Why Sumner Redstone’s Health Hasn’t Concerned Wall Street

When founder and executive chairman Sumner Redstone didn’t speak Thursday during Viacom’s quarterly earnings conference call, the industry noticed. Curiously, though, Wall Street chose mostly to ignore the anomaly.

After the conference call, in fact, research notes focused on the company’s operating trends. Even when The Hollywood Reporter reached out to the analyst community, most declined to discuss the matter.

Wunderlich Securities analyst Matthew Harrigan was an exception. “Warranted or unwarranted, more concerns about chairman Sumner Redstone’s health given his unusual absence from the conference call,” he wrote.

Redstone, who controls Viacom and CBS and serves as executive chairman of both, turns 92 on May 27. He has typically opened earnings calls with bullish comments and praise for his CEOs, Philippe Dauman of Viacom and Leslie Moonves of CBS. His remarks, though, have been shorter recently and he has sounded extremely frail.

Viacom didn’t say why Redstone didn’t speak Thursday, but on the call a company representative said: “Listening from Los Angeles is our chairman Sumner Redstone.”

A spokesman said Redstone hasn’t decided whether to attend Viacom’s annual meeting in Miami on March 16. It wasn’t immediately clear if he would speak on the CBS quarterly call on Feb. 12, either.

Professor Jay Lorsch, a governance expert at Harvard Business School, said if a chairman misses an annual meeting it is not likely to spook shareholders. “If he is not well, there is nothing you can do,” he said.

During Viacom’s previous earnings call in mid-November, Redstone spoke for just a few seconds before introducing the CEO as his “wise friend Philippe.”

Sources say that Redstone’s mind remains sharp but that he is dealing with mobility issues in line with his age.

Redstone controls Viacom and CBS via National Amusements, of which he controls 80 percent, with daughter Shari Redstone holding the other 20 percent. His controlling stakes in Viacom and CBS amount to nearly 80 percent.

When he inevitably is no longer able to oversee National Amusements, a trust with five board members will assume control of it. The trust’s board is set to be made up of Dauman and two other non-family members, one a Viacom board member, the other a CBS board member, as well as Shari Redstone, vice chair of both Viacom and CBS, and one of her children.

The trust is charged with acting in the benefit of Sumner Redstone’s grandchildren and future generations.

While bankers see deal opportunities for Viacom and CBS upon Redstone’s death, industry observers said both could easily continue to operate separately and independently. Redstone split Viacom and CBS in early 2006.

But Harrigan said the “direction of the trust that could eventually control Viacom [and CBS] remains opaque from the outside. We would actually favor an eventual merger with CBS under almost any circumstance.”

Dauman’s recent contract extension through the end of 2018 contained a new clause that signals the Viacom board sees him as the likely successor to Redstone, so he could assume the role of executive chairman there. A regulatory filing stipulates that Dauman has the right to resign in the case of “the appointment as executive chairman of the board (or co-executive chairman) of a person other than Sumner M. Redstone or yourself.”

Dauman was named president and CEO of Viacom in September 2006 and has been a member of the company’s board since 1987. “Philippe has been my long-term partner in building Viacom into the global entertainment powerhouse that it is today,” Redstone has said. “He has been an extraordinary CEO over more than eight years, and his strategic vision and creative leadership have delivered outstanding operational and financial results.”

Redstone repeatedly said he plans to stay involved at both companies until his death (and he often jokes he will live forever), and some experts see no cause to pressure Redstone into retirement. “Outside of a mandatory retirement age policy (which Viacom doesn’t have for directors), I do not know of any other means that would automatically remove him from the board,” said David Becher, an associate professor of finance at Drexel University.

Governance experts, in fact, say that death is the most likely reason for a change of chairman at a company controlled by a founder when the founder does not step down.

Paul Lapides, professor and director of the Corporate Governance Center at Coles College of Business at Kennesaw State University, says there isn’t a consensus on how best to deal with an aging chairman whose health is in decline. “I lean in favor of little or minimal disclosure of health, like Apple did with Steve Jobs,” he said.