Witness Tells of Unusual Role in Hiring of Ovitz

A former Walt Disney Co. director who represented the company in negotiations over the hiring of Michael Ovitz as president in 1995 said his role in the talks was unusual because he led the board’s compensation committee.

“Normally, compensation committee members don’t negotiate agreements,” former director Irwin Russell said during cross-examination at the trial of a Disney investor lawsuit seeking to recover severance that plaintiffs’ lawyers estimate at more than $140 million. “We approve agreements, not negotiate them.”

Shareholders of Burbank-based Disney contend that directors weren’t diligent enough in reviewing Ovitz’s contract, which entitled him to the severance. Lawyers for the shareholders are seeking to convince Delaware Chancery Court Judge William B. Chandler III that Russell had conflicting interests and exceeded his authority when he negotiated the deal.

Russell, who is Disney Chief Executive Michael Eisner’s personal lawyer, said in his third day of testimony at the trial in Georgetown, Del., that he agreed to serve as the company’s chief negotiator in the Ovitz talks only because Eisner asked him to do so. Ovitz was fired after 15 months at the company.

Eisner said in court papers that he fired Ovitz because of concerns that he never fully made the transition from talent agent to corporate executive. Investors claim that Ovitz wasn’t entitled to the severance because he should have been fired over his poor performance and ethical lapses.

Shareholders sued Ovitz, Eisner and some current and former directors, including Russell, saying the severance should be returned to the company.

Investors, who are seeking to hold the board financially liable for the severance, also contend that directors deferred too much to Eisner in connection with Ovitz’s hiring and firing.

Russell, a Beverly Hills lawyer who has been Eisner’s personal attorney since 1975, testified Friday that he didn’t inform several compensation-committee members that he had served as the company’s chief negotiator in the Ovitz deal until after the basic agreement had been reached. He joined the board in 1987 and left in 2001.

The former board member also acknowledged that there was nothing in the guidelines committee members used to govern their ethical behavior that authorized him to negotiate the employment contract of a prospective Disney executive.

Russell testified Thursday that directors who served on the committee, which reviewed executives’ pay packages, never received a written summary of Ovitz’s contract before they met to approve it in September 1995. By that time, Eisner had hired Ovitz, and the basic terms of his agreement had been established.