Why Sumner Redstone’s Succession Fog Clouds Viacom, CBS Empire

TheWrap looks at the ongoing speculation and jockeying at two media companies that the founder declines to address

Last Updated: June 21, 2015 @ 8:40 PM

The pressure around succession has ratcheted up on 92-year-old Sumner Redstone, the Viacom and CBS chairman, as the finely orchestrated transitions at other media empires have underscored the lack of clarity at his own.

Rupert Murdoch’s well-tuned handover of 21st Century Fox to his sons James and Lachlan coming on July 1 and the smooth transition at Comcast (whose founder Ralph Roberts died last week) stand in stark contrast with Viacom’s messy succession, where bankers jockey, family members speculate, investors cross their fingers and the media and entertainment world waits and wonders.

Family media empires like these are notoriously complicated and usually hang on the whim of the patriarch. In this case, that patriarch reportedly can no longer speak or feed himself and is closely chaperoned by his live-in girlfriend, Sydney Holland, 43, and former girlfriend, Manuela Herzer, 50. Not incidentally, he also declared for years that he intended never to die.

And yet Redstone remains executive chairman of two of the largest publicly traded media companies in the world, one of which — Viacom, with its shrinking Paramount and struggling MTV brands — has seen its stock dip to $68 at close on Friday, from $86 a year ago. (CBS stock has held steadier, closing at about the same level as a year ago, $58.)

At the moment, lawyer-turned-executive Philippe Dauman seems poised to take the reins at Viacom. He is in line to vote as one of the family’s seven seats on the board of Redstone’s National Amusements holding company, which controls both Viacom and CBS. This means that Dauman, as CEO of Viacom, would eventually report to himself, while CBS Chairman and CEO Leslie Moonves would report to him as well.

Meanwhile, the role of Shari Redstone, Sumner’s 61-year-old daughter and the president of the family’s movie-theater chain National Amusements, remains unclear. She spends her time running a venture-capital firm called Advancit, an early investor in Maker Studios, and waiting for a clearer signal from her father.

“It could change any day. It could have already changed and we don’t know,” a Wall Street analyst who closely follows the process told TheWrap.

Neil Macker, an entertainment industry analyst at Morningstar, told The Wrap that Viacom and CBS should merge. “It would help balance them out,” he said. “The problem is, you have two high-level CEOs and neither would work for the other.”

The softest landing for Redstone’s empire would be to elevate Moonves and Dauman to dual chairman-CEO titles. Any other outcome risks losing one or other valuable executive. (Moonves had explored the possibility of buying CBS out, but recently ruled it out.)

People familiar with the company have indicated that the likeliest outcome is dual chairmen. Under new provisions in their employment contracts, both Moonves and Dauman are allowed to bail with a huge payout if either is bypassed as chairman.

That leaves Shari Redstone in limbo. Relations with her father have run hot and cold. She’s never publicly stated a desire to run CBS or Viacom but hasn’t dismissed the possibility either. And her father has been perpetually noncommittal about her succession, saying the boards of Viacom and CBS will make the call after he goes.

The seven-person National Amusements trust includes Shari Redstone, her son, Tyler Korff, and several of her close allies. Dauman is on the trust. Moonves is not. The other members are George Abrams, a Viacom board member, David Andelman, a CBS board member; and lawyers Norman Jacobs and Leonard Lewin. They are said to have represented Shari and her mother, Phyllis Redstone, giving Shari a potential block of four votes.

Shari Redstone supporters question whether Dauman, a lawyer with the cautious demeanor to match, has the vision to propel Viacom to a new stage of dynamic growth in the digital age.

Redstone’s most recent statement on succession came last month after his failure to attend Viacom’s shareholder meeting sparked a frenzy of speculation about his health.

“I believe strongly in professional management and appropriate corporate governance,” he said in a statement. “Decisions about who will succeed me as chairman of CBS and Viacom will be made by the Boards of the respective companies, and not by any individual.”

He went on, “Despite press reports to the contrary, such decisions have not yet been made. After my death, my ownership interest in the companies will be overseen by a group of seven trustees who will make fiduciary decisions based solely on the best interests of the beneficiaries of the trust. Until that time, I will continue to make all such decisions.”

By contrast, Rupert, 84, has always insisted that his children would take over the family business. The oldest, Lachlan, will be named non-executive chairman and James chief executive at a board meeting this week.

The Roberts family transition was remarkably smooth at Comcast. At age 77, the elder Roberts began the transfer of power to his son Brian, putting a large block of voting stock in his name and notifying local cable commissions of the upcoming change in leadership.

John Malone, 74, started a similar transition process last year, granting Mike Fries, CEO of Liberty Global, and David Zaslav, CEO of Discovery, the right of first refusal to buy his stakes and the ability to vote his shares. But he hasn’t yet laid out plans yet for his U.S. holding Liberty Media, where his son Evan Malone, an engineer, is on the board.

Redstone, experts note, could do what Murdoch is doing. He could take the opportunity at regularly scheduled board meetings of CBS and Viacom to resign as chairman and have the boards vote the title to Moonves and Dauman. Not doing so suggests he may find it too painful to give it up, or that he’s ambivalent about Shari’s future role — or both.

Dauman has a long history with Redstone, explaining his seemingly outsized influence within the Viacom empire. He assisted in Redstone’s hostile takeover of Viacom in 1987 and served as the company’s outside counsel at Shearman & Sterling. He came in-house as general counsel and senior VP in 1993, when he was instrumental in helping Redstone win a vicious battle for control of Paramount.

He left the company from 2000 (when Viacom bought CBS) to 2006, when he returned to run Viacom after Tom Freston was fired and the companies were split. Moonves, who had been with CBS since 1995, became CEO of the spun-off company the same year.

Back then, Viacom was billed as the sexy, fast-growing company and CBS as the slow-but-steady dinosaur with radio and billboards. A shifting media landscape has upset the conventional wisdom of a decade ago. Moonves turned CBS around, divested stodgy assets and ramped up revenues from retransmission fees even as Viacom’s cable networks faced fierce competition and disappointing ratings.

So there’s a strong reason to keep both Dauman and Moonves on board.  If the trust disagrees with the board of either company on management or any other key issue, it would have to field an alternate slate of directors at the companies’ annual shareholder meetings.

“So far, things have worked well,” Macker said. “[Sumner Redstone] has two people he trusts. I’m not necessarily worried about it. But the less uncertainty, the better.”