In re The Walt Disney Co. Derivative Litigation Rewritten
In re The Walt Disney Co. Derivative Litigation Rewritten, in “Feminist Judgements: Rewritten Corporate Law,” (Kelli Alces Williams, Anne Choike, & Usha R. Rodrigues, eds.) (Cambridge Univ. Press, 2022), Forthcoming
21 Pages Posted: 16 Sep 2022
Date Written: September 15, 2022
In re The Walt Disney Co. Derivative Litigation is notable for upholding the broad latitude courts afford to boards through the business judgment rule. The case addressed a $130 million termination package delivered to former Disney CEO, Michael Ovitz, after fourteen months of underperformance at the company. This rewritten opinion, to be published in “Feminist Judgements: Rewritten Corporate Law,” (Kelli Alces Williams, Anne Choike, & Usha R. Rodrigues, eds.) (Cambridge Univ. Press, forthcoming 2022), follows the style of the Delaware Supreme Court and reaches the same outcome with a different approach. The opinion expounds on the corporate governance practices in use by Disney’s board, explaining how a lack of diversity, inclusion, and creative friction led to bad business decision making. Michael Eisner, serving as Disney’s CEO, failed to engage with all of the board members, let alone all members of the compensation committee, instead leaning on just a few. His strategy stifled thought and discussion among directors, preventing the innovation that can accompany diversity when it is combined with inclusion. Nevertheless, this opinion affirms the Delaware Supreme Court’s 2006 decision because the choices, even if disappointing, did not amount to a violation of fiduciary duties under Delaware law.
In the spirit of the Delaware Supreme Court, however, the opinion also provides best practices and suggestions to foster the engagement and communication requisite to a healthy board and strong corporate governance. The opinion looks to research existing at the time of the original decision, including studies on how even if diversity creates some tension, that tension may well be what leads to innovation, and better business results. Of course, inclusion is what makes diversity sticky and allows diverse teams to unlock their potential—and what was missing on the Disney board. Ultimately, a more inclusive decision-making process, executed by a diverse group of decision-makers, has the potential to provide the informed discussion, questioning, and debate necessary to avoid groupthink, improve business results, and enhance board judgment.
Keywords: corporate law, corporate governance, board of directors, fiduciary duties, management, strategy, inclusion, diversity, feminist, creative friction, delaware law, decision making, organizational change, disney
JEL Classification: K00, K22
Suggested Citation: Suggested Citation