Random Thoughts – Randocity!

Should Kathleen Kennedy be fired from Disney?

Posted in botch, business, movies by commorancy on July 4, 2020

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I’ve seen many, many YouTubers commenting on this very topic. In fact, this topic has had so many commentary videos, it’s probably consuming at least 10% of YouTube’s traffic. Just take a look for yourself. Anyway, because this topic is so widely being discussed, let me take the time to write an article here that describes most likely why she hasn’t yet been fired.

Contracts and Obligations

The biggest elephant in the room is also the most obvious, contractual obligations. It’s clear that most YouTubers really don’t understand the business of hiring executives. Executive leaders are always hired under contract. Contracts require both parties to fulfill their obligations as listed within the contract. It’s how employment contracts work.

However, there’s a snag here. Disney didn’t hire Kathleen Kennedy directly. Ms. Kennedy was already an employee of LucasFilm when Disney acquired the LucasFilm property… and this is the snag.

LucasFilm hired Kathleen Kennedy before the purchase took place. This meant that Kathleen was brought on board to Disney as an existing executive of LucasFilm. Why is this important?

Two Contracts

There are actually two contracts at play here with regards to Kathleen’s employment under LucasFilm.

  • The 2012 $4 billion George Lucas and Disney buyout contract
  • Kathleen Kennedy’s own employment contract with LucasFilm

In fact, it’s important to understand that George likely put Kathleen in charge of LucasFilm for the expressed intent of keeping the property sane after Disney purchased it. With that goal in mind, it’s very likely that LucasFilm hired Kathleen into a very long (and open ended) employment contract. What that means is that it is likely Kathleen’s choice whether the contract continues. As long as terms are written into the contract that allow this, Kathleen can remain at LucasFilm possibly for as long as she wishes.

The second side of this is the purchase contract. If George was smart enough to hire Kathleen for a very long stay at LucasFilm under Disney, then he likely also included provisions for her to stay employed for a specified period of time within the purchase contract also.

To do this, he likely wrote in a poison pill rider… probably written into both Kathleen’s employment contract and into the purchase agreement.

Putting this all together

With two contracts reinforcing each other, that means that should one or the other be breached, both contracts then fail to meet their obligations… which means that both contracts are breached and then outs for the contracts apply.

For the purchase contract, that could mean that the LucasFilm property (and any new work under it) reverts to ownership by George. This is a pretty big poison pill rider. I wouldn’t put this one past George. Not only would he get to walk away with $4 billion from Disney, he could also walk away with LucasFilm also. I’m pretty sure Disney wouldn’t find that poison pill attractive.

With Ms. Kennedy’s contract breached, Disney would likely have to pay her out a hefty golden parachute. A golden parachute rider requires the employer to pay out a huge sum of money upon failure to live up to contractual obligations. Because it’s very possible that both contracts are legally bound together, this means Disney is being held over a barrel with Kathleen Kennedy.

Not only might LucasFilm return to ownership under George, Kathleen may also get a huge payout (perhaps millions of dollars) if Disney fires her. It’s a very tough poison pill, but one I could easily see George requiring.

In other words, Disney can’t fire her. Should Disney fire her, both contracts dissolve and then penalties from both contracts apply against Disney.

Legal Obligations

Because contracts are very specific, should Kathleen personally breach the terms of her LucasFilm employment contract, then Disney may have cause to fire her.

Unfortunately, George probably wrote extremely loose and favorable terms for Kathleen and extremely unfavorable terms for LucasFilm into her employment contract intentionally. He did this knowing he would soon be selling LucasFilm to Disney. That means that Disney is in a very unfavorable situation with Kathleen. It means that Disney likely can’t fire her without a whole lot of legal things happening all at once.

Kathleen can breach the terms of her contract by doing something illegal. For example, if she’s accused and found guilty of inappropriate sexual misconduct, almost every employment contract allows releasing executives for breaking laws. That means Kathleen would need to violate laws for Disney to release her without Disney breaking any other terms of any other contracts.

Even then, George might still attempt to recover LucasFilm citing a breached purchase agreement.

Disney and Agreements

Disney likely agreed to the terms of both agreements more or less because they didn’t have a choice if they wanted LucasFilm. To get LucasFilm, they not only had to agree to the terms in the purchase agreement, they also had to agree with Kathleen’s employment terms as part of acquiring LucasFilm.

