Every time you think Viacom’s board couldn’t be more indifferent to the people it’s supposed to represent, along comes a day like today.
With the company’s ailing 92-year-old controlling shareholder Sumner Redstone stepping aside as executive chairman, the board had a chance to acknowledge Wall Street and employees’ concerns about Viacom’s prospects by giving the job to an independent director.
That would have signaled that board members might entertain fresh ideas about Viacom’s strategy after more than a year of declining ratings and ad sales at its cable networks — which helped to sink the stock price to levels it hasn’t seen since the end of 2011.
Instead, the board gave the job to CEO Philippe Dauman, who presided over the company’s decline, and who’s at the center of soap opera-like battles over Redstone’s health care and his estate.
It was the wrong decision on many levels. And it’s a stain on Redstone’s legacy: He controls 80% of the voting shares, which defines Viacom as a controlled company. What he says, goes — although the board is also supposed to look out for independent investors.
Redstone used his power to promote a culture of cronyism, which was most notable in the shockingly gluttonous compensation packages the board awarded his pals including Dauman and himself.
Today’s decision also flew in the face of a reasonable request by Sumner Redstone’s daughter Shari — Viacom’s Non Executive Vice Chair — to not elevate one of the seven members of the trust that will oversee his estate when he dies. She and Dauman are among the seven.
She added that Viacom needed “a leader with an independent voice” as opposed to someone who’s “intertwined in Redstone family matters.”
That standard also would disqualify Dauman. He took charge of the elder Redstone’s health care decisions in October. That’s become the focal point of a dispute with Redstone’s former companion Manuela Herzer. She had been in charge of his health decisions, and sued saying that he was a “living ghost” not capable of deciding to make a change — a charge that Dauman disputes.
Shari Redstone declined to accept the opportunity offered in her father’s trust to become non-executive chair.
But she was the only board member to vote against Dauman. Her spokesperson pointedly says that Shari will “continue to advocate for what she believes to be in the best interests of Viacom shareholders.”
What’s in their best interests? Certainly not to make Dauman even less accountable — which is what corporate governance activists say happens when a CEO is also allowed to chair the board that’s supposed to judge his or her performance. They oppose the practice across the board, including at successful companies such as Disney. (And, presumably, at CBS, which just added the Chairman job to CEO Les Moonves’ résumé.)
If anything, Dauman needs more careful scrutiny following a series of strategic blunders familiar to anyone who monitors Viacom, especially those in Hollywood.
They consider him a bean-counting outsider who hollowed out the entertainment company. He cracked down on seemingly bloated budgets, failed to keep creative talent, reran hit shows until the sprockets fell off, and overstuffed them with ads — while he spent more than $14.5 billion since early 2011 trying to prop up the stock price by repurchasing Viacom shares.
His defenders say that he played a bad hand as well as anyone could: With its young audience, Viacom was especially vulnerable to the generational shift to digital media. He responded by investing more than $21.5 billion in programming and content since 2010, building Paramount’s new TV production unit, ordering additional scripted shows for Viacom’s networks, expanding overseas and to online platforms — and by increasing Paramount’s movie slate to about 15 releases a year.
The company’s also seeing improvement in its ratings, with Nick back on top with kids. Paramount Television had a success with its recent Grease: Live on Fox.
The board did not have to make such a momentous decision today. Directors didn’t even have to pass judgment on Dauman as CEO. All they had to do was decide whether to make him, or an independent director, the new chairman.
Had they made the latter move, it would have sent a reassuring message that they hear stakeholders’ concerns.
Instead they reinforced a status quo that doesn’t work well — except for themselves.