Sumner Redstone Acts to Replace 5 Board Members, Including Viacom CEO
Updated 4:50 pm
Capping an extraordinary turn of events, Sumner Redstone—though barely able to utter a sentence—has today moved to seize iron-clad control of Viacom (VIAB), by replacing five members of the public company’s board, including Philippe Dauman, its embattled CEO and executive chairman.
The announcement came in a press release Thursday afternoon from National Amusements, the Redstone family holding company that owns 80% of the voting shares in both Viacom and CBS.
If today’s action withstands an expected court challenge, it virtually assures the ousting of Dauman in a matter of weeks. Until earlier this year, Redstone, 93, had staunchly supported his longtime protégé, whom he’d named CEO in 2006.
By replacing the directors—who presumably would side with Dauman —Redstone and his daughter Shari, who serves as Viacom’s vice-chair, have given themselves a solid majority of the company’s 11-member board, aimed at withstanding even a challenge to Redstone’s mental capacity.
Dauman, backed by the company’s independent directors, has already gone to court to assert Redstone lacks mental capacity to make business decisions and is being unduly influenced by Shari. Dauman says she is bent on seizing control of his $42 billion media empire, contrary to his longstanding wishes.
Acting through National Amusements, the Redstones formally notified Viacom of their move on Thursday afternoon. At the same time, they filed an action in Delaware Chancery Court seeking expedited proceedings to confirm that their move is legally valid. Known as a “225 Action,” the Delaware filing would allow the current board, including the five targeted directors, to remain in place temporarily but would also bar the board from making any moves outside the normal course of business.
The ousted directors are Dauman himself; attorney George Abrams; lead independent director Frederic Salerno, a former Verizon Communications CFO who has publicly opposed Redstone’s earlier moves to assert control; Blythe McGarvie, a former corporate financial executive and Harvard Business School lecturer; and William Schwartz, the former dean of the Boston University Law School. All five have served on the Viacom board at least since 2007, and had long enjoyed Redstone’s support.
Shari Redstone has been heavily involved in recruiting their replacements, according to two people who spoke with her. Four of the names had previously been reported in the press: attorney Nicole Seligman, a former president of Sony Entertainment; BuzzFeed chairman Kenneth Lerer, a co-founder of the Huffington Post; former Discovery Communications CEO Judith McHale, a former undersecretary of state who also served as general counsel for Viacom’s MTV Networks division; and Bank of America (BAC) director Thomas May, a former CEO of Eversource, a New England energy company.
The fifth new director is Ronald Nelson, board chairman of Avis Budget group (CAR), a former CEO at Cendant Corp, and a former executive at DreamWorks SKG. As Fortune first reported, the Redstones initially planned to replace just four directors. The appointment of five instead would presumably assure Sumner and Shari Redstone a 7-4 board majority, eliminating the possibility of a 5-5 deadlock if Sumner Redstone was deemed—or became—incapacitated.
Update 4:50 pm:
In a statement, Viacom lead director Salerno, among the directors targeted for removal, called Thursday’s action a “brazen and demonstrably invalid attempt” by Shari Redstone “to gain control of Viacom and its management in disregard of Sumner Redstone’s wishes,” at odds with the board’s efforts “to represent the best interests of all of the shareholders of Viacom.”
Salerno said he and the company’s other independent directors would themselves file suit in Delaware today to reverse the action on an “expedited” basis.
Added Salerno: “Mr. Redstone established and maintained for decades a clear estate plan for the governance of Viacom upon his death or incapacity – based on independent control and professional management of Viacom going forward. He said repeatedly that the Board will be responsible for making decisions about governance, leadership and succession, and he hand-selected a group of trusted advisors and independent directors to fulfill this role.”
“Sadly, it is now clear that Mr. Redstone is being manipulated and used by his daughter in an attempt to accomplish her long-held goal of gaining complete control of Viacom.”
Viacom’s non-voting class ‘B’ shares rose 6.7% Thursday, with much of the jump coming late in the day, after the move presaging Dauman’s removal as CEO became public.
Research assistance: Marty Jones
Note: The headline was edited to clarify that Redstone moved to replace the board members.