THERE was room for only 50 people in the tiny Georgetown, Delaware, courtroom last week to hear Walt Disney’s former president describe bitterly how his 14-month tenure ended. Michael Ovitz said he was “cut out like a cancer” and “pushed out the sixth-floor window” by a cabal of Disney insiders.

Hollywood executives and other interested parties have had to make do with a live webcast as Ovitz took the stand in the long-awaited trial. His testimony is to be followed by an A-list of Hollywood players, including Michael Eisner, former Disney chief executive, and actor-director Sidney Poitier, that should keep the court’s seating in short supply until the end of the trial.

But the ramifications of the case will be felt long after the show has gone. Company directors come under intense pressure from shareholders who want them held accountable for a company’s decisions.

In 1995, Ovitz, once one of the most powerful men in Hollywood, was hired by Eisner, a long-time friend. In court, Ovitz said he was bewildered when only 14 months later Disney fired him. His bewilderment was eased by a $140m (£76m) pay-off that shareholders argue should be paid back, with interest.

Ovitz said he had now been left to deal with a “25-year hole” in his life after learning his long-time friend Eisner described him as a “psychopath” and a habitual liar in memos and e-mails.

Crushed egos are part of the fabric of Hollywood life. But not only does this case have bigger egos than most, it could also have a profound impact on corporate America.

Disney’s critics have long said Eisner ran the company as a personal fiefdom. Lawyers for shareholders have argued since 1997 that directors shirked their duties by granting Eisner carte blanche to deal with Ovitz. The pair worked out Ovitz’s contract together when he was hired in 1995. On his dismissal in 1996 the terms triggered his huge pay-off.

The Disney trial asks a question many shareholders want answered: does the buck stop with the directors? If Judge William Chandler rules that it does, a lot more cases may follow and many more shareholders will take directors to court.

Most big American companies are incorporated in Delaware because of the tax incentives. The resulting concentration has made its courts the legal arbiters of corporate America and other states usually follow Delaware’s rulings.

Before the wave of scandals that followed the bursting of the stock-market bubble, Delaware was viewed by critics as being pro-business at the expense of investors.

Charles Elson, professor of finance at the University of Delaware, said: “In the 1980s in particular the view was that investors did not have access to all the information and that their interests were best served by management making all the decisions.” But in recent years, said Elson, the courts had changed their views radically.

Earlier this month the International Corporate Governance Network, a think-tank headed by Alastair Ross Goobey, chairman of the fund manager Hermes, met in Delaware. Chief Justice Myron Steele told delegates: “Delaware is no safe harbour for the corporate wrongdoer.”

One of the ways Delaware is enforcing that position is by scrutinising the role of directors and showing far less deference to them. Cosy ties between a company and its “independent” directors are now potentially costly for companies.

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