(Q I510CKFDDIO.COWFHDIUEVEI1I Brehm v. Eisner 746 A.2d 244 (Del. 2000) On October 1, 1995, Michael Eisner, the then CEO and chairman of Disney, hired Michael Ovitz as Disney's president. Mr. Ovitz was a longtime friend of Mr. Eis- ner. Mr. Ovitz was also an important talent broker in Hollywood. Although he lacked experience managing a diversied public company, other companies with entertainment operations had been interested in hiring him for high-level executive positions. Mr. Ovitz's employment agreement was unilaterally negotiated by Eisner and approved by the board. Since the hiring, there had been shareholder uprisings and director battles that resulted in a shift in the board structure. Eisner had recommended an extraordinarily lucrative contract for Ovitz, with a base salary of $1 million per year, a discretionary bonus, and two sets of stock options (the \"A" options and the "B" options) that collectively would enable Ovitz to purchase 5 million shares of Disney common stock. Disney needed a strong second in command because Mr. Eisner's health, due to major heart sur- gery, was in question, and there really was no succes- sion plan. Mr. Eisner also had a rugged history when it came to working with important or well-known subordinate executives who wanted to position them- selves to succeed him. Over the previous ve years, Disney executives Jeffrey Kauenberg. Richard Frank. and Stephen Bollenbach had all left after short tenures under Eisner. Following a tumultuous year that enjoyed intense media coverage about legendary battles between the two, Mr. Ovitz and Mr. Eisner negotiated Mr. Ovitz's departure on December 11, 1996. Mr. Ovitz was given a \"Non-Fault Termination" that carried $38,338,230]? as well as the option to purchase 3 million Disney shares under the terms of his employment agreement. The shareholders (plaintiffs) led suit against the directors for their failure to adequately consider the Kind of a Mickey-Mouse Judgment Call Ovitz contract initially, for not considering the issues surrounding that hiring as well as the employment package itself, and for committing waste in giving Ovitz what amounted to a $140 million severance package (when the value of the options were included). The Court of Chancery dismissed the suit and the shareholders appealed. JUDICIAL OPINION VEASEY, ChiefJustice This is potentially a very troubling case on the merits. On the one hand, it appears from the Complaint that: (a) the compensation and termination payout for Ovitz were exceedingly lucrative, if not luxurious, compared to Ovitz' value to the Company; and (b) the processes of the boards of directors in dealing with the approval and ter- mination of the Ovitz Employment [this is a close case]. This is a case about whether there should be personal liability of the directors of a Delaware cor- poration to the corporation for lack of due care in the decision-making process and for waste of corporate assets. This case is not about the failure of the directors to establish and carry out ideal corporate governance practices. All good corporate governance practices include compliance with statutory law and case law establishing duciary duties. But the law of corporate duciary duties and remedies for violation of those duties are distinct from the aspirational goals of ideal corporate governance practices. Aspirational ideals of good corporate governance practices for boards of directors that go beyond the minimal legal require- ments of the corporation law are highly desirable. often tend to benet stockholders, sometimes reduce litigation and can usually help directors avoid liability. But they are not required by the corporation law and do not dene standards of liability. The facts in the Complaint (disregarding conclu- sory allegations) show that Ovitz' performance as CONTINUED Chapter 17 Governance and Structure: Forms of Doing Business president was disappointing at best. that Eisner admit- ted it had been a mistake to hire him, that Ovitz lacked commitment to the Company, that he performed ser- vices for his old company, and that he negotiated for other jobs (some very lucrative) while being required under the contract to devote his full time and energy to Disney. All this shows is that the Board had arguable grounds to re Ovitz for cause. But what is alleged is only an argumentperhaps a good onethat Ovitz' conduct constituted gross negligence or malfeasance. The Complaint contends that the Board committed waste by agreeing to the very lucrative payout to Ovitz under the non-fault termination provision because it had no obligation to him, thus taking the Board's deci- sion outside the protection of the business judgment rule. Construed most favorably to plaintiffs, the Com- plaint contends that, by reason of the Board's available arguments of resignation and good cause, it had the leverage to negotiate Ovitz down to a more reason- able payout than that guaranteed by his Employment Agreement. But the Complaint fails on its face to meet the waste test because it does not allege with particu- larity facts tending to show that no reasonable business person would have made the decision that the Board made under these circumstances. The Board made a business decision to grant Ovitz a Non-Fault Termination. Plaintiffs may disagree with the Board's judgment as to how this matter should have been handled. But where, as here, there is no reasonable doubt as to the disinterest of or absence of 617 fraud by the Board, mere disagreement cannot serve as grounds for imposing liability based on alleged breaches of duciary duty and waste. There is no alle- gation that the Board did not consider the pertinent issues surrounding Ovitz's termination. Plaintiffs' sole argument appears to be that they do not agree with the course of action taken by the Board regarding Ovitz's separation from Disney. This will not sufce to create a reasonable doubt that the Board's decision to grant Ovitz a Non-Fault Termination was the product of an exercise of business judgment. One can understand why Disney stockholders would be upset with such an extraordinarily lucra- tive compensation agreement and termination payout awarded a company president who served for only a little over a year and who underperformed to the extent alleged. That said, there is a very largethough not insurmountableburden on stockholders who believe they should pursue the remedy of a derivative suit instead of selling their stock or seeking to reform or oust these directors from ofce. Affirmed. CASE QUESTIONS 1. What must the shareholders prove to recover? 2. What does the court say is the relationship between good corporate governance, liability, and business judgment? 3. What alternatives to litigation do shareholders have