Sunday, July 02, 2006

The Knicks Are No Mickey Mouse Organization

Ian Ayres

In an essay published in today's New York Times, John Donohue and I point out the eerie similarities between the rise and fall of Larry Brown and Michael Ovitz. Both were hired with great fanfare, both were fired after about a year. But there is a big difference. Disney paid Ovitz $140 million, while Knicks are refusing to pay Brown $40 million. The payment led to a huge shareholders suit at Disney:

In essence, shareholders sued Disney for not doing to Mr. Ovitz what the
Knicks did to Mr. Brown.

We argue that the Knicks' action may be a harbinger of things to come:

Corporations have felt that they were caught between a rock and a hard place with failed executives. They either have to stick with a manager who isn't working out, or they have to pay him or her an ungodly severance amount. This was the Hobson's choice that Disney's board encountered when it chose to pay Mr. Ovitz $140 million.

But the Knicks' action shows that corporations have a third option. In the end, it may not apply to Mr. Brown if the accusations of misconduct are contrived. But the examples of the Knicks and Disney suggest that corporations should give serious consideration to invoking the for-cause option before they fork over millions to an executive they think has been misbehaving.


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