A CBS shareholder charges in a new legal filing that corporate board members and CEO Leslie Moonves were “recklessly profligate” when they approved nearly $13 million in pay over three years for one-time chairman Sumner Redstone, after it became clear that he was “incapacitated beyond recovery.”
The most damning new evidence in the amended complaint, filed in Delaware Chancery Court, comes from Redstone’s own admissions about his condition, in a lawsuit against two former caretakers and paramours — Manuela Herzer and Sydney Holland.
The filing says that the corporate leaders looked out for themselves and not CBS. It accuses Moonves, Redstone and other CBS board members of breach of fiduciary duty, waste of corporate assets and the “unjust enrichment” of the one-time corporate titan, now 93 and shut away in his Beverly Park mansion.
The lawsuit on behalf of CBS shareholder R.A. Feuer reinvigorates a lawsuit that shareholders briefly dropped last year, apparently for strategic reasons. It demands that the defendants — including Redstone daughter and fellow board member Shari Redstone — take several actions: admit Redstone’s mental incapacity, repay the company and terminate all payments to Redstone.
The corporate leaders should be forced to pay because “they have all put their fealty and loyalty to Sumner and his family (and their interests) before the interests of CBS and its shareholders,” the lawsuit says. Any damages awarded against the defendants would be repaid to CBS and to lawyers from the firm of Rosenthal, Monhait & Goddess who are waging the legal battle.
A spokesman for CBS Corp. declined to comment. Redstone’s lawyer said the suit was nothing new and referred a request for comment to another attorney who he said was handling the matter. Shari Redstone’s spokesperson did not respond.
The protracted war over CBS and Viacom began in the fall of 2015, when Redstone’s dubious condition was made public in a legal filing by long-time companion Herzer, who went to court to try to establish her right to continue to oversee the health care of the multi-billionaire.
A spate of litigation and corporate intrigue followed. First, Redstone stepped down to emeritus status. Then, in December, he gave up his voting position on the boards of both CBS and Viacom. As Redstone reduced his role, daughter Shari asserted herself and helped force the ouster of Viacom CEO Philippe Dauman. Even as Viacom has tried to stabilize itself under new leadership and CBS has pushed forward under Moonves, several legal actions continue to grind along.
The central claim of the Delaware suit is that Moonves and other board members had an incentive to keep Redstone in charge, even when it became painfully obvious that he no longer had the mental acuity to lead the two corporations, which are worth more than $40 billion.
The CBS leaders got prestige and lucrative pay and knew that they would have to relinquish both if they ever made public just how decrepit and foggy-minded the nonagenarian had become, the lawsuit contends. They continued to re-appoint Redstone to the board and approve his pay, even after May 2014, when a bout of pneumonia made it abundantly he could not longer function as a corporate leader.
By that time, according to Redstone’s October lawsuit against the two women, he had been “reduced to a shell of his former self,” was easily manipulated, and required around-the-clock nursing care.
Though the mogul’s difficulties began as early as 2010, the lawsuit focuses most intently on the period after May 2014, when the magnate was repeatedly hospitalized with pneumonia, losing substantial mental function because of a lack of oxygen to his brain, the lawsuit contends.
The once-razor-sharp Redstone says in his lawsuit vs. Holland and Herzer that he could not protect himself from the two women, because he was entirely dependent on them for his care. The legal action says the billionaire was “easily duped, confused and manipulated,” to the point that the two women — who shared the hilltop mansion with Redstone — were able to get him to transfer $45 million to each of their bank accounts.
The lawsuit offers myriad other proofs of Redstone’s condition, including an April 2015 email in which his one-time estate attorney appears to fret about the public revelation of his diminished state. The news would surely force Viacom [and by extension CBS] to remove the leader from his chairmanship and board post, the lawyer, says.
Redstone largely disappeared from public view after a January, 2014 press interview. When he attended a May 22, 2014 shareholder meeting, the suit says, he was “hidden by a curtain, and carried onstage in a chair.” By a November 2014 Viacom earnings call, he uttered only a few words that “were faint, slurred, barely audible,” Bloomberg reported it had learned from a Viacom shareholder.
Even after Redstone had become totally dependent on others, he received nearly $13 million in “gratuitous, unearned compensation” as CBS’ executive chairman, Feuer’s lawsuit says. He got the money even though he rendered “no services of any value.”
But Moonves and board members were paid handsomely — the CEO making $57 million in 2015 and board members an average of $331,000 — and did not want to upset the status quo, lest they risk losing their cushy positions, the lawsuit says. It contends, the defendants satisfied “their own self-serving interests and
due to personal loyalty to Sumner, while putting such loyalty before their fiduciary duties owed to CBS and its shareholders.”
The proper action by the board would have been to make a full disclosure of Redstone’s reduced capabilities and to relieve him of his duties, and his pay, the lawsuit says. Continuing to pay him was “a waste of CBS’s corporate assets” and “a de facto gift to him.”
Feuer’s action says these failures came despite the fact that board members personally visited with Redstone and could see how poorly he was doing. The lawsuit says that Redstone continues to be paid $1 million a year in his role as Chairman Emeritus, “despite the fact that each of its members know that Sumner is unable to and could not provide any services of value to CBS.”