Small Business Reading Room

Wednesday, August 27, 2003

Disney, and the Limitation of Director's Liability

The State of Delaware Chancery Court is one of the main reasons corporations chose Delaware as their corporate home. Recently they addressed an issue that is near and dear to every corporate directors' heart - the limitation of directors' liability for using what is called "business judgment" and the fiduciary duty a director owes to the corporation.

The case at hand involves the Walt Disney Company and the hiring and firing of Mr. Michael Ovitz as President of "Disney". Mr. Ovitz and the CEO of "Disney", Mr. Eisner had been friends for a long time. It is alleged in this action that Mr. Eisner hired Mr. Ovitz without ANY consideration by the Compensation Committee of the Board of Directors. Mr. Eisner then had Disney pay Mr. Ovitz an amount alleged to be over $140 Million Dollars for one years poor performance.

Delaware corporation laws are flexible, but this case tests how far you can go before they are broken. Chancellor Chandler clearly addresses this issue in his decision.

Some consideration of the subject at hand may have saved the directors and the company a lot of trouble.

The decision is somewhat dry, but the material is very rich. See the decision at

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