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Why Viacom Chief Philippe Dauman is fighting his longtime boss, Sumner Redstone

Philippe Dauman
Philippe Dauman (right) and Sumner Redstone attend the 2007 Phoenix House Public Service awards in New York City.
(Getty Images)

One question looms large as pressure mounts on Viacom Inc. Chief Executive Philippe Dauman: Why is the embattled executive waging a high-stakes war with his longtime boss?

Power, pride, principle -- and indignation -- all could be playing a part in Dauman’s campaign to remain a pivotal figure in Sumner Redstone’s $40-billion media empire, which includes Viacom Inc. and CBS Corp. 

After being ousted from the Sumner Redstone trust that eventually will oversee the mogul’s stock holdings, Dauman and a fellow Viacom board member took the extraordinary step of asking a Massachusetts court to block their dismissals. Their lawsuit -- which contends that the ailing 93-year-old media mogul is mentally impaired -- put Dauman in an unusual, and perhaps untenable, position of launching a costly battle against his mentor and his family.

Even if Dauman and fellow board member George Abrams persuade a judge that Redstone is incapacitated, it won’t change one fact: The Redstone family investment vehicle, National Amusements Inc., owns nearly 80% of the voting shares in Viacom and CBS. And the mogul’s daughter, Shari Redstone, does not want Dauman or Abrams involved in the family’s business.

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So why is Dauman taking on the controlling shareholders?

“He only has two choices: Quit or fight, and quitting is humiliating,” said one high-level media executive who has worked with Viacom in the past but did not want to be identified discussing the turmoil. “So he is going to fight.”

There are other motivations: Dauman firmly believes that Sumner Redstone no longer is calling the shots, and that Shari Redstone is the one pulling the strings. 

Dauman and other veteran Viacom insiders have heard Sumner Redstone disparage his daughter over the years, saying she wasn’t up for the challenge of leading a vast media empire. They also believe a 92-page trust document makes it clear that Redstone always intended that a majority of outside professionals -- not family members -- would oversee his stake in the media companies. That would help ensure that all members of the famously fractious family would be treated equally.

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The elder Redstone always appeared to favor Dauman, not Shari Redstone or even her brother, Brent, who left the family business a decade ago. It has only been in recent weeks that Redstone changed his opinion of Dauman, his former attorney and associate of 30 years.

The linchpin of Dauman’s case will be to prove that Redstone is under the undue influence of Shari Redstone. 

Dauman and Abrams have the burden of proof to persuade a judge that Redstone did not grasp the ramifications of a series of complex moves that removed the two men from their positions.

That might be difficult, legal experts say, because Redstone’s doctors have testified that even though the mogul struggles to speak intelligibly, he knows what’s going on and is making decisions about his care.

It also is fairly common for an elderly person to draw support from close family members, in this case, his daughter, these people said.

If Dauman’s legal team can prove that Redstone is incapacitated, or under the spell of his daughter, it would effectively undo the decisions Redstone and others have made in recent weeks, including removing five members of Viacom’s board. Those board members support Dauman and have sued to prevent their ouster.

Also key to Dauman’s strategy is proving that Shari Redstone took advantage of her father to seize control of the companies. Massachusetts law allows for the removal of trust members who have acted inappropriately, and that could open the door to bump Shari Redstone from the trust, bolstering Dauman’s support.

“If our causes of action are proven, there will be inevitably findings of wrongdoing by certain persons, and there will have to be consideration of trustee removals or worse,” Dauman’s attorney, Les Fagen, told a Massachusetts judge last week.

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Attorneys representing Redstone said the mogul acted within his authority and have asked the judge to dismiss the case. A ruling is expected this month.

The seven-member trust is important because it will oversee Sumner Redstone’s 80% interest in National Amusements after the mogul dies or becomes incapacitated. The trust, in effect, will own the controlling shares of the two media companies, and exert great influence in the affairs of CBS and Viacom.

Trust decisions require a simple majority vote, and Shari Redstone appears to currently have four of the seven votes. She and her son, Tyler Korff, are trustees as well as three Boston attorneys. Two of the three attorneys -- David Andelman and Leonard Lewin -- have indicated support of the dismissal of Dauman and Abrams. Only one trustee, Norman Jacobs, refused to indicate whether he believed that Sumner Redstone was behind the changes. Four of the five beneficiaries of the trust, Redstone’s grandchildren, also support the removal of Dauman.

While there is a path for Dauman to remain in power, many believe his strategy faces long odds.

“Philippe needs to have Sumner declared incapacitated, then have Shari Redstone removed from the trust, and then have some new trustees put on the trust,” said Richard Greenfield, a media analyst with BTIG Research. “That’s three Doug Flutie Hail Mary passes right in a row.”

For their part, Redstone’s lawyers and doctors say the health of Redstone, after a four-day hospital stay in May, has improved. The mogul seemed buoyed by winning a victory in a California court, in which a Los Angeles judge dismissed a case brought by a former Redstone companion, Manuela Herzer, according to those close to the family.

Redstone’s lawyers say it is Dauman -- not Redstone -- who is failing to grasp the situation.

“To the extent that we should be focusing on anyone’s competency -- we are focusing on the wrong person,” said Redstone’s attorney Robert Klieger.

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Another drag on Dauman’s campaign is Viacom’s lagging stock performance. During the last two years, shares have lost about 40% of their value and other major shareholders seem interested in a management change -- or a recombination of Viacom and CBS.

“He’s got a problem,” said William Klepper, a Columbia University business professor. “The objective assessment of a CEO is whether shareholders get a return on their investment. You can’t destroy stock value -- and not be held accountable.”

Another decision haunting Dauman is Viacom’s expenditure of more than $15 billion in recent years to buy back stock. Viacom wasted billions of dollars purchasing stock at prices that are now inflated over current levels.

Viacom shares on Friday closed up 5%, or $2.16 a share, at $45.20 a share.

Even if his legal efforts fail, Dauman won’t go home empty handed. If he gets fired, his CEO contract provides a golden parachute that some estimate is worth more than $90 million.

meg.james@latimes.com

@MegJamesLAT

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