Viacom’s Board Tells Top Executives to Work It Out

Moving to contain a management crisis at Viacom Inc., the company’s board of directors Wednesday instructed the two feuding top executives to patch up their differences and concentrate on running the world’s second-largest entertainment giant, according to sources close to the situation.

The board told President and Chief Operating Officer Mel Karmazin to fulfill his employment contract, which expires at the end of next year, the sources said. One source said Karmazin informed the board at the meeting that he would not seek to renew the contract, allowing Chairman and Chief Executive Sumner Redstone to name a successor.

It is unclear whether Karmazin was seeking to resign or exit from his contract early.

Some Viacom investors were bracing this week for the departure of Redstone’s second-in-command after a stormy 20-month marriage that has created uncertainty on Wall Street, put pressure on the company’s stock and created division within top management.

Despite the board’s efforts to resolve the conflict, analysts and investors privately doubted Wednesday that the two executives could share power and co-exist for another two years.

Karmazin, a former chief executive of CBS Corp., gained operating control of Viacom as part of the May 2000 merger of the two companies. But Redstone, who owns 68% of Viacom’s voting stock, increasingly has chafed under this arrangement after calling the shots at his company for so many years.

The company’s bylaws prevent Redstone from firing Karmazin without the approval of 14 of the board’s 18 directors. Redstone would be hard-pressed to force out Karmazin in a board vote, since eight of the 18 directors are CBS appointees.

In addition, Karmazin is beloved by investors and money managers, who could drive down the stock further if he departed.