Ovitz Severance ‘Wise Investment,’ Witness Says

Former Walt Disney Co. Director Robert A.M. Stern testified Monday that the company made a “wise investment” when it fired then-President Michael Ovitz in 1996 and paid his hefty severance package to end his 15-month tenure.

Testifying in a Delaware shareholder lawsuit, Stern said Ovitz “created a climate that was counterproductive” at the entertainment company, and Chief Executive Michael Eisner had no choice other than to oust his friend as Disney’s second in command.

“I believe the amount of money the company had to pay Mr. Ovitz amounted to a wise investment, given the destructive” nature of some of his actions at the Burbank entertainment giant, Stern said.

Stern, the head of Yale University’s architecture school, stepped down as a Disney director last year.

Disney investors are claiming in Delaware Chancery Court that Stern and other former and current Disney directors should have denied Ovitz’s cash-and-stock severance, which they value at more than $140 million.

Directors argue that even though Ovitz deserved to be fired, the company was obligated to pay off his contract.

Stern, who owns a New York-based architectural firm that does work on Disney theme parks, said during his 2 1/2 hours on the witness stand that he was enthusiastic when Eisner told him in August 1995 that Ovitz would be joining Disney’s executive ranks.

“I thought it was fantastic,” given Ovitz’s reputation as one of Hollywood’s most powerful figures and his long-standing relationship with Eisner, Stern said.

“But I pointed out to Michael that sometimes good friends don’t work out as good partners.”

By the following year, Stern said, Eisner and Ovitz’s partnership was showing signs of strain. “It was not a perfect marriage,” he said.

Ovitz had a reputation for mistreating lower-level Disney employees and for “spinning stories and presentations” to make himself look good, Stern said.

Once Eisner decided to fire Ovitz, Stern said, Disney General Counsel Sanford M. Litvack assured directors there was no way to fire him without paying the severance.

“He said he looked at it every which way and there was no way to get out of it,” Stern said.

The nonjury trial, overseen by Judge William B. Chandler III, recessed for the holidays. It is expected to resume Jan. 11, when expert witnesses will take the stand.

Disney has directors and officers insurance provided by American International Group Inc. and other companies that might cover a ruling that Eisner and other executives must return Ovitz’s severance payments.