Viacom Shakeup: Sumner Redstone Moves to Replace Five Board Members Including CEO Philippe Dauman

Viacom New Board Members
Lerer: AP Images; McHale: Rex Shutterstock; Seligman, May, Nelson: Courtesy Images

After months of intrigue and speculation about a leadership change at Viacom, Sumner Redstone moved Thursday to remake the board of the embattled entertainment conglomerate, changes that are widely believed to signal the imminent ouster of Viacom chairman-CEO Philippe Dauman.

Redstone’s National Amusements Inc., which holds controlling interests in both Viacom and CBS Corp., announced that five members of the Viacom board had been removed and replaced by new directors of the company. Pushed off the 11-member board were Dauman, George S. Abrams, Blythe J. McGarvie, Frederic V. Salerno and William Schwartz.

The five replacements are: Kenneth Lerer, co-founder of the Huffington Post and chairman of Buzzfeed; Nicole Seligman, a lawyer and former Sony executive who represented President Bill Clinton during his impeachment trial; Judith McHale, former Discovery Communications chief executive;  Thomas J. May, the chairman of the Eversource Energy utility and director at Bank of America; and Ronald Nelson, chairman of Avis Budget Group and former co-chief operating officer of DreamWorks SKG.

National Amusements emphasized that the new directors were independent and have no formal affiliations with Viacom, Redstone family members or the trust that will govern Redstone’s holdings after the 93-year-old mogul’s death.

The move has been anticipated for nearly a month, since Redstone publicly broke with Dauman, the man who served for decades as his adviser and since 2006 as head of the corporation that controls Nickelodeon, MTV, Comedy Central and Paramount Pictures. Dauman and other Viacom board members have accused the mogul’s daughter, Shari Redstone, of manipulating her ailing father for her own gain.

“Sumner Redstone has made no secret of his lack of confidence in the existing Viacom board of directors,” said Redstone lawyers Michael Tu and Rob Klieger in a statement. “He fully supports the steps taken today by National Amusements.”

In a statement, Salerno called the move “a brazen and demonstrably invalid attempt by Ms. Redstone to gain control of Viacom and its management in disregard of Sumner Redstone’s wishes and to undermine the current Board’s ability to represent the best interests of all of the stockholders of Viacom.”

Because Viacom’s board last month publicly vowed to mount a legal challenge if any members are dismissed, National Amusements said it has also filed legal paperwork on Thursday in Delaware Court of Chancery seeking an affirmation of its right to remove the five directors. Redstone’s iron grip on Viacom and CBS Corp. through his preferred voting shares gives him broad leeway to replace directors at will, according to Viacom’s charter.

National Amusements said it has asked the court for a temporary ruling that the existing Viacom board stay in place until a final ruling on the removals is issued. At the same time, National Amusements asks the court to prohibit that board from taking any action beyond “the ordinary course of business.”

In his statement, Salerno said he would file a lawsuit in Delaware Chancery Court seeking an “expedited determination” that the board dismissals are invalid. Salerno said his filing would also seek a declaration from the court that the existing Viacom board remain intact until the litigation is resolved.

Dauman and others have gone to war against Shari Redstone and publicly questioned whether Sumner Redstone has the mental capacity given his age and physical condition to make the decisions about the management of the company. The battle between Redstone and Dauman erupted in the public eye on May 20 when he and Abrams were removed from the board of National Amusements, Redstone’s private holding company, and from the board of the Redstone family trust.

The six Viacom directors who remain on the board are Sumner and Shari Redstone, Viacom COO Thomas Dooley, Cristina Falcone Sorrell, Deborah Norville and Charles Phillips. Norville and Phillips have been considered independent directors. But both have been targeted by shareholders rights groups for removal because they serve on Viacom’s compensation committee, which has awarded generous compensation packages to Dauman and other executives in recent years despite the company’s flagging performance and strategic challenges. McGarvie, Schwartz and Salerno were the other members of the five-member compensation committee.

Dooley has been mentioned as a candidate to serve as interim CEO if Dauman is ousted. Dauman’s dismissal as CEO seems just a matter of time with his removal from the board and the statement issued Wednesday by Sumner Redstone that he no longer “trusts” his longtime lawyer. However, Redstone will have to wait until the new Viacom board is affirmed before that panel can decide Dauman’s fate and whether the company should elect a chairman separate from the CEO role.

