NEWS ANALYSIS : Command Performance : Wall Street Gasps as Redstone, 72, Takes Charge of Viacom

Sumner Redstone has proven his staying power time and time again. There’s the well-worn classic of how he escaped a fire at a Boston hotel by hanging from the ledge of a third-story window, later undergoing 60 hours of skin graft surgery. There are the two bruising bidding wars that built his chain of family movie theaters into the nation’s third-largest media company--winning Viacom in 1987 and beating out mogul Barry Diller for Paramount Communications Inc. in 1994.

Now Redstone is at it again, this time intent on proving that at the ripe--some say overripe--age of 72, he can run Viacom Inc. day to day.

On Wednesday, Redstone abruptly assumed the titles of president and chief executive from his longtime partner, Frank Biondi Jr., frustrated that the company was moving too cautiously as rivals such as News Corp.’s Rupert Murdoch struck deals abroad at a fevered pitch.

Though Redstone gets ringing endorsements for his impressive track record and driving will, Wall Street deeply disapproved of the dismissal and worries that Redstone is not up to the task. On Thursday, Viacom Class A stock fell $3.625 a share to $37 on the American Stock Exchange.

Redstone has been increasingly involved as chairman over the last 10 years, but has never been the operating manager of a $10-billion-a-year company. The intimate duties of overseeing MTV Networks, the Paramount Pictures studio, Blockbuster Entertainment and Simon & Schuster publishing were handled by Biondi.

Analysts, investors and scholars question whether Redstone can single-handedly manage an enterprise of Viacom’s size and complexity. With Biondi no longer the heir apparent, some worry about succession. And management experts say most visionary leaders need strong and seasoned managers to keep them in check and that Redstone is no exception.

“Sumner has made an unfathomable mistake,” said Warren Bennis, professor of management at USC. “I have always used Biondi and Redstone in my lectures as an example of why you need both an entrepreneur and a manager at the top of a company. An entrepreneur’s lust needs to be counterbalanced by a manager’s prudence and discipline.”

Bennis and other industry sources suggest that the complexities of today’s large media companies make such management depth even more imperative. Indeed, the boards of both Time Warner Inc. and Walt Disney Co., the two largest media companies, are said to have hounded their respective chiefs, Gerald Levin and Michael Eisner, until they named presidents, fearing they were spreading themselves too thin. Like Redstone, both had held all three top management titles.

And Bennis points to the constant turmoil at Murdoch’s News Corp. and Fox Broadcasting Co. as evidence of what happens when no clear succession plan is in place.

“There is nothing more stressful in an organization than the issue of succession,” said Bennis, who is 70. “There is zero correlation between age and effectiveness, but Sumner has an omnipotent fantasy if he thinks he doesn’t need a clear plan at his age. Many entrepreneurs have this sense of immortality. Viacom is in for some very rocky and uncertain times.”

Redstone indeed doesn’t see succession as an issue. “Why do I need a succession plan? I’m still here,” he said in an interview Wednesday after dismissing Biondi, a skilled and respected executive credited with quickly instilling cooperation among the disparate business units after more than doubling the company’s size in the last two years with the purchases of Blockbuster and Paramount.

But by relieving Biondi, Redstone may be taking a decisive step toward determining succession, putting himself in closer contact with his seven top candidates. On Wednesday, Redstone anointed two deputy chairmen, Philippe Dauman and Thomas Dooley, and formed an executive committee of his five operating chiefs.

“He will hold this position from three to five years and choose a successor out of the executive group,” said Dooley, a fast-rising star of 39 who some sources say had become as powerful as Biondi in the last year as Viacom focused on paying down debt and strengthening the balance sheet. Dooley is in charge of finance and acquisitions and divestitures and some say has acted as the de facto chief operating officer.

While many investors worry that Redstone does not know the nuts and bolts of Viacom’s businesses as well as Biondi, Viacom executives say he has come a long way.

“He’s a very accomplished media executive, which he wasn’t in 1987,” said Tom Freston, chairman and chief executive of MTV Networks, one of five operating chiefs who will now report directly to Redstone. “He’s been to school with Frank, who taught him the dynamics of the business. He knows everyone and feels he’s ready to do the job himself.”

Executives at the company say he has spent extensive time at the studio in particular, holding one-on-one and small group meetings with television and movie executives, getting to know as many as 150 of them over the last year.

Redstone faulted Biondi’s hands-off, decentralized approach as inappropriate to run a swift-footed business. His detail-oriented management of the National Amusements Inc. theater chain, which controls 61% of Viacom’s voting stock, is legendary. He still gets box-office reports on Sunday nights, calls theater managers himself and personally signs the checks that studios split with exhibitors.

Operating executives are uncertain whether Redstone will bring that level of engagement to each business, and they wonder how his style will change Viacom.

“Divisions that are performing well will continue to operate as they have,” Dooley said. “But if people are off-track, intervention will happen sooner rather than later.”

Which areas will Redstone respond to first? Dooley said he will concentrate on improving results at the studio, whose slate of movies last year was disappointing, and on dispelling WallWall Street’s worries about the long-term growth of video rentals and, therefore, Blockbuster. Signing strategic alliances in Europe has moved to the top of the list.

“I wouldn’t be surprised if he hopped on a plane in a couple of days,” Dooley said. “As content owners, we have to worry that distributors like BSkyB in Europe are becoming the gatekeepers and controlling the prices we can get for our product. We have to move to establish relationships with other content providers to develop alternative platforms so that doesn’t happen.”

(BSkyB is the satellite television business owned by Murdoch that has a lock on 2 million viewers in England.)

While media owners such as Murdoch are inclined to overpay to get deals done fast and shut competitors out of the market, Viacom, according to company executives, has been slower to react, spending time studying various options. Redstone wants to cut the red tape.

But Redstone, sources in the company say, is not likely to be as intrusive a boss as Murdoch, which they say could minimize the tensions and employee turnover that have hurt Fox.

“If Murdoch gets interested in StarTV, he moves to Hong Kong for three months and runs it,” said one source. “Sumner is not like that; he has a more human side.”

As to worries about Redstone’s health and the possibility that he could hang on past his effectiveness, as such legends as MCA’s Lew Wasserman have been accused of:

“He will outlive all of us and run this company from the grave,” said Freston. “He’s more energetic than when I met him eight years ago; he’s turned on by the businesses.”

* THE BIZ: Biondi firing reflects higher pressure for results. D4