Mr. Eisner for the Defense

Published June 28, 2005

By C. W. Oberleitner

While making the rounds of media outlets to promote his new book, camp, has Michael Eisner been laying the ground work for a "business judgment rule" defense in the August 10 trial before Delaware Chief Chancery Court Judge William Chandler III of the lawsuit brought by former Walt Disney Company directors Roy E. Disney and Stanley P. Gold?

For the past several weeks, outgoing Walt Disney Company CEO and author Michael D. Eisner has been giving a series of interviews to various members of the media in an effort to promote the sale of his latest book, camp. The slim, 182-page volume of remembrances and observations about his experiences at and with Vermont's Camp Keewaydin isn't the only thing the 63-year-old former camp counselor turned media mogul has been talking to the press about.

After listening to what Eisner had to say during a June 13 appearance on PBS's Charlie Rose talk show, Disney Company observers have suggested that in addition to plugging sales of his book, Eisner is also laying the groundwork for his defense against a lawsuit brought by former directors Roy Disney and Stanley Gold.

[There is a link to an MP3 file of the broadcast at the end of this column.—Editor]

The Walt Disney Company, like the majority of Fortune 500 and half a million other American corporations, is incorporated in the state of Delaware. Corporations often prefer to incorporate in Delaware because of the state's long-standing reputation for "flexible corporate laws" and "highly respected" Court of Chancery, which hears cases like that being brought by Disney and Gold.

The Delaware Court of Chancery is well known in civil litigation circles for providing corporate executives and board members wide latitude under what is known as the "business judgment rule." In other words, even in a post-Enron world, when shareholders believe the folks they hired to mind the store are deliberately, but not criminally, squandering the company's assets seek redress in the Delaware courts, they often face a fairly high burden of proof.

"You almost have to go in with a smoking gun or memo in your hands to prevail," an industry analyst familiar with shareholder lawsuits said.

Say it With Me

During the fifty-minute Charlie Rose interview, which more closely resembled a conversation between two old friends than it did a newsmaker interview, Eisner made a point of telling the show's namesake host, Charlie Rose, how, during his time at the helm of the Disney Company, the company had not taken a "write-off."

"What do you think camp would have taught Roy Disney or Stanley Gold," Rose asked after eighteen minutes of discussing Eisner's book.

"Your show is not long enough," Eisner replied. Then, after a few moments talking about some of the Disney Company's various achievements over the past 21 years, he went on to say,

"We're the only company, as long as you're going to make me talk about some non-camp things, we are the only company that hasn't taken a write-off. We haven't taken a write-off for programming, for sports, for radio, for AOL. We're the only company that hasn't taken a write-off."

"Sumner (Redstone Chairman of Viacom) took a big write-off for radio," Rose interjected.

"Every company," Eisner continued, "every single company but ours. And, many companies have been doing, you know, having problems in serious areas. We've had none of that."

A few minutes later during a discussion about how he handled the Disney Company's relationship with Miramax co-founders Harvey and Bob Weinstein, Eisner again brought up the subject of write-offs. "We didn't want to be one of those companies that had big write-offs" Eisner said, defending his decisions to frequently say no to projects proposed by the Weinsteins that were, in his opinion, too costly.

Continuing, while defending his decision to pass on a request from Harvey Weinstein for additional funding to make Peter Jackson's Lord of the Rings trilogy, Eisner again said his decision was informed by his desire to have Disney avoid write-offs.

"It's not what you don't do that counts, it's what you do do. And I wasn't looking to be one of my associates that has write-offs. I was criticized for not buying radio. People who bought radio had $22 billion in write-offs.

All told, depending on how you tally it up, the Disney chief invoked the no write-off mantra seven or eight times during the second third of his interview with Rose.

Interestingly enough, in his 2004 letter to stockholders, Eisner, who is known for his chatty, conversational style of writing, offered many of the same examples of the Disney Company's successes to shareholders as he did to Rose during their conversation. In that letter, and during his remarks to shareholders at the company's annual meeting, however, he never once mentioned or in any way spoke of write-offs.

Eisner's newfound interest in write-offs might be explained, in part, by the lawsuit being brought against him and certain members of the Disney Company board by Roy Disney and Stanley Gold. In their compliant (in paragraph 1 of page eight), which seeks to overturn this year's election of Disney directors, Messer's Disney and Gold charge that Eisner and Disney Company President Robert Iger knew,

1) a plan authored by the Company's CFO to write down the Fox Family Channel assets by some $2 Billion and save the Company and its shareholders $400 Million in taxes, was kept from the Board…

Eisner, by repeatedly extolling how, in his judgment and that of his "team," the Disney Company never took any write-offs could be attempting to cast these allegations as simply just another case of discretionary business judgment and nothing more.

Disney and Gold, on the other hand, are almost certain to assert that Eisner and Iger's action was a deliberate and gross act violating their fiduciary duty and responsibility to Disney's shareholders and not simply a case of poor business judgment.

Not everyone agrees that what Eisner is doing could be seen as preparing his defense. An industry analyst, who asked not to be named, with ties to both the Walt Disney Company and Roy Disney and Stanley Gold thought just the opposite.

As I see it, failure to have not taken a write-down (write-off) in the past works against you, not for you. It means, for example:

Losses were deliberately booked incorrectly.
Losses were hidden from the stockholders, auditors and possibly the board.
It establishes a pattern of deceit.
The board was ignorant… and therefore was not capable of good governance.

So no, I do not expect this, a lack of write-downs, to be the company's or Eisner's defense.

You Say Potato…

During his appearance on the Charlie Rose program, Eisner was careful to always use the expression "write-off." In their complaint, Disney and Gold use the term "write-down" as did the analyst contacted for this story (quoted above).

An entertainment industry executive who serves as an advisor and contributes to o-meon.com under the pseudonym Dixon Ticonderoga says, "There's absolutely no difference between the two terms."

He added, "The term write-off is sometimes used when you are closing down a division or a company like Viacom's Infinity Broadcasting write-off. But, essentially both terms mean exactly the same thing."

Courtroom Manner

Eisner was humorously self-deprecating throughout his time with Rose. Just as he had done during the company's raucous 2003 shareholders meeting, where a 45% NO confidence vote cost him the chairmanship of the company, Eisner remained calm and facile even as he demonstrated a prosecutor's skill for painting his opponents in unflatteringly prejudicial terms not likely to make it past any judge.

Speaking to Eisner about the way in which his successor Robert Iger was chosen, Charlie Rose said, "One of the lawsuits you have is that the two dissident stock holders and (former) board of director members (Roy Disney and Stanley Gold) didn't like the search committee, the way that was handled either."

"Well that's, insane," said Eisner in a soft-spoken empathetic tone of voice. He paused, let the statement hang in the air for a moment and then, smiling, quietly continued, "Excuse me, 'cause that's not a legal term, is it?"

Perhaps Eisner's whole appearance on the Charlie Rose program can best be summed up by a tongue-twisted misstatement he made in the opening minutes of the show. Still speaking about his new book camp, Eisner was attempting to tell Rose and the audience what he felt were the book's metaphors.

"Help the other fellow. Be a good winner and a fair looser," the soon-to-retire Disney CEO said, and then corrected himself. "Ah, be a fair winner and a good looser. See, I sometimes get that backwards." Laughing he went on to admonish his host to "don't ask, don't go there."

Referenced Sites

Audible.com Charlie Rose: Michael Eisner, June 13, 2005 (Fee $4.95)

this business of show

Outgoing Walt Disney Company CEO Michael Eisner.

Delaware Court of Chancery