DisneyWar

by James B. Stewart

  Eisner was also continuing to talk to author Tony Schwartz, who was keeping a virtual diary of the critical period during which Eisner agreed to buy Cap Cities/ABC and was recruiting Ovitz. On several occasions he asked Schwartz what he thought, and Schwartz warned him that hiring Ovitz would be a mistake.

  Later that same week, Iger arrived to brief Eisner on his new acquisition. He stayed at the Eisners’ house, and was impressed by the Robert Stern architecture. The next day, Iger took Eisner through all the divisions and the key executives who ran them, from the owned and operated television stations, the radio stations, cable networks, and newspapers to the lucrative employment contracts with Peter Jennings, Diane Sawyer, and Barbara Walters. No wonder news didn’t make more money, Eisner observed. Iger was mainly worried about prime time, where ABC’s lead was slipping. Ironically, it was the Spielberg series “ER” that Eisner could barely bring himself to watch on the flight from Aspen a year earlier that had put NBC in contention, along with the hit comedy “Friends.” It turned out that Jack Welch had been right to back Bob Wright as head of NBC. But ESPN results were better than expected. Still, Eisner seemed surprised by the complexity and enormity of the Cap Cities enterprise. “How can I do this alone?” he mused at one point. Afterward they took a brief hike, and then Ovitz and Judy joined the Eisners and Iger for dinner. Eisner mentioned that he and Ovitz were going hiking together the next day.

  Watching the body language at the table between the two old friends, it flickered across Iger’s mind that Eisner might hire Ovitz as president. He knew Ovitz—CAA and ABC had done many talent deals over the years—but he had little sense as to how Ovitz would function as a corporate executive.

  On some level Iger impressed Eisner, even if Tom Murphy hadn’t felt he was ready to succeed him as chief executive. He later wrote that he found him “intelligent, thoughtful and unusually open,” and that he was relieved to have “a strong leader at the top of ABC.” But that’s not what he told board members and Ovitz, who as Iger had accurately surmised, was already in intense talks to become Disney’s president.

  The Ovitz negotiations, under way ever since Eisner briefed him on the impending ABC deal, had gone into overdrive the same day Iger arrived, after Barry Diller called Eisner to warn him that rumors were rife in Hollywood that Ovitz was negotiating to come to Disney. Then Ovitz himself called. “It’s all over L.A. that you and I are talking.” Ovitz’s colleagues at CAA, having just absorbed the near-loss of Ovitz to Universal, were in revolt. Ovitz needed a decision, one way or the other, by the end of the weekend so he could make an announcement Monday morning.

  Iger was also correct that his own assessment of ABC had underscored the need for Eisner to hire someone. And Eisner began calling board members to sell them on the idea of hiring Ovitz, even as he and Ovitz hammered out details of the arrangement. None of the board members really knew much about Ovitz, other than what they had read in the press, but his credentials seemed impeccable. The overriding impression was that he was an effective businessman with vast creative contacts, “the most powerful man in Hollywood.” And in any event, Eisner stressed that he’d known him intimately for nearly thirty years.

  During some of these calls (to Gold, for example), Eisner disparaged Iger, characterizing him as “soft,” too “good-looking,” and lacking creative skills, which necessitated the hiring of Ovitz. To Ovitz he suggested he might even dismiss Iger, and replace him with Dennis Hightower, who was already running the Disney television division. But Ovitz urged restraint, saying it would be a “disaster” to replace Iger so soon and that he deserved a few years to prove himself. In any event, if Ovitz was going to run ABC as part of his responsibilities, he needed Iger to help make the transition.

  Ovitz and Eisner spent the next twenty-four hours in nearly constant contact, either on the phone, at Eisner’s house, or on a long hike. Eisner later stressed that Ovitz was giving up an extremely lucrative position running CAA, so his remuneration had to be correspondingly generous, not so much in salary ($1 million a year) but in discretionary bonus and stock option provisions, which provided for an eventual five million shares. The proposed deal provided that Ovitz’s total compensation could not exceed 75 percent of Eisner’s—significant because Eisner was also in the process of negotiating a new employment agreement. Pegging Eisner’s pay to Ovitz’s necessarily meant that the more Ovitz made, the more Eisner could be paid.

