Succession issues
The saga of Sumner Redstone, above, shows that ego and family dynamics can make handovers a risky business.
The drama surrounding Sumner Redstone and the corporate governance of Viacom Inc. hasn’t been an endorsement for publicly held companies controlled by a single family.
Redstone and his daughter Shari agreed on a settlement Thursday that will result in the departure of Viacom Inc.’s beleaguered Chief Executive Philippe Dauman and the installation of new board members. Both moves are aimed at ending the uncertainty over future leadership at the company.
But the saga’s conclusion did not occur until after tawdry descriptions of Sumner Redstone’s physical and mental capabilities and strained family dynamics were revealed in court hearings aimed at sorting out whether the 93-year-old mogul still had the capacity to make decisions or if he was being manipulated by Shari Redstone. As the legal battles played out, Viacom stock tumbled last winter before a recent rebound.
“These kind of situations are not uncommon in any place where there is this much control held by one person — they are just better hidden,” said Amelia Renkert-Thomas, a Durham, N.C.-based strategic advisor to family enterprises. “It’s just the ramifications and implications of this situation are playing out on a big stage.”
It’s far different from the orderly transitions at other large family-controlled public companies such as Wal-Mart Stores Inc., Campbell Soup Co. and Ford Motor Co., which have managed corporate handovers without discord, said Jeffrey Sonnenfeld, senior associate dean at Yale University’s School of Management.
But Sonnenfeld believes that Redstone is an example of how media magnates are typically not wired go quietly into the night.
“Highly creative personality-infused businesses are very much prone to the departure style of monarchs,” he said. “They don’t leave unless it’s a feetfirst exit. Either they die in office or there is a board revolt.”
Redstone certainly offered signs that he would have trouble giving up control of his company. In 2009, he said publicly that he had no intention of ever dying.
“You have a controlling shareholder who got old and who had a pattern of difficulty dealing with succession,” said Ronald J. Gilson, Stern professor of law and business at Columbia University.
“Succession typically
takes place before the founder reaches age 93. And it’s usually built into the structure of corporate governance,” Gilson said.
Redstone probably won’t be the last mogul reluctant to leave the stage. Sonnenfeld sees a growing pattern where executives in the media and technology are in denial of mortality.
He recalled a recent leadership panel discussion he organized that included Rupert Murdoch, then chairman of News Corp. before 21st Century Fox was split off, Amazon.com founder Jeff Bezos and billionaire investor Warren Buffett.
“Buffett wanted to talk about succession,” Sonnenfeld recalled. “But Bezos wouldn’t even viscerally respond to my question about it. Murdoch then talked about his mother, who was 103 years old at the time, and he said ‘I have the same genes. I’m not planning to go anywhere.’ Buffett said, ‘Talk about managing outside the box!’ ”
Murdoch has since been elevated to executive chairman and set up his sons James and Lachlan to operate his companies, although he still remains involved at age 85. But he recently took on the oversight of 21st Century Fox’s Fox News Channel after the resignation of its chief executive, Roger Ailes.
Sonnenfeld suggested that running a glamorous, high-profile business can cloud rational thinking about the reality of succession.
Successful media chieftains see how their output influences society and culture, while largely making their own rules along the way.
“There is a lot of personal dream wrapped around the various strategic paths taken,” Sonnenfeld said. “It’s a business that has seat-ofthe-pants, ad hoc judgment rather than being formulaic.”
Gilson agrees that media entrepreneurs’ belief in themselves can outlast their ability to do the job.
“You get these settings where people believe that they matter,” he said. “They may well be right, but there are lots of reasons why the entrepreneur who is just a genius at this stage may not be the right person later on.”
The strong will to remain in charge is not likely to change with the new generation of entrepreneurs.
“[Facebook Chairman] Mark Zuckerberg reminded us in a board meeting that he too is emperor for life,” said Sonnenfeld, citing how the social media company plans to issue a new class of shares that will have no voting rights. The shares are designed to keep Zuckerberg in control of the company he founded.
Such dual-class shares, designed to give holders of the preferred stock an outsized voice in corporate affairs, provide the Redstone family’s holding company, National Amusement Inc., with 80% of the controlling shares of Viacom and CBS Corp. even though it has ownership stakes in the companies of 10% and 8%, respectively.
Dual-share companies are common for entities that have a company founder who is still involved in the business or a family of a controlling shareholder who inherited the company, such as Redstone. He took over National Amusements, the private theater chain founded by his father 80 years ago.
Some investor groups are looking to end the use of dual-class shares, citing the chaos surrounding Redstone as an example of how they are a disservice to nonvoting shareholders.
But corporate governance experts say investors who acquire non-voting shares in a company are typically aware of the situation they are buying into, including the risk of a founding executive who is resistant to giving up control.
“A family ownership that is at near majority or with dual-class share creates the opportunities for these types of problems unless it’s a family with a lot of experience with succession within the family,” said Francis Byrd, a corporate governance advisor in New York. “Some of them do a better job than others.”