Why did Eisner hire Ovitz?

Why did Eisner hire Ovitz?

Why did Eisner hire Ovitz?

Dubious and far-fetched ideas.
Aug. 16 2004 5:01 PM

Deposed

The strange hiring and firing of Michael Ovitz.

Dueling Mikes
Dueling Mikes

If there can be an opera called Nixon in China, then surely there should be one called Ovitz at Disney. The saga certainly has all the hubris and betrayal and dashed ambitions one could wish for.

Instead of an opera, we have lengthy depositions from both players, Michael Ovitz and Michael Eisner, who fell out spectacularly in 1996 after Ovitz's brief and unhappy tenure as Eisner's No. 2 man at Disney. These documents exist as part of a lawsuit currently pending in a Delaware court. Filed in 1997 by shareholders understandably upset about Disney's costly hiring and firing of Ovitz, this litigation has withstood a number of challenges from the Disney board. It's also yielded some strange fruit as present and former Disney brass has been forced to undergo lengthy interrogations. The trial is set for October.

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The depositions were taken last year and made public this spring. At that time, a few newspapers reported some juicy tidbits, like Ovitz's claim that he kept an unhappy Tim Allen from walking off the hit show Home Improvement by giving him a dinner party and a Roy Lichtenstein print. But for some reason the depositions have hardly been mined—and they make tantalizing summer reading for those who want a peek into the minds of moguls. Take it from someone who's written a book on Disney: These massive documents include the most detailed account of these two outsized personalities and their strange interlude together.

Ovitz's deposition achieves the impossible: It makes you feel sorry for him. Paired with Eisner's, it paints a picture of Hollywood "friendship" that might make one flee into the loving arms of Sammy Glick. But what the depositions don't quite do is unravel the mystery at the center of the drama: Why on earth did Eisner hire Ovitz to be his No. 2 man in the first place? Was Eisner so seriously deluded about a man whom he had known for years as to believe that he really could transform from an imperious, chilly super-agent to a successful executive in a publicly held company? Or did Eisner—consciously or not—simply seize a chance to bring the erstwhile most powerful man in Hollywood down a peg?

The depositions suggest the latter, though establishing intent is nearly impossible. Still, it's a question that remains relevant as Eisner, all these years later, hasn't moved any closer to installing a potential successor at Disney. It would seem that was never his priority.

The need for a successor was the ostensible reason Eisner hired Ovitz in 1995. Disney's No. 2 man, president and chief operating officer Frank Wells, had been killed in a helicopter crash more than a year earlier. As the litigation reveals, the job was still vacant months later when board member Ray Watson sent Eisner a memo on the subject of corporate governance. "What I'm doing now looks crazy, no president, no CFO, no treasurer," Eisner conceded in a written reply. Should he die, Eisner suggested, the board ought to approach either Ovitz or Barry Diller. He leaned toward Ovitz, he said, "because he is a hard worker, a good family man and motivated, maybe too motivated and somewhat untested." But then again, he sometimes favored Diller, who was "completely the opposite …. smarter, much more ethical."

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There was no chance that Diller was going to work for Eisner or anyone else. So Eisner went with the candidate whom he considered to be untested, less smart, and much less ethical.

After he was hired, the question of Ovtiz's ethics (or lack thereof) apparently arose early and often. According to the court papers, Eisner confided a concern to Sid Bass, then Disney's majority shareholder, that Ovitz might have been less than truthful with his former partner in the agency business, Ron Meyer. According to Bass' account, Ovitz had told Meyer he was flying on a Gulfstream jet belonging to a producer (not named, but it's said to be Sydney Pollack) who insisted that he use it. The story was that Meyer had unknowingly been paying part of the plane's costs—without being able to use the plane himself. (Whether the story is in fact true remains unclear.)

It hardly seems surprising that one line of questioning focused on Ovitz's expenses. The litigation suggests Ovitz's tendency to spend was a problem from the start. According to a brief filed last month, Disney had Pricewaterhouse look into the subject after Ovitz's departure. The firm prepared a draft report that said Ovitz spent about $4.8 million during his brief time at Disney and only $690,000 of that amount was in compliance with Disney's spending guidelines. The report was neither finalized nor acted upon, according to the brief.

Ovitz said that before he was formally elected to the Disney board, he charged the company $90,000 for a star-studded party he threw at his house. "When I gave a party like this at CAA they would cost a minimum of $200,000," he said. "There is probably no one in the city of Los Angeles that could have drawn the kind of people we did to that party and do it for $90,000." But Ovitz said Disney didn't fully reimburse him for the "bargain-basement" party, prompting the question from the shareholders' lawyer, "At CAA, you would have been fully reimbursed for the party?"

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"One hundred and ten percent," Ovitz answered.

In addition, before he had even been officially hired, Ovitz started work on a lavish redesign of his capacious new office at Disney. The multimillion-dollar project was to become a sore point with Eisner. It's hard to imagine anything that would interest Ovitz more than such a visible symbol of power, but Ovitz claims he didn't pay much attention to the renovation. "I was working 24/7 at the company and, frankly, I think it just all ran away from me," he said. "I didn't know what they were doing." (In the same session Ovitz noted that he "had built an I.M. Pei building [that housed CAA] and was involved in every single inch of it.")

The depositions amplify what was obvious from the start: In terms of temperament and experience, Ovitz could not have been more ill-suited to the job. He had no idea what it meant to act as a director of a publicly held company or how to function within the confines of one. Asked in his deposition if he understood that he had a legal "duty of care" as Disney board member, Ovitz replied, "I'm sorry, I don't really understand that. I would understand that if it was at a hospital."

