Larry Ribstein, University of Illinois College of Law:

"The Disney trial on the hiring and firing of Ovitz continued yesterday with Eisner's direct testimony. As previewed here, Eisner will have to draw a fine line between justifying hiring Ovitz, and justifying firing him so soon after, without cause. Eisner's direct testimony draws a complex picture of a man (Ovitz) who was trying hard but just didn't fit.

All of this not only bears on the negligence of the board in going along with Eisner's decisions, but provides insight into what a trial would have been like on a for-cause termination, if Eisner and the board had gone that route. In other words, maybe it wasn't so dumb to avoid the trial and embarrassment and choose the no-cause firing.

And even if the hiring and firing were dumb, there's no board liability unless the conduct can be crammed into the intentional misconduct or other exception to the exculpatory clause under Section 102(b)(7) of the Delaware corporation law that Disney had in its charter.

Maybe it wouldn't have been so bad to avoid this messy trial of the Disney board, which has surely consumed vast sums in lawyer's fees, diversion of officer time (days on the stand and preparing to testify by the CEO, rather than attending to corporate affairs), besmirching the company's reputation and brand, etc. By the time the trial and appeals are over, the damages — probably not more than the 140 million plus interest the corporation paid to fire Ovitz — may look like chicken feed. And even then the corporation must hope that it's all coming from the insurance company and not coming back through the corporation in the form of indemnification.

So why, you might ask, did the corporation sue? Answer — it wasn't really the "corporation," but rather a single shareholder who is suing "derivatively" on behalf of the corporation. One wonders if the question had been put to the shareholders collectively if they would have gone along.

One might argue that this is not the point. We must set an example for future executives and boards to jump through the appropriate hoops in their decision-making. So the shareholder plaintiff here is a sort of cop, and the coffers and reputation Disney are being sacrificed to make the whole corporate governance system work.

Or a cynic might suggest that the whole system has been set up for the benefit of lawyers. But you would not get such cynicism from this blog." [November 17, 2004; Ideoblog has the post]