Practical Steps for Directors to Consider After Disney

Originally published October 3, 2005

By Brian E. Pastuszenski, Ettore A. Santucci and Christine S. Chung

Overview

On August 9, 2005, after a 37-day trial, the Delaware Chancery Court issued an important decision in the eight-year-old shareholder derivative lawsuit against the board of directors of The Walt Disney Company. That lawsuit had challenged Disney’s hiring and later no-fault termination of one-time Hollywood power broker Michael Ovitz. The principal take-aways from this decision include the following:

• The court’s 174-page written opinion does not toughen the standards under Delaware law by which corporate directors are judged, as some feared it might.

• To the contrary, the court’s opinion reaffirms the bedrock principle of Delaware law that corporate directors who make business decisions on the basis of reasonably adequate information will be protected from liability if they believe in good faith that those decisions are in the company’s and shareholders’ best