July 22, 2007
The Redstone Dispute and Good Corporate Governance
The rift between Sumner Redstone and his daughter Shari very publicly broke on Friday. The Wall Street Journal started it with an article reporting that octogenarian Sumner no longer wished his 53-year-old to succeed him as controlling shareholder and chairman of CBS and Viacom when he dies, and was is in negotiations with her to end her involvement with the companies. Sumner responded by issuing his own letter to the editor of Forbes magazine chastising Sheri. In the letter Sumner stated that while his daughter "talks of good governance, she apparently ignores the cardinal rule that the board of the two public companies, Viacom and CBS, should elect my successor." Sumner had previously fallen out with his son Brent who had sued him -- the suit was settled less than six months ago for about $240 million. Hopefully, this makes us all feel better about the relativity of our own family disputes.
One could also question Sumner's bona-fides in invoking principles of good-governance with respect to Viacom and CBS. He controls each through a dual-class voting stock which over-represents his economic interest in the companies (which is about 12% in each). Moreover, he has not been afraid to exercise this control. According to the Wall Street Journal:
In 1996, he forced Frank Biondi out as CEO and took the reins himself. In 2004, Mel Karmazin quit as president after four years of friction with Mr. Redstone. Last September Mr. Redstone, by then executive chairman of Viacom, ousted CEO Tom Freston and appointed Philippe Dauman, who himself had been forced to leave as deputy chairman in 2000 when Viacom acquired CBS.
Sumner´s inability to cede control of these companies has led to jokes that for each their succession policy is for "Redstone to not die". Hardly the best governance policy. Moreover, according to the Viacom proxy statement and the CBS proxy statement in 2006 Sumner was paid over $16 million by Viacom and $12 million by CBS, respectively. Notably, CBS was up about 30% last year while Viacom's stock went down. Part of good corporate governance is pay for performance. And whether a controlling shareholder should compensate him or herself at all is even questionable -- their reward is embedded in their gain from an increased stock price. If Sumner is indeed adhering to principles of good governance he might want to consider this course.
P.S. M&A lawyers should know that this now puts former Shearman & Sterling M&A partner and current Viacom CEO Philippe Dauman in a more likely position to succeed Sumner. He met Sumner when he was assiged as an associate to prepare a Schedule 13D for one of Sumner's investments.
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