Shareholder advisory firms never have liked Viacom’s corporate governance. But new reports from two major ones — Institutional Shareholder Services and Glass Lewis — are especially critical of the entertainment giant ahead of its March 14 annual meeting.
Both question the board’s decision to hand the Executive Chairman title to CEO Philippe Dauman, following ailing controlling shareholder Sumner Redstone’s shift to Chairman Emeritus.
They give Viacom failing grades for its high executive pay and urge shareholders to withhold votes for members of the Compensation Committee. The two advisory firms also support an investor resolution to eliminate the two-tier stock system that enables Redstone to control 80% of the votes.
Viacom did not respond directly to the Glass Lewis report but says it “strongly” disagrees with ISS. It “includes inaccuracies in reaching its conclusions. The Viacom Board pays great attention to its governance and its responsibilities to all stockholders.”
ISS says it was troubled by a provision in Dauman’s new contract, which took effect in January 2015: It allowed him resign for “good reason” — meaning with a rich payout — if Redstone stepped down as Executive Chairman and the job went to anybody other than the CEO.
That makes it hard for the board “to act independently, in shareholders’ best interests, when selecting a new Chairman,” the firm says.
Glass Lewis says that shareholders might “reasonably question” the decision to make Dauman chairman considering that he was opposed by Vice Chair Shari Redstone. It opposes letting one person hold the two top jobs, saying “an independent chairman is “better able to oversee the executives of the Company and set a pro-shareholder agenda.”
The firms dislike the board’s executive compensation decisions, including the outlays for Dauman. Last year he was helped by contract renewal terms in a pay package valued at $54.2 million. That was 22.2% more than he made in 2014, even though Viacom’s share price fell 42.5% in the fiscal year after factoring in dividends.
Glass Lewis dropped its Pay for Performance grade for the company to “F” from the “D” it was awarded in 2014. ISS gave Viacom a worst possible corporate governance-risk score of 10.
“CEO pay continued to rise for the third year in a row, despite two consecutive years of negative return to shareholders,” ISS says. “Annual incentive performance thresholds were lowered from corresponding goals in the year prior without clear rationale.”
Both firms urge clients to withhold votes for directors on the Compensation Committee: Inside Edition anchor Deborah Norville, former Leadership for International Finance CEO Blythe McGarvie, Infor Global Solutions CEO Charles Philips, former Verizon CFO Frederic Salerno and lawyer William Schwartz. ISS also opposes World Economic Forum adviser Christiana Falcone Sorrell, who’s on the Audit Committee.
The advisory firms like an investor proposal to get rid of the two-tiered stock system that only gives voting rights to the non-public Class A shares that Redstone controls. The current structure gives controlling shareholders “significantly disproportionate control over the Company relative to their economic interest,” Glass Lewis says. “We believe all shareholders should have a say in decisions that will affect them.”
Viacom’s proxy defends the arrangement, which has been in effect since it went public in 1990. The structure “has contributed, and continues to contribute, to our stability and long-term stockholder returns.”