Some leaders simply can’t let go. That was made very clear on Wednesday morning, in a Wall Street Journal piece about Sumner Redstone, the 92-year-old chairman of CBS and Viacom. The issue arose separately last week when Ralph Lauren Corp. announced that former Old Navy chief Stefan Larsson would succeed Ralph Lauren as CEO—only for Lauren to send employees a letter the following day stating emphatically that he was still in charge, undercutting Larsson’s authority on day one.
Redstone remains firmly in control of Viacom and CBS because both companies issue two classes of stock, voting and non-voting. He owns about 80% of Viacom’s voting stock, so it doesn’t trade much; investors mostly buy and sell the non-voting stock. The WSJ reports that many investors are growing concerned about Redstone’s ability to remain in charge, noting that he is now entirely silent on the company’s earnings calls and has suffered several mini-strokes. But he has passed several mental competency tests, says the WSJ, one just a month ago.
The larger issue is how a company can attract and keep the best managers when they know the real boss isn’t going anywhere, and when he does, a family member may have the inside track to taking over authority. Redstone’s daughter Shari Redstone is vice chairman of CBS and Viacom. Redstone has kept an excellent CEO at CBS, Leslie Moonves. Viacom has performed less well, and the WSJ says some investors believe its stock would rise if CEO Philippe Dauman were replaced. Both chiefs are frequently on lists of the highest paid CEOs.
These situations are especially common at media companies. Rupert Murdoch’s companies have long issued dual-class stock. That’s the case at 21st Century Fox, where Murdoch, age 84, and son Lachlan are executive co-chairmen, while son James is CEO. At News Corp., which also uses dual-class stock, Murdoch is executive chairman and Lachlan is co-chairman. At Comcast, another dual-class company, CEO Brian Roberts succeeded his father Ralph as chief.
On average, companies with dual-class stock tend to underperform, and the reason seems to be that the leaders aren’t subject to effective governance; they control the voting stock. That’s all perfectly fine so long as investors understand that they’re just going along for the ride; if the company performs badly, they can’t vote out the managers who are supposedly working for them. The leadership problem is that this effect cascades down through the organization. Up and coming leaders know that their bosses aren’t entirely subject to the performance discipline that markets impose on other leaders, and so performance may not be the criterion on which they’re measured. Plenty of employees are okay with that situation, but it can be dispiriting to the very best. A related issue is that ambitious leaders may avoid companies where the top job seems forever unavailable.
That’s why leaders who can’t let go are a problem.
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