company he would have to be fired. But I couldn’t fire him because he wouldn’t accept being fired,” as Eisner put it.
Over Thanksgiving the Eisners were staying in California rather than going to Vermont. The Ovitzes usually went to Aspen, but with practically no snow in the Rockies that year, they decided to spend Thanksgiving in the Caribbean, on the 170-foot yacht Ovitz owned jointly with Gary Wilson. The boat spent summers in the Mediterranean, winters in the Caribbean, and had a crew of twelve. Although Thanksgiving was Wilson’s allotted time on the boat, at Eisner’s urging he invited Ovitz and his family to share the holiday with him and his wife. Ovitz unburdened himself about his plight at Disney during their five days together on the yacht. Unknown to Ovitz, Wilson reported the conversations by cell phone to Eisner, and Eisner took notes.
“Gary Wilson. 12/1/96,” Eisner’s notes read. “Interesting. Hard to put in summary. In and out of focus. Wanted to talk. Got more focused. Attitude in general equals ‘wounded animal in a corner.’ [illegible] Loyal friend, devastating enemy. Severely wounded. Blames problem on MDE and people around me—Litvack, Dreyer, etc. Feels he can do job has not been given a fair chance—attitude will have dangerous consequences.
“Judy is emotional. Devastated about—feel betrayed—she blames herself—feel she convinced him.
“He was very emotional. Got more lucid.
“Accomplish. He does recognize it will not go. Out of denial. Board meeting started it.
“Gary Wilson judgment [illegible] in two ways he is afraid that he will get screwed and he is embarrassed—a major point—saving face.
“Still came back and wants to stay but will be available to discuss settlement—I must be magnanimous.
“Deal should be sooner rather than later.”
Just when it seemed that Ovitz’s plight couldn’t get worse, Martin Scorsese’s first film under his new Ovitz-brokered deal for Disney blew up into a cause célèbre. Just after Thanksgiving, the Chinese government issued a brief statement warning that Scorsese’s forthcoming film Kundun, about the early years of the Dalai Lama and his flight from Tibet, jeopardized Disney’s business in China. Disney hastily issued a terse statement that it would proceed with the film, a stand that earned Eisner plaudits in Hollywood for standing up for freedom of expression.
In fact, Eisner was furious. He couldn’t have cared less about striking a blow against Tibetan Buddhist oppression. He’d always thought the script for Kundun, written by Melissa Mathison, then Harrison Ford’s wife, was boring, and he’d only agreed to make the $30 million film because Ovitz assured him the Chinese didn’t care and because Ovitz was so eager to get a prestigious director like Scorsese to Disney. Universal had passed on the project, and Disney had paid Universal $10 million when it acquired Kundun and another project in development there.
When Eisner confronted Ovitz with this debacle, Ovitz protested that he had told the Chinese about Kundun, and that none of the top officials objected. He pointed out that there were at least two other films about Tibet in production (including Seven Years in Tibet, starring Brad Pitt), both more overtly anti-Chinese than the Scorsese film. The Chinese protest had come from some lower-ranking bureaucrat outside Ovitz’s circle of influence and wouldn’t amount to much.
By now, Ovitz realized that nothing he said would have any effect. Eisner felt it was just the latest example of how everything Ovitz touched turned into a problem for him. He was especially angry because he had clearly delegated responsibility for international operations to Ovitz. China and Japan were supposed to be Ovitz’s strong suits. Ovitz had high-level contacts in the secretive Chinese leadership, and he’d traveled to China to negotiate an expansion of Disney’s business there, pressing such issues as copyright protection and the possibility of a theme park in Hong Kong. And now this. Eisner had to hire former secretary of state Henry Kissinger to try to mend fences by assuring the Chinese that Disney wouldn’t promote the film aggressively, and that it would be a box-office failure. “It will die a quiet death,” Eisner assured the Chinese.
For Eisner, Kundun was the last straw. Encouraged by Wilson’s cell phone reports that Ovitz was finally facing up to reality and was willing to discuss a settlement, Eisner summoned Ovitz to his office the following week and told him that they had to negotiate a settlement of his contract. Ovitz seemed to agree; he said nothing further about chaining himself to his desk. Eisner reported in a letter to Irwin Russell, “I met with Michael Ovitz today who wants to bring our discussions to a conclusion this week. Wants you and Bob Goldman [Ovitz’s financial adviser] to settle out his contract immediately and sign it by week’s end.” Despite Eisner’s interpretation of the meeting, Ovitz had still not accepted the fact that he was being fired. Although he was deeply depressed and overwrought, he still clung to the notion that, if he could hang on until Christmas, he’d turn things around, even as he authorized Goldman and his lawyers to begin negotiations on his behalf.
