My Life and Times

December 20, 2004
After the Ovitz Trial: Ushering in a New Era of Humility in HollywoodBy LAURA M. HOLSON
OS ANGELES, Dec. 19 - When Michael D. Eisner, the chief executive of the Walt Disney Company, showed up in Georgetown, Del., last month to testify in the trial over the hiring and firing of Michael S. Ovitz, his former No. 2, he parked his car a block from the courthouse and walked through the town square with only his lawyer by his side. When Mr. Eisner's testimony ended after a grueling five days, he hopped into a rented car and drove himself to a nearby airport.
It was particularly un-Hollywood-like behavior, given that Mr. Eisner is as rich, powerful and demanding as any entertainment executive today. His low-key demeanor seemed to reflect a new era of humility in Hollywood, in sharp contrast to the tale of corporate excess and betrayal, dominated by outsize personalities, playing inside the courthouse.
The Disney trial is in recess until Jan. 11, when testimony from numerous expert witnesses will be heard. Whether Disney wins or loses, the criticism of its management and board has already had an impact both inside and outside the company.
"Michael Eisner is not going to get off scot-free no matter what happens," said Samuel L. Hayes III, a professor of finance at Harvard Business School. "The financial community has already exacted its discipline, notwithstanding what the legal niceties are."
For many academics and analysts, the trial over the $140 million severance package of Mr. Ovitz, the former Hollywood agent who was hired as Disney's president in 1995 and fired 14 months later, signals the end of an era in which celebrity executives managed their companies as personal fiefs. Shareholders, burned by the 2000-02 downturn, now demand more predictable performance and accountability.
Influential yet hardly flamboyant executives are emerging as the new power elite in Hollywood. They include Peter Chernin, the chief operating officer of the News Corporation; Jeffrey L. Bewkes, the chairman of Time Warner's entertainment and networks group; and Tom Freston and Les Moonves, the co-presidents of Viacom.
"Today's media executives grew up as part of much larger companies and they have learned they have to work within the corporate scheme of things," said Tom Wolzien, a media analyst at Sanford C. Bernstein & Company. "What this trial has shown is that even the bosses have a boss to answer to - in this case the board, and ultimately the shareholders."
Patrick McGurn, special counsel at Institutional Shareholder Services, a group that monitors corporate boards, said he believed that Chancellor William B. Chandler III, who is presiding over the case, will rule that the severance package paid to Mr. Ovitz was fair. But that does not mean he will not have a critical thing or two to say.
"He'll turn it into a primer for future boards, saying, 'Don't let this happen to you,' " Mr. McGurn predicted.
Disney executives declined to comment, noting that the company is still in litigation. But Disney seems already to have gotten the message. The company had long been criticized for having a weak board, one that corporate governance specialists said had too many personal ties to Mr. Eisner and was unwilling to stand up to him.
Reveta Bowers, who ran a school attended by Mr. Eisner's children, was a board member until last year. So was Robert A. M. Stern, a prominent architect who built Mr. Eisner's Aspen retreat and designed Disney's theme parks.
During the trial it was disclosed that, in 1996, Mr. Eisner even took the unusual step of asking directors to nominate his wife, Jane, to the board in the event of his untimely death or in case of his death or disability. They agreed.
Mr. Eisner said at the trial that he sought directors who understood Disney's culture, even if they had no corporate experience. "It didn't go over too well in the governance community," he conceded. He said it was appropriate to place his wife on the board after he died because he was one of Disney's largest shareholders.
"I don't think any chief executive would dare ask for that today," said John Coffee, a law professor at Columbia University. "At least they wouldn't put it writing."
The company has sought to shore up its board, asking experienced corporate executives to serve as independent directors. Disney recently named to its board Fred H. Langhammer, the former chief executive of Estée Lauder Companies, who has no Disney ties.
And the board has made formal practices of other processes, including hiring an independent search firm to find Mr. Eisner's successor and holding more meetings without management present.