  As usual, the sticking point was just what Eisner meant by “partner.” During their hike, Eisner offered him the title of president as well as a board seat but insisted on retaining for himself the titles of chairman and chief executive. Unlike Frank Wells, who had reported directly to the board, Ovitz would report to Eisner. He also refused to give Ovitz the title of chief operating officer, holding that back as something he could earn.

  Titles aside, Ovitz suggested that they just split the company’s divisions, and Eisner would run half of them, Ovitz the others, for a year. They’d stay in constant contact with each other but not interfere. Then they could assess the results. Eisner was noncommittal, and never said explicitly that Ovitz would be running a division, even ABC. Still, Eisner promised that “each of our operating divisions, including ABC, would report to him as president,” which made Ovitz the de facto chief operating officer, whether or not he held the title. Eisner felt sure that however Ovitz wanted to interpret the notion of “partner,” he would be a clear number two.

  Ovitz later indicated that he understood that he’d be reporting to Eisner, and that Eisner would be the “senior” partner. At the same time, “I must say that at that stage of my life, with the success that I had, I don’t think I looked at myself as junior or senior. I looked at myself as reporting to Michael Eisner,” Ovitz later testified. And he stressed that in the end, it was all pretty much a matter of trust in his friendship with Eisner. At one point Ovitz asked, “How can this work when you put me on top of people that have been there for a long time?”

  “You and I will be the bosses,” Eisner replied, according to Ovitz. “They report to us. And we will make it work.”

  “I relied on his word,” Ovitz continued. “I relied on everything he said to me. I was less concerned about the specifics and the documentation issues because I trusted him…. I trusted Michael Eisner totally. And I believe that he trusted me.”

  And so, as Eisner and Ovitz and their wives reached Independence Pass, Eisner and Ovitz shook hands on their new “partnership.”

  Irwin Russell, who continued to represent Disney, and Bob Goldman, Ovitz’s longtime financial manager, hammered out details of the agreement. This in itself was peculiar, since ordinarily Sandy Litvack, as Disney’s general counsel, would negotiate on behalf of Disney. This may have reflected Eisner’s perception that Litvack couldn’t be trusted to negotiate a deal with someone coming in above him, but it also represented at least the appearance of a conflict of interest, since Russell was also negotiating Eisner’s compensation. In any event, there was no denying that for such a complicated deal, it was rapidly negotiated and put together in a single weekend. Even though Eisner stressed how much Ovitz was giving up at CAA to come to Disney, there’s no evidence that Ovitz actually disclosed his compensation as an agent, or that either Russell or Eisner ever knew how much he made. (Ovitz was actually earning about $20 million a year, he later testified.) Nor did they find out how much Ovitz was going to be paid had he made a deal to go to Universal, other than a vague idea that it amounted to between $250 million and $350 million.

  Although Disney’s corporate bylaws require that the board of directors hire the president, neither the compensation committee nor the full Disney board reviewed or approved the agreement that weekend. Sidney Poitier, one of the four members of the compensation committee, was awakened in the middle of the night on his yacht off the coast of Sardinia by Russell, who called to tell him Ovitz was being hired. Later, Russell couldn’t recall whether he even mentioned “any numbers.” Ignacio Lozano, the other co
mmittee member, wasn’t contacted until the following Monday.

  On Saturday night, Eisner hosted a dinner for Ovitz and Judy to bring them together with Sid Bass, who was also at his house in Aspen. Eisner was eager to win Bass’s approval, since Bass was still implacably opposed to hiring Ovitz as president, and it was highly unusual for Eisner to go against his wishes. Specifically, Bass was determined to “emphasize the importance of integrity,” given his reservations about Ovitz’s veracity. Ovitz realized that this was an audition, and, at least in his view, he and Bass seemed to hit it off. Ovitz looked forward to developing a closer relationship with Disney’s biggest shareholder; he stressed the opportunities in the rapidly evolving communications technology, a field Bass was investing heavily in, and also the opportunities for Disney to expand its international presence and revenues. Curiously, given Bass’s concerns, neither Ovitz nor Eisner recalled the subject of ethics even being mentioned. The mood was ebullient at the dinner, with Jane, in particular, expressing her appreciation to Ovitz and Judy that Ovitz would be helping to take the burden off her husband.