Though Eisner kept various board members informed of these developments in his usual sporadic way, neither the board nor any of its committees appears to have ever met to consider how to resolve the Ovitz situation, even though the bylaws provide for the removal of Disney’s president by the board.*
Remarkably, at a December 10 meeting of the Executive Performance Plan Committee, which determined executive bonuses, including Eisner’s and Ovitz’s, the committee voted to give Ovitz a bonus for 1996 of $7.5 million. Irwin Russell argued that Ovitz “had performed diligently according to his particular mode of operation even though we had determined that it had not been effective for the company.” Eisner attended the meeting and raised no objection. Indeed, he’d met with Russell in advance of the meeting, on December 6, and Russell’s notes indicate that Eisner thought Ovitz should get the bonus if he “keeps mouth shut.”
Ovitz seems to have never given much thought to what he would be paid if he were, in fact, fired, in part because in his own mind, he hadn’t accepted that it was inevitable. Still, he was certainly aware that had he taken a job with Sony, or become a trade ambassador, or simply resigned, as Litvack and Eisner had tried so hard to get him to do, he would forfeit what would otherwise be due him under his contract. “I didn’t want to leave and I was prepared to work under my contract,” Ovitz later explained. “I was prepared to do what I bargained for. I expected The Walt Disney Company to live up to their end of our agreement. I left an incredibly lucrative position to take this position. I did not expect them several months into the situation to make me miserable, my life miserable, and my career difficult.”
The key question was whether Disney was firing Ovitz “for cause,” which it was entitled to do without breaching Ovitz’s contract, and in which case it would have owed him nothing, or whether his firing was a so-called nonfault terminati
on, in which case he was due the full amount stipulated by his contract. Eisner was aware of the distinction, and asked Litvack if Ovitz’s firing might be considered for “cause.” As Eisner later testified, “I asked Sandy and everybody else I could find, because I didn’t want to pay the money. I was annoyed, I’m cheap, and I just didn’t want to pay the money. But no matter how many people I asked I could not get anybody to give me anything but an immediate answer that we had no claim on him.” But there’s no indication that Eisner discussed this with the board, other than informally with individual members, or anyone else other than Litvack. Oddly, Disney didn’t seek any formal legal opinion, either from Litvack and other in-house lawyers, or from outside counsel. Litvack later testified that he did discuss this issue with Morton Pierce, Disney’s outside counsel at the Dewey Ballantine firm.
It’s quite possible that if Ovitz were indeed guilty of all the things Eisner suspected him of, that would have constituted “cause” for firing him. Given Eisner’s tortured reading of Katzenberg’s contract to support his contention that Disney owed Katzenberg nothing, it seems highly out of character—astounding, really—that Eisner made such few and feeble attempts to avoid paying Ovitz the full amount Ovitz claimed was due him. At the very least, Disney’s lawyers could have tried to negotiate a settlement for some fraction of the full amount.
Nothing of the sort happened. As the negotiations continued between Irwin Russell, for Disney, and Bob Goldman, for Ovitz, Ovitz and Eisner met again to discuss the situation, and talked about various “face-saving” possibilities, including Ovitz’s suggestions that he remain on the Disney board, and work as a consultant to complete the Sony Records deal. Eisner agreed to Ovitz’s requests. But the next day he changed his mind. “I thought that was stupid, like staying on the board…all these requests came up, which I thought were ridiculous. I was absolutely committed to not giving him one dime more than we were contractually obligated to.”
Both Eisner and Ovitz were in New York the rest of that week, Ovitz for a meeting of the Council on Foreign Relations and to escort Penny Marshall to the premiere of her new film for Disney, The Preacher’s Wife. Henry Kissinger and he were co-hosting a lunch for Roone Arledge, the legendary head of ABC Sports. On December 11, Eisner summoned Ovitz to a late-night meeting at his mother’s apartment in the Pierre hotel. When Ovitz arrived, he showed him a press release announcing his resignation “by mutual consent.”
Confronted in writing with the fact that he was being fired, Ovitz was stunned. Everything had been building to this moment, but—just thirteen days until Christmas, and two days before his birthday—Ovitz still thought he’d have another chance to present his case. The rest of the meeting passed in a blur for Ovitz. “I was on autopilot just fighting for my life,” he later said. Nor did Eisner recall the substance of their discussion that night. He remembered only that he stressed public relations: “Kind of like, let’s say nice things about each other; we will play up the friendship thing.” Ovitz did vividly remember one thing: At the end of the discussion, Eisner said he still wanted to be friends, that he hoped this “wouldn’t affect their personal relationship.” Eisner said that he and Jane were still looking forward to hosting a fiftieth birthday party for Ovitz in Los Angeles just two days later.
Ovitz stared at him, incredulous.
Ovitz left the Pierre at 1:00 A.M and walked the short distance to his New York apartment at Metropolitan Tower, on Fifty-seventh Street. When he got there, a letter had already been hand-delivered to him, confirming the terms of his separation from Disney. It was especially galling that it was signed by Sandy Litvack.
