Disney’s directors win big in Delaware Court of Chancery- Opinion available online
DE Chancery Court’s William B. Chandler III ruled yesterday that the Walt Disney company and its board did nothing wrong when they gave former company President Michael Ovtiz a whopping $140 million severance. Shareholders had argued that the Michael Eisner and Disney’s board did not look out for their interests when they hired and fired Ovitz.
If you would like to take a look at the 174 page opinion, you can read it here.
The lessons to be learned?
-§ 145. Indemnification of officers, directors, employees and agents; insurance.
(a) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative…
In other words, it’s possible to limit and or eliminate a director’s and officer’s liability for some mistakes.
It’s kind of like saying (in some cases) that intelligence in not necessarily a prerequisite for the job, as long as you have integrity.
-Don’t want to be tied up in court for years? How’s this for fast:
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Date submitted: April 28, 2005
Date decided: August 09, 2005
And that’s why they come to Delaware folks.
A Delaware company may indemnify its directors, but only to the extent the company is able to cover the costs involved. If Disney did not have multiple billions of dollars to spend, the endemnification might not mean as much. In other words, it is not a get out of jail free card 🙂
Good points Alan.
The responsibility and consequences of directors’ actions don’t simply evaporate, but they can be shifted to the company for which they serve. Furthermore, the statue only allows for the possibility for companies to indemnify its directors; simply being the director of a Delaware corporation does not mean you have been granted that protection de facto.
We live in the shadow of Sarbanes-Oxley, and this kind of indemnification is more important than ever not only to many directors that serve on corporate boards, but also to the companies themselves. After all, you don’t exactly want your directors to be preoccupied with personal risk assessment and management all of the time in lieu of make sound decisions that could affect your organizations overall success. Many corporations take responsibility for their directors in order to attract the best, even if that means they may have to pick up the tab in the future.
Great comment!
I was looking for the ruling in a pdf file everywhere on the web (also in the Chancery’s database). Your site is the only one which has it, thanks.