UPFRONT Board balm – or just plain barmy?

A collective directorial sigh of relief was probably expelled around American boardrooms last month after court ruling that the US$140 million severance pay to Walt Disney’s erstwhile president Michael Ovitz didn’t represent violation of the board’s duties to shareholders. positive ruling could have had direct impact on Disney directors’ pockets if their liability insurance proved inadequate.
Still, the fact that shareholders were sufficiently riled to take the board to court should prompt directors to think longer and harder – both about appointing senior executive more on the basis of who he knew rather than what he knew and also (just 14 months down the track) compounding the original mistake with massive final payslip.
The stratospheric sums involved look particularly barmy in the Kiwi corporate landscape and the judge’s finding that, despite lapses of judgement, the board errors didn’t amount to breaches of duties to shareholders seems positively benign. But pundits in the US suggest the case could at least cause drop in the bottom-line for executive payouts as boards opt for more conservative approach.

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