Before he came to Disney, Ovitz's legend rested partly on the key role he played in brokering Sony's and Matsushita's costly purchases of two entertainment companies (Columbia and Universal, respectively). So in defense of his performance during his short tenure at Disney, Ovitz cited the usefulness of his contacts in Asia. "I had the mayor of Shanghai to my home for dinner because I have the most definitive collection of Ming Chinese furniture in the United States of America," he boasted. "He … still corresponds with me." Ovitz said he set up a possible deal for Disney to buy half of Sony's music business but was rebuffed by Eisner. Ovitz also acknowledged that he contributed to an embarrassing public relations fiasco: He was responsible for bringing the Martin Scorsese film Kundun, about the Dalai Lama, to Disney, and he admitted that he was surprised when the Chinese government objected to the film. (The episode was a sticky one for Disney, hoping to break into the Chinese market.)

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Yet although Ovtiz may have been ill-suited for the job, the court documents also vividly demonstrate that Eisner never gave him a chance. For example: Having been assured, by Ovitz's account, that he and Eisner would be partners, Eisner undercut Ovitz's authority by allowing one executive after another to opt out of reporting to him even before he started the job.

In a mere matter of months, Ovitz set to work on an escape plan: getting a job running Sony's entertainment operations. Eisner said he sent Ovitz a "schmoozie" note permitting him to negotiate for the Sony job.

But Ovitz was on his guard. He distrusted Eisner's apparent encouragement to pursue the idea. Ovitz had a bitter relationship with Sandy Litvack, then vice chairman of Disney and consigliere to Eisner. "I did know one thing," Ovitz said in his deposition. "That if Eisner told me to go meet with Sony … Litvack would say that I breached my [employment] agreement." Ovitz got Eisner to put his approval in writing. Eisner named his terms: Sony not only had to pay off Disney's contractual obligations to Ovitz but offer some kind of strategic deal to make Disney and Eisner look good. (This was Plan A. In his deposition, Eisner said that board member Tom Murphy suggested another tack: getting Ovitz named deputy trade ambassador in the Clinton administration.) Ovitz flew off to Japan, drank a fine Bordeaux with the top Sony brass, but came away without a deal.

Eisner's deposition reveals that he was horrified when Ovitz vowed to recommit to his job. Litvack paid Ovitz a rare visit in his office and told him that Eisner wanted him out. But Ovitz simply wouldn't go. (That may have given Eisner some ideas on how to handle unhappy shareholders—he didn't budge after more than 45 percent voted for his ouster at this year's annual meeting in March.) At one point, Eisner said, Ovitz even vowed to chain himself to his desk.

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Whatever friendship Eisner and Ovitz had once enjoyed had clearly frayed. The nature of that friendship is a major focal point of the litigation. This is because the shareholders' case benefits if it can be established that Eisner was doing favors for his pal. Naturally Eisner minimized the relationship in his deposition. Asked how he became friends with Ovitz, Eisner replied, "We were—well …. you have to define 'friends.' " Ovitz "was deemed by me to be an effective agent," he continued. The attorney for the shareholders tried again.

"Did you ever develop a social or personal relationship with Mr. Ovitz?"

"In the business sense, yes," Eisner replied. Asked to explain, Eisner said, "He was not a personal friend. … He was a seller of his products and I was aware that he was a seller of his products."

In his deposition Ovitz didn't play down his friendship with Eisner, though often it seems that he had a strange way of manifesting his affection. He described an episode that occurred in 1984, for instance, just after Eisner was abruptly fired from Paramount. When he paid a visit to Eisner at home, Ovitz said, Eisner tried to make a reservation for that same night at Morton's but was turned away. "And he turned to me very sadly and said, 'This just shows you what this community is like. I'm out of Paramount three days and I can't even get a table,' " Ovitz remembered. Ovitz called Morton's and immediately booked a table in his own name. This was a bonding moment, according to Ovitz. He said it made Eisner recognize "how tenuous situations are" and "how great it would be" if Ovitz joined the team that was, at the time, seeking to take the reins at Disney. But at that time, Ovitz said, he was launching his own company. He wasn't interested.

Ovitz also made much of his attendance at Eisner's bedside when Eisner had emergency bypass surgery in 1994. Eisner's recollection is different. "He came to my hospital room once. That's all," he said. Questioned further, Eisner acknowledged that his wife told him that Ovitz also spent some time outside his room. The lawyer tried yet again. "He did turn up at your hospital, correct?" he asked.

"Yeah. It was very nice of him," Eisner answered.

"That was friendly, was it not?"

"Well, he wasn't there for other reasons, yeah. There were a lot of people that came."

"Who else visited your hospital bed?"

"I don't know. … My kids."

If Eisner didn't think much of Ovitz's assistance during this crisis, he certainly knew that Ovitz did. As he pushed Ovitz toward the exit at Disney, Eisner sent a note that read, "You still are the only one who came to my hospital bed—and I do remember."

In his deposition, Eisner said the remark wasn't exactly true. Asked whether it was at least sincere, Eisner replied that he was simply focused on his goal of getting rid of Ovitz. "Sincere or insincere is really not the applicable question," he said. "The question is could it work?"

After a fashion, it did. Ovitz finally unchained himself from his desk and was paid more than $120 million to go away—just one reason the shareholders are suing. In papers filed recently in connection with the litigation, Ovitz said if Disney hadn't paid him off, he would have sued claiming that he was fraudulently induced to take the job in the first place. Reading the depositions, it doesn't seem such a far-fetched claim.