Graef Crystal, a compensation expert warned that Ovitz was getting "low risk and high return" but the report was not approved by the whole board or the committee.
Russell, Raymond Watson, Sidney Poitier and Ignacio E. Lozano, Jr. met on 26 September for an hour.
[7] The plaintiffs essentially needed to show that Disney had acted with gross negligence or bad faith, and the Court of Chancery ruled that they had not done so.
Chancellor Chandler came to this conclusion despite a number of problems with the conduct of the defendants: As I will explain in painful detail hereafter, there are many aspects of defendants' conduct that fell significantly short of the best practices of ideal corporate governance... What follows is my judgment on whether each director of The Walt Disney Company fulfilled his or her obligation to act in good faith and with honesty of purpose under the unusual facts of this case.After reviewing what each member of the board of directors and all the relevant executives had done, Court of Chancery ruled that: Chandler was critical of the conduct of many at Disney, including CEO Michael Eisner, who he said had 'enthroned himself as the omnipotent and infallible monarch of his personal Magic Kingdom'.
As points of comparison, Chandler said that in Smith v. Van Gorkom (a case where a company was found liable for breaching fiduciary duties) the sale for $735m of TransUnion was much more significant to the company than Ovitz's hiring here, and TransUnion had absolutely no documentation before it when it considered the merger agreement.
With respect to one argument in particular, that Disney's board failed to exercise due care in approving Ovitz's compensation, the Court reiterated that companies did not have to adhere to "best practices" in all cases: In our view, a helpful approach is to compare what actually happened here to what would have occurred had the committee followed a "best practices" (or "best case") scenario, from a process standpoint.
One variable in that matrix of possibilities would be the cost to Disney of a non-fault termination for each of the five years of the initial term of the OEA.
The compensation committee members derived their information about the potential magnitude of an NFT [non-fault termination] payout from two sources.
It is on this record that the Chancellor found that the compensation committee was informed of the material facts relating to an NFT payout.