Power Sheet – June 17, 2016
The Sumner Redstone saga is heating up, but in a larger sense it’s only getting dreary and sad. Yesterday he took the first step toward firing five directors of Viacom and replacing them with directors of his choosing, creating a new board that would presumably fire CEO Philippe Dauman in short order. While dramatic, none of this is surprising after weeks of conflict between Redstone and the board, and a letter he sent yesterday to lead independent director Frederic Salerno stating bluntly, “I am determined to act in the best interests of the company and all of its shareholders. I do not trust you or the current board to do the same.”
Redstone can do all this because he controls 80% of Viacom’s shares, though Salerno sued yesterday to block the changes, which he says are actually the work of Shari Redstone through her manipulation of her 93-year-old father. It’s an old story, and shareholders pay the price; Viacom stock is down 44% from it’s high a couple of year ago. While most analysts blame Dauman, Viacom’s decline is Redstone’s fault. As Yale leadership expert Jeffrey Sonnenfeld explains, leaders who can’t bear to let go have plagued organizations for millennia. They “become blinded by their visions and do not often leave office gracefully.” Viacom stock jumped on yesterday’s news, presumably because investors are happy to see Dauman go. But what CEO worth his or her salt would take the job now?
News events have diverted attention from the issue of Donald Trump’s tax returns for several weeks, but it’s an important issue that will come back, which is why you should read this article now. Reporter and tax expert David Cay Johnston uncovered two tax cases from the 1990s in which Trump filed appeals and lost. The cases show that at least in 1984, he paid no income tax at all, and one of the cases suggests some decidedly odd behavior.
A tax lawyer and accountant who prepared Trump’s tax returns for over 20 years testified, when shown Trump’s 1984 return, that he and his firm did not prepare it. Yet he acknowledged that the signature on the photocopy was his. How might that have happened? The judge stated that the original return was never found.
The bigger issue is that Trump has promised to release his tax returns but hasn’t done so, and it isn’t clear why not. He has said he wants to wait until audits are resolved, but why? Johnston observes that “a tax return is filed under penalty of perjury and releasing a return has no effect on an audit, as many tax authorities (including a former IRS commissioner) have noted.”
Until he releases his returns or offers a plausible reason not to, voters must speculate on why he’s withholding them. None of the potential reasons will be good. Hillary Clinton is in a strong position to pound him on the issue, since she and her husband have routinely released their returns for years (though she may not want to remind voters of her speaking fees from Goldman Sachs). The media will keep digging. Trump has eluded the issue so far, but it will come back to bite him.
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What We're Reading Today
Redstone moves to oust Viacom's board
Sumner Redstone, Viacom's controlling shareholder, announced that he's replacing five directors, including Chairman and CEO Philippe Dauman; the current board remains in place while Redstone asks a judge to confirm the decision. Lead independent director Frederic Salerno has filed suit to block the move, saying it reflects the wishes of Redstone's daughter Shari and contradicts Redstone's stated wishes. Replacement directors include Buzzfeed Chairman Kenneth Lerer and former Sony Entertainment President Nicole Seligman. Los Angeles Times
Chinese regulator rules Apple iPhone 6 violates Chinese patents
The Beijing Intellectual Property Office says Tim Cook's company infringed on Shenzhen Baili’s 100C phone. Apple can continue selling phones in Beijing while it appeals the decision. It's another sign of apparent hostility from China, which shut down Apple's book and movie offerings in April. Bloomberg
Microsoft enters the weed business...
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Russia banned from the Olympics
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Britain looks for motive behind lawmaker's murder
British MP Jo Cox was killed in broad daylight on Thursday, and officials are asking why. The accused assailant is reportedly Thomas Mair, who may have ties to neo-Nazi groups; Cox favored Britain's staying in the European Union, which may have been a factor. Brexit campaigning has been suspended following her death. WSJ
U.S. diplomats urge Obama to strike in Syria
Over 50 State Department officers have signed a letter to the president criticizing his policy of not attacking Syrian government forces and not trying to replace President Bashar al-Assad. The diplomats say al-Assad has repeatedly violated a cease-fire in the civil war. Secretary of State John Kerry's diplomatic efforts to end the fighting have failed. NYT
John McCain blames Obama for Orlando shooting...
...but then walks it back. McCain said President Obama was "directly responsible" because he has failed to stop the rise of Islamic State. But 90 minutes later McCain said he was referring to Obama's national security decisions. Fortune
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