  At 1:30 P.M. the next day, after a final conference call with the lawyers and negotiators, Ovitz asked if he could have ten more minutes to think about it. He still didn’t quite understand how the partnership Eisner kept talking about was going to work. Nor was he blind to Eisner’s faults. He’d been intimately involved with the Katzenberg saga. He’d listened to Eisner criticize Frank Wells. He’d seen Eisner turn against Larry Gordon, against Diller. But Ovitz thought he was different. He called Eisner back.

  “Judy and I have talked it through,” he said. “I’m putting myself in your hands.”

  As soon as Eisner had hung up the phone, he called Tony Schwartz. “I think I just made the biggest mistake of my career,” Eisner said. “Can I take it back?”

  “If you can, do it,” Schwartz replied.

  Nine

  Disney’s press release to announce Ovitz’s appointment as president was scheduled for Monday morning, August 14, 1995. The day before, Joe Roth flew to Aspen from his vacation on Martha’s Vineyard, and then flew with Ovitz on the Disney plane back to Los Angeles. Eisner wanted them to spend some time together, hoping that Roth would become more comfortable with the new arrangement in which he would be reporting to Ovitz. Roth was cool to Ovitz’s appointment; he, too, had considered himself a contender for the job and didn’t like the idea of reporting to his former agent, someone who had worked for him. He warned Eisner that their styles were different, that Ovitz was a “packager,” while Roth preferred to develop materially internally.

  On the flight, Ovitz tried to assuage Roth’s concerns, “I wanted him to be clear,” Ovitz later testified, “because I knew he would be fearful of me getting involved in the movie business. And I [didn’t] blame him, because I had very strong ties to the filmmakers, having been their agent. And I assured him that I wasn’t going to attempt to get in his way of making movies; that I was there to assist him in any way that I could and that I would make myself available as a resource to him and to try to allay his concerns about my joining the company.”

  On Sunday evening, Eisner asked Ovitz to stop by his house in Bel Air to go over the press release and to discuss how they’d handle the next morning’s announcement. Ovitz arrived in good spirits, energized by his new deal and the resolution of his future career direction. Who knew what the future held? If all went well, he himself might be Disney’s chief executive in a few years, reaching the pinnacle of an already remarkable Hollywood career.

  But the minute he walked into Eisner’s dining room, where he and his wife had shared so many pleasant meals with Michael and Jane, he knew something was wrong. What had obviously been an animated conversation came to a halt. Eisner was seated on the left side of the table. Standing at one end of the room was John Dreyer, the head of public relations. Ovitz had expected to see him, since they were reviewing the press release. But seated across the table from Eisner were Sandy Litvack and Steve Bollenbach, the chief financial officer.

  Bollenbach glared at Ovitz and said, “Welcome to the company. I just want you to know that I’ll never work for you.”

  Then Litvack chimed in: “Me too. I’m not going to report to you.”

  Ovitz was stunned. He waited for Eisner to come to his defense. “I had no idea that those statements would be made…they were made aggressively and in a way that was, in my opinion, disrespectful,” Ovitz later testified. But in an ensuing awkward silence, Eisner said nothing. Ovitz, proclaimed the most powerful man in Hollywood, felt helpless.

  Eisner had delayed telling Bollenbach about Ovitz’s hiring until that afternoon, adding, “Don’t worry, you continue to report to me.” Bollenbach’s contract provided that if he reported to anyone but Eisner, he’d be granted an additional 150,000 Disney shares. In any event, Eisner later testified that he had never intended to have the chief financial officer report to Ovitz, even though the CFO had reported to Wells. “I wanted to keep a rein on the finances of the company until I had confidence that Mr. Ovitz had adapted to a public company,” he testified. And he said he was “kind of impressed” at the way Bollenbach confronted Ovitz that night.*

  Litvack was another story. Eisner was surprised that Litvack followed Bollenbach’s lead. “I kind of like avoided dealing with that in my own mind,” Eisner later said about whether Litvack and the legal department would report to him or Ovitz. “I knew it would be difficult and when it finally had to be addressed, which was over that weekend, when Mr. Litvack followed Mr. Bollenbach’s lead in saying that he didn’t intend to report to Mr. Ovitz, I let that happen.”