The turn of events during the past four weeks represents a striking reversal of fortune for Dauman, the man depicted as Redstone’s “business son,” an adviser who helped Redstone with some of his biggest acquisitions and who the billionaire once called “the wisest man I’ve ever known.”

The announced changes to the board will undoubtedly face a vigorous legal challenge from the directors. Dauman has already gone to court in Massachusetts contesting his removal from National Amusements and the family trust. A hearing in that case was held June 7, with a ruling expected by the end of the month on Dauman’s request for an expedited trial because of Redstone’s condition. That legal fight has been complicated because Redstone has asked a Los Angeles judge to affirm his ability to make changes in the leadership of his holding company, National Amusements. Moreover, the Redstone camp is expected to file its motion for dismissal of Dauman’s suit entirely on Monday.

After booting his two long-time consiglieres on May 20, Redstone complained through emissaries that Viacom had not been doing well under Dauman’s leadership and that he was unhappy about a preemptive attempt to sell a stake in his “baby,” Paramount. While willing to consider such a move, Redstone’s handlers said he wanted a more definitive briefing on why the change would benefit the company’s shareholders..

Dauman called his ouster from the National Amusements panels “invalid and illegal,” arguing that the move was part of “a shameful effort by Shari Redstone to seize control by unlawfully using her ailing father Sumner Redstone’s name and signature.”

Lawyers for Redstone, meanwhile, went to court in Los Angeles seeking to validate Dauman and Abrams’ removal from National Amusements. The Massachusetts court took up the matter first, with a judge saying he hoped to give initial guidance  to attorneys for the two sides by the end of June. Among the topics that remain to be resolved — which state court should have jurisdiction — one in  Massachusetts, where National Amusements was formed, or one in California, where Redstone now lives.

The actions by the ailing Redstone, who is mostly bed-ridden and fed through a tube, appeared to clear a path to greater power for daughter 62-year-old Shari, a lawyer and tech investor whose relationship with her father has run famously hot and cold over many years. When Dauman and Abrams were booted from the National Amusements panels, their replacements were seen as being loyal to Redstone’s daughter.

Dauman and his lawyers and supporters at Viacom argued that the ascension of Shari Redstone flew in the face of her father’s position of many years. He had said publicly that he wanted family members to benefit from his shares in Viacom and CBS, but intended for the twin corporations to remain in the control of professionals who were not part of the family.

The dueling court cases over control of National Amusements will resurrect the issue of Sumner Redstone’s mental capacity, just weeks after a California judge declined to rule on the same subject.

Judge David J. Cowan ruled in early May that Redstone’s videotaped testimony made clear that he wanted Shari as the ultimate overseer of his health care and not Manuela Herzer, the long-time companion who had served in that role for several years. The judge called the elder Redstone “alert” and “composed” in his statements, though he did not make a formal finding about his mental state.

The Herzer matter may not have reached its final conclusion, though, because she immediately appealed and filed a new lawsuit, seeking at least $100 million in damages from Shari Redstone, her two sons and half a dozen of the magnate’s caretakers. The lawsuit alleges that Shari led a plot to eject Herzer from the Redstone home — which also resulted in her losing her position in an estate plan, which once would have given her $50 million and Redstone’s Beverly Park mansion, valued at $20 million.

Redstone’s attorneys, in turn, have threatened to sue both Herzer and another ex — Sydney Holland — to recover some $150 million in cash and assets they claim the two women already have received.

Despite the fact he has been mostly a recluse in recent months, confined to his mansion in Beverly Park, Redstone and the people around him have been attempted to signal in recent weeks that he is still mentally capable of making business decisions for Viacom and CBS.

The mogul was taken to the Paramount Pictures lot last Friday where chairman Brad Grey met with him inside the minivan that transported him and Shari Redstone and the health care aides that Redstone relies on for care and communication assistance.

On Tuesday, Sumner Redstone visited the CBS Studio Center lot in Studio City where Moonves met with him inside the vehicle. During both studio visits, Redstone also made a point of driving around the lots to look at the fruits of his empire.

Salerno in his statement reiterated the assertions of Dauman and Abrams that the actions of the past month are highly inconsistent with Sumner Redstone’s actions over the course of a 50-year relationships in the case of Abrams and more than 30-year partnership with Dauman.

“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,” Salerno said. “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.”

(Pictured: Newly appointed Viacom directors Ken Lerer, Nicole Seligman, Judith McHale, Thomas May and Ron Nelson)