Kathleen’s Tenure

There could be an end in sight to Kathleen’s employment contract. It seems that in 2012, George may have set her employment terms to 6 years with the ability to extend. In 2018 and according to the Hollywood Reporter, she exercised her right to extend her employment contract and extended it by 3 years to 2021.

In 2021, Disney and Kathleen would again renegotiate her LucasFilm contract, which (depending on contract terms) could allow Disney to rewrite her contract to Disney favorable terms, place her directly under Disney and get rid of any poison pill riders in the process. A new employment contract would then allow Disney to fire her with impunity. Extending an existing contract doesn’t get rid of any poison pill riders.

It is entirely possible that Kathleen can extend her employment contract indefinitely with LucasFilm. However, it’s also possible that George did put a hard date limit on the type and number of extensions. Once her ability to extend ends, she will be required to strike up a new contract with Disney directly and those contract terms won’t be as favorable to her situation.

However, Disney could choose not to renew her contract at all and allow it to expire… at which point Disney could dismiss her. However, the unfavorable terms in the purchase contract could prevent that. It depends on what was written into the purchase agreement terms.

If George placed a timer on the purchase terms such that Disney can’t dismiss Kathleen while that timer is in place, then that means Disney must extend her contract until that purchase agreement timer runs out.

A contract timer works like this. The purchaser must remain in good faith under the terms of the agreement for a specified period of time, such as 10 years. The good faith part may include a bunch of agreed upon stipulations, such as keeping certain people employed during that period of time. If any of the stipulations are breached, the good faith terms no longer apply and the contract is considered breached.

What this means for Disney is that George Lucas could reacquire ownership of LucasFilm if Disney breaches these timer’s terms… and that is contingent on Kathleen’s employment contract. Even if Kathleen’s contract expires, Disney may be forced to craft a brand new contract to continue to employ her until the purchase agreement timer expires.

If Disney, again, extends her contract in 2021 for another 3 years, then this timer situation is likely the case. They can’t afford to lose LucasFilm and let it revert back to George Lucas ownership… and on top of this, pay Kathleen a huge sum of money from her Golden Parachute. Not only does that give George Lucas a potful of money, he also gets his former property back with new films in the portfolio to boot and Kathleen gets even more money.

Disney’s Response

Basically, a situation like what I surmise above (while a bit legally convoluted) may very well exist between George, Kathleen and Disney. Contractual terms can sometimes be unwieldy beasts and no side wants to breach those terms, particularly when looking at the downsides.

If any of what I suggest actually legally exists, this is why Kathleen Kennedy is still employed at LucasFilm cum Disney and cannot be fired. That doesn’t mean Disney can’t sideline her or take her off projects because these things may not be specified on the contracts, but those specifics which are in the contracts must be adhered to.

Only Disney, Kathleen, George and all of the lawyers involved understand the minute details of both the purchase contract and Kathleen’s LucasFilm employment contract (and how they both interrelate).

YouTubers

I get why YouTubers rail on Ms. Kennedy. I get why they want her fired. I get why they produce their videos stating all of this. However, these naïve YouTubers really don’t understand business or contractual obligations in the business world, particularly when it comes to executives and acquisitions.

While fans can continually call for Kathleen to be fired over her handling of the Star Wars property, it’s very unlikely to happen while contractual obligations are still in play. Kathleen herself would be stupid not to sit back and let the money roll in while she pretends to do a job for Disney. With such convoluted contracts, Kathleen is sitting pretty no matter what she does… short of breaking the law. She can completely turn LucasFilm and Star Wars inside out and pretty much Disney can do little to stop her, at least until any timers expire.

Once Ms. Kennedy understood the extremely favorable situation (if similar to what’s described above) that George arranged for her, she could pretty much torch Star Wars and Disney couldn’t really do anything about it. What Kathleen has done for Star Wars isn’t at all pretty. But, it’s not illegal and it’s possible there’s very little Disney can do to kick her out of the organization. Granted, she has turned a tidy sum for Disney, at least for the latest trilogy films, even as bad as they are. Disney can’t fault her for not making Disney money. As a result, Kathleen is likely still living up to her end of the employment agreement with LucasFilm.

Should Disney fire Kathleen Kennedy?

As long as unfavorable contractual obligations exist for Disney, no. Disney and Disney’s lawyers fully understand the ramifications of firing her. Until they can fire her without tripping contractual clauses, they’re going to let her sit in her comfy Disney office, using her comfy Disney chair pretending like she knows what the hell she’s doing.

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