  Ovitz knew immediately that he was facing his first major crisis at Disney. Though not sophisticated about matters of corporate management, he knew that to be stripped of legal and financial responsibilities meant he was not really a chief operating officer, and that it left him dangerously bereft of any management authority. But it wasn’t really so much the lines of authority or management implications. In the instant that Eisner failed to put down the rebellion, Ovitz saw with perfect clarity that his best friend had betrayed him.

  Ovitz’s mind was reeling, “I was wildly confused…I was floored when Michael didn’t say to them you have to do this,” he later testified. But he did his best to maintain his composure and adopt a conciliatory approach. He made some vain efforts to persuade Bollenbach and Litvack to change their minds, trying to reassure them that he’d be supportive if they reported to him. “I didn’t want to walk in and all of a sudden have two guys quit. So I tried to dance around it and make it all work,” as he later put it. Eisner simply listened. It was obvious they weren’t going to budge without pressure from Eisner, so Ovitz suggested he and Eisner leave the room. They went upstairs for a private talk in the bedroom of one of Eisner’s sons.

  “You did a really good job with that,” Eisner told him.

  But Ovitz was nearly distraught. He asked Eisner for guidance. “I was looking for his advice and guidance and his support and backing, which I thought would be critical in my first moment at the company,” Ovitz recalled. He asked, begged, Eisner to return to the dining room and back him.

  “I can’t do that,” Eisner said. “Look, that’s the way it is. If you don’t want to do the deal, just tell me so right now.”

  It was a stunning suggestion: that Ovitz quit even before the deal was announced. At the same time, Eisner had to have known it wasn’t a real option. Ovitz couldn’t afford to have another deal collapse after being humiliated in the MCA/Universal negotiations. He’d arranged to sell his interest in CAA. There was no way he could go back now. As he later put it, “I had no choice. I could not walk away from the Walt Disney Company. I had given up my business. I had been put in a position that I had made a deal that I had agreed to with Mr. Eisner. I shook his hand. I intended to keep my end of the bargain. I expected him to. I trusted him…I’m a team player. I wasn’t going to let this guy down. I was incredibly disappointed. I didn’t know wh
at to do.”

  Ovitz said he’d try to make the arrangement work. “Let’s just ride this right now,” Eisner said. “And see if you can do a little more work on it. If you can’t do it, we will figure out how to do this over the year.”

  It was clear when Ovitz and Eisner returned to the dining room that Ovitz had capitulated, put in the humiliating position of trying to win the approval of Litvack and Bollenbach. “I did everything I could as a salesperson to try to sell these guys into an amiable, decent relationship…. I didn’t want to get Michael into trouble and I didn’t want to upset them. Frankly, I had no idea how to handle this. I was going totally by the seat of my pants.” They went over the press release that had been drafted to state that Litvack and Bollenbach would report to Eisner. “Ovitz, who will be nominated to the board of directors, will assume his new duties October 1,” the release read. “He will be responsible for three operating divisions of the company…. His leadership abilities will augment those of Sandy Litvack, our chief of corporate operations, and Steve Bollenbach, our chief financial officer, who were so instrumental in making the Capital Cities/ABC merger. Both will continue to report to me.”

  When Ovitz got home that night, he looked stricken. “What’s the matter?” Judy asked.

  “I just made the biggest mistake of my career,” Ovitz said, echoing Eisner’s own words to Tony Schwartz. He explained what had just happened.

  “We’ll do the best we can do,” she said. “You can make it work.”

  Ovitz called his lawyer, Ron Olson, to report on the disastrous evening and to see if Eisner had already breached their agreement. They concluded that Ovitz had no choice but to go forward. He’d built Hollywood’s most powerful agency from nothing, largely through sheer determination and hard work. He would not, and could not, fail at Disney.