Already, the board's newfound independence is showing. Earlier this year, after a shareholder rebellion led by two former directors - including Roy E. Disney, the nephew of the company's founder - Mr. Eisner was stripped of his chairmanship by his fellow directors. This summer, some directors told Mr. Eisner that he could not remain in any capacity once his contract expired in 2006.
In meetings with some board members, Mr. Eisner had explored the idea of staying on as chairman, according to two people with knowledge of the conversations. "I think the board must have learned by now," Mr. Coffee said, "that you can't defer to the chief executive without causing lots and lots of unpleasantness."
While Hollywood will always be dominated by relationships, gone are the days when colleagues embraced each other as life partners and brothers, as Mr. Ovitz said in court about his relationship with Mr. Eisner.
"Can you imagine anyone at G.E. today saying that about anyone else at G.E.?" Mr. Wolzien asked, referring to General Electric, the conglomerate that owns both NBC and Universal Studios.
Industry analysts say the hiring of a dominant personality like Mr. Eisner or Mr. Ovitz is far less likely to occur these days, largely because media companies themselves have become huge conglomerates through acquisitions. Today's chief executives do not have time for the day-to-day operational minutiae of a media conglomerate. Instead, they must behave more like diplomats who can steer the executives who manage each division.
As for Mr. Ovitz, his lack of success at Disney, several trial witnesses said, was a result of his inability to adapt to Disney's more collegial culture. Mr. Eisner, for example, said that theme-park workers complained after Mr. Ovitz hired a private limousine to drive him around Walt Disney World in Orlando at a 1996 corporate retreat instead of taking a bus like other executives. And at the 1996 opening of the Disney store on Fifth Avenue in Manhattan, Mr. Eisner said, Mr. Ovitz complained that he was not asked to cut the ribbon.
Mogul-like behavior, no matter how trivial, is even less tolerated today as investors burned by corporate scandals and falling stock prices demand accountability.
"We're seeing executives begin to show quiet leadership, a 'we're all in this together' attitude," Mr. McGurn said. "It's not what we used to see."
Particularly galling, Mr. McGurn said, was Mr. Eisner's testimony regarding an interview by Larry King in 1996 on his CNN talk show, when Mr. Eisner told Mr. King that he would hire Mr. Ovitz again if given the opportunity. In truth, Mr. Eisner was then asking Mr. Ovitz to try to get a job at the Sony Corporation.
"That's something there is zero tolerance for today," Mr. McGurn said. "To be presented with a question and you point-blank lie, that's a kiss of death." (During the trial, Mr. Eisner said he regretted his remarks. He was hoping that Sony would buy out Mr. Ovitz's contract.)
True, some media companies are still run by their older, brash founders, including Rupert Murdoch, 73, who is chief executive of the News Corporation, and Viacom, which has been controlled by Sumner M. Redstone, 82, since 1987.
But the younger generation of leaders beneath them have kept their egos in check - so far.
The News Corporation recently extended the contract for Mr. Chernin, who makes $17 million a year, although it is not likely to become chief executive; Mr. Murdoch is expected to name one of his children instead. Mr. Freston, who turned MTV into a juggernaut for Viacom, eschews the limelight as well.
Mr. Bewkes, who oversaw the ascendancy of HBO, earned respect in the late 1990's by quietly turning what was then a pay cable station running mostly recycled movies into a gold mine of original programming as well. He has gained more authority in recent years.
Just how or when Mr. Eisner and Mr. Ovitz can regain the credibility they lost as a result of their fractured relationship is anyone's guess.
James Ellis, a lawyer for Mr. Ovitz, said he believed that his client would regain his footing despite his fall from grace at Disney. "He's been dogged by litigation for almost the last 10 years, with allegations of dishonesty or incompetence," Mr. Ellis said. "The trial has been his first opportunity to tell his side of the story."
Mr. Eisner also says he believes he can recover his reputation. One of the poignant moments in the trial came when a private memo he wrote in 1996 was introduced. "Every character, every executive is fallible," Mr. Eisner wrote to Tony Schwartz, the co-author of Mr. Eisner's autobiography, "Work in Progress."
"Admitting a mistake wisely, taking the flak, fixing the problem; these are the things that bring about salvation," he wrote.
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