“It blew me away,” Ovitz recalled. “I was just amazed that Litvack sent this letter. It was just like poetic justice that it was he who signed this letter. I had always said to Eisner that if he wanted to do something or say something to me, say it to my face and not to write letters to people and talk to board members and go behind my back and tell people who report to me to report to him and not to do what I say and undermine any little authority that I had…I was torn inside…the fact that I got fired, or whatever you want to call it, the fact that Litvack wanted my job and was very public about it, the fact that Eisner, who I considered my best friend and I trusted, and he betrayed me…the fact of the things he did to me when I left are mind-boggling.”
After a sleepless night, Ovitz flew to Los Angeles, gathered members of his family, and retreated to Aspen. Judy was devastated, worried about her husband’s well-being, her friendship with Jane Eisner shattered. Ovitz spent his fiftieth birthday alone with his family. He didn’t want to see or talk to anyone. He had never felt so humiliated, such a failure.
For the first time in years, the Ovitzes did not join the Eisner family for the Christmas holiday. After New Year’s, Ovitz’s wife and children returned to Los Angeles. Ovitz was too humiliated to face anyone in Hollywood. He stayed in Aspen, alone, for another month. He never set foot in his Disney office again.
*Eisner later qualified that recollection, testifying: “I just can’t remember whether it was at an executive session or I just let each of the directors know…but I know it transpired.” Other directors, including Gold and Roy, had no recollection of any discussion of Ovitz at an executive session.
*Eisner later testified at trial that the board met in executive session on November 25 to discuss firing Ovitz, though there was no vote and no notes were taken.
Eleven
Ovitz’s departure from Disney was front-page news in Los Angeles and New York on December 13, 1996. Eisner issued a statement saying “I will miss Michael’s energy, creativity and leadership at Disney. We have been doing business together while being friends for many years and I know that both our personal and professional relationships will continue.”
Disney made no mention of how much it would cost to settle Ovitz’s contract. Although the terms of Ovitz’s departure would have to be made public eventually in SEC filings, Eisner was under the impression that Ovitz had promised not to disclose them. He was thus irked to see major news accounts reporting that Ovitz would receive $50 million in cash plus options on five million shares then valued at $40 million, for a total of $90 million. (Ovitz actually received $38 million in cash. Depending on how the options were valued, the deal was potentially worth far more than $90 million. The consensus figure was $140 million.)
Beginning with a piece in that Saturday’s New York Times, Eisner was infuriated by the perception that Ovitz himself, as well as sources “close” to him, were spinning the story in Ovitz’s favor. Bernard Weinraub, writing in the Times, said, “Already yesterday, Mr. Ovitz’s associates and even some foes were reshaping his image from that of the Disney president who floundered to that of a man put in an untenable position by Mr. Eisner.”
In a withering attack on Ovitz in a December 16 email to John Dreyer, Disney’s head of PR, Eisner stated his decision to strike back through an exclusive interview with John Huey, of Fortune magazine:
“John, I agree with you I will talk to John Huey and discuss with him an article sometime in the March area. I will talk to the others just to say I am not talking on the record or off the record for a while. I want to see what spin MSO puts on the whole thing. Nobody has got the two main points:
“One, he is a psychopath. Basically he has a character problem, too devious, too untrustworthy and only out for himself. In other words, his problems started and ended with a character problem.
“Two, totally incompetent.
“Nobody has either of these two points correct but let’s just wait and see what’s [sic] happen.”
Not surprisingly, the press felt Eisner had been something less than truthful on the many occasions, including the Larry King show, when he had publicly denied there were any problems between him and Ovitz. The Los Angeles Times’s Claudia Eller was especially miffed. “Is it any wonder people are so cynical about what comes out of the mouths of Hollywood’s most powerful movers and shakers when they have no compunc
tion about intentionally misleading the news media and their shareholders?” She noted that in an interview with the Times in September, Eisner used the word “ ‘ludicrous’ four times to describe rumors of a rift.” Still, director Ray Watson loyally defended Eisner in the article, saying Eisner’s public comments about Ovitz were “the proper thing and I applaud him.”
Eisner steadfastly maintained that Disney wasn’t paying Ovitz one penny more than he was entitled to under his contract, given that Ovitz’s firing was deemed a “nonfault” termination. Yet this put Eisner in an awkward position: If Ovitz was really a liar, a “psychopath,” and unethical, if he had defied orders to meet with the chief financial officer and to take responsibility for Hollywood Records—to name just a few of the charges Eisner leveled against Ovitz to various board members, both verbally and in writing—then why wasn’t Ovitz terminated for cause?
Did Eisner simply rely on Litvack’s claim that there was no basis for firing Ovitz for “cause,” as he testified? Was he influenced by the residual friendship he felt for Ovitz? However understandable in human terms, that should be irrelevant to shareholders.
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