Disney's Board on Trial in Ovitz Hiring Debacle

Walt Disney Co.'s (DIS) board of directors went on trial on Wednesday, on shareholder accusations that it merely rubberstamped a decision to hire Michael Ovitz (search) and allowed him to walk away months later with a $140 million severance package.

In one of the most closely watched corporate governance trials of the year, shareholders are demanding that the severance package plus interest be returned to the company, a sum that could amount to $200 million.

Shareholders contend that Ovitz, who was hired as president in a deal engineered by Disney Chief Executive Michael Eisner (search), and a personal friend, should have been fired.

Lawyers for the shareholders opened their case by calling expert witness Deborah DeMott, a law professor at Duke University and corporate governance expert, who testified that based on the records she reviewed the board never met to discuss hiring Ovitz.

She said the board was no more involved when it came time for Ovitz to leave.

"With regard to Mr. Ovitz's termination by the corporation ... I saw nothing in the record to indicate that the decision was precipitated by a meeting of the corporation's board of directors," DeMott testified in Delaware's Court of the Chancery.

Steven Schulman, the head Milberg Weiss attorney representing shareholders, has said directors approved the deal after giving it only a cosmetic glance, failing to live up to their corporate responsibilities.

Ovitz at the time was one of Hollywood's most powerful talent agents and co-founder of Creative Artists Agency (search), but his tenure as Disney's president lasted only 14 months and was marked by turmoil. Shareholders claim he should have been fired, but instead the board awarded Ovitz the lucrative package and allowed him to walk away.

Schulman has also said publicly that Ovitz was untrustworthy, unable to delegate and unethical, charging he had financial interests in conflict with his job at Disney.

Scheduled to last four weeks, the case will be decided by a judge who will base his finding on whether the board acted with good faith and with the interests of the company at heart.

Lawyers for shareholders plan to call three witnesses, then the defense will put on its case, with testimony expected from Ovitz, Eisner and most of the Disney board.