Michael Wolff on How a Cornered Philippe Dauman Could Save His Viacom Job
Shari (and Sumner) Redstone seemingly have the CEO on the ropes, ousted from the board and trust as plans take shape to fire him. But the company's management is plotting to turn the tables on the boss' daughter and get Dauman far more than the $80 million he'd be paid if they booted him.
Philippe Dauman's two main impediments to staying CEO and chairman of Viacom, which most reasonable people might consider insurmountable, are the recent surprise backing of Shari Redstone by her father, Sumner Redstone, against Dauman and the fact that most investors, industry figures, media and many current and former Viacom executives want Dauman gone, too. Hence, the issues of the 93-year-old Redstone’s competence and his daughter’s legitimacy — an ailing man’s multimillion-dollar business “seized by his estranged daughter who has manipulated her father to achieve her goals,” in the words of a Viacom court filing — have been subsumed in the enthusiasm for toppling Dauman, and the belief that his end will come any day now.
But in spite of Shari’s present overwhelming tactical advantage — she controls her father’s movements, keeping him away from Dauman and the other Viacom directors she is trying to depose in her father’s name — and the general baying for his blood, here’s how Dauman might actually keep his job:
While the daily details of Shari’s efforts at a corporate putsch are on the front page, they may soon take a backseat to what could turn out to be, in a Massachusetts probate case, the biggest incompetence and — as Viacom management is darkly suggesting — elder abuse case in American history. One that may be vastly larger than the Brooke Astor case, which held headlines in New York and sent Astor’s son, Anthony Marshall, to jail several years ago. Befitting Viacom’s long history as a take-no-prisoners litigator and helped by its shareholders’ footing of management’s legal bills, the case will unfold in Massachusetts probate court and in Delaware Chancery Court — and with the possibility of California courts entering the picture. A denouement could reshape the media world possibly within 90 days, according to people close to the case.
Dauman’s first opportunity at bat — and likewise a clear opportunity for Shari to strike him out — comes June 30 in the Massachusetts court before Judge George Phelan. The action there relates to Sumner’s removal of Dauman and ally George Abrams, a Redstone lawyer and friend for 50 years, from the seven-member trust that will control his affairs, including his voting control of Viacom and CBS, after his death or incapacitation, as well as their removal from the board of Redstone family company National Amusements, which holds the stakes in Viacom and CBS. Viacom management argues Redstone was not mentally capable of making such a decision, and hence, it was fraudulently made for him. Arguments are due on June 30 and will likely prompt a quick ruling on the Redstone camp’s motion to dismiss the case (they offer technical arguments, including that jurisdiction should be in California) and, if it is not dismissed, on Viacom management’s motion for expedited discovery — first and foremost, a thorough medical exam of Redstone.
Given the high-profile nature of the case, the judge might use the technical arguments to punt. But Redstone’s condition is so fraught, his isolation so obvious, the reversal of his long-stated intentions not to have his family control his trust so extreme, the interests of the trust’s beneficiaries so exposed and the timing in the case of a 93-year-old so critical that the more likely result is to proceed with discovery. Indeed, the Massachusetts probate court deals with competency issues on a virtually daily basis. Other than the $40 billion in assets that Redstone controls, it is likely to be, from the court’s point of view — with Judge Phelan regarded as particularly sensitive to elder abuse issues — business as usual.
Meanwhile, the issue in Delaware, one of corporate governance rather than probate, involves Redstone’s apparent decision to reconstitute the Viacom board, shifting it from a board that has long supported Dauman to one stacked in Shari’s favor. Only the board can fire Dauman. So, did Redstone act freely in appointing these new board members who are likely to oust Dauman? The Redstone side has agreed not to seat the new directors — and therefore not to dismiss Dauman — until the Delaware court decides this issue.
Right now, the two courts proceed independently. But the probate court, accustomed to life-and-death timetables, probably will move faster, with both courts then relying on the same discovery evidence. (Indeed, the case is more a probate than corporate governance issue.) If, on June 30 or shortly thereafter, expedited discovery is granted, a medical exam of Redstone by doctors representing each side might follow within days. (The Redstone side will probably appeal this decision, but given the exigencies of Redstone’s age, that might not stay the exam.) Extensive depositions focusing on the undue influence claim — of Redstone’s family members, caregivers, friends, executives and Redstone himself — and additional document discovery would quickly follow.
The issue of competency first arose in the suit this winter by Redstone’s former girlfriend, Manuela Herzer, who maintained Shari had manipulated her father to force Herzer from his home and from her position as caregiver. The judge in that case avoided the issue of competency in his ruling, finding only that Redstone was able to indicate a preference for his daughter as caregiver. At the same time, both sides acknowledged his significant impairments, including dementia, and that he might be subject to undue influence (with each side accusing the other of exercising such undue influence).
The probate court, focusing on how wealth is transferred and protected, has a significantly higher threshold for assessing Redstone’s capabilities and for an ultimate finding of competence. In this argument, the Redstone side will try to frame the definition of competency to allow for his severe limitations (for instance, although Redstone sounds Churchillian in many filings, his mumbled statements are “translated” or imputed by caregivers hired by his daughter). Viacom’s management, using no doubt vivid evidence from Redstone’s medical exam, will focus on his capacity to guide two Fortune 100 companies. For Dauman, this involves quite a bit of walking back the dog, since he vouched for Redstone’s attentiveness in the Herzer suit (although not, technically, his competence) and supposedly worked with Redstone until a few months ago. But Dauman presumably will put that in the context of a nonagenarian’s quick decline. What’s more, the court, with experience, will apply its own standards.
Using its extensive discretion, the court will find either that he can reasonably and freely manage his affairs, or he can’t. If de facto decisions are being made by his daughter on substantive issues relating to his wealth, then, by the terms of the trust, responsibility should have already passed to the trust — before it was recast. Or he might be determined, by standards acceptable to the court, to be minimally competent yet found to be unduly influenced, through isolation and other manipulations, by his caregivers. Or his physical condition might be found to be so extreme — disclosures in the Herzer trial indicated that, along with being virtually unable to talk, he can’t walk or eat, and must have his airways cleared on a near constant basis — that his utter dependence creates a circumstance of undue influence. The court has requested 11 questions to be answered before June 30, many focused on the issue of undue influence.
In this, Viacom management also will argue his long history of estrangement from his daughter, in juxtaposition to Shari’s taking control of his care and his giving her control of the trust. This is particularly salient in that it could set the case for Shari’s potential self-interested dealings and, hence, an effective fraud. The outcome then would be potentially nuclear: Shari would have lost all credibility as a fiduciary in her father’s affairs, and, quite in the manner of Astor’s son and befitting the operatic nature of the battle, be potentially liable for prosecution.
Some believe this ratcheting of the stakes is part of Dauman’s effort to reach a richer financial settlement (he already gets $80 million if he’s fired). But another view is that the blood is so bad that it has become a singular death match.
None of this is related to the main case against Dauman, which is that he has mismanaged the company and seen its share price dramatically fall. That’s a concern of neither the probate nor chancery court. Curiously, Redstone’s indifference to Dauman’s performance is perhaps another indicator of what might be seen as an inability to manage his affairs.
Such a finding of incompetence or undue influence by the probate court would not just restore Dauman to his leadership position on the trust, and almost certainly cause the court in Delaware to find that Redstone did not have the authority to remove Viacom’s directors, but it would leave Dauman, guiding the trust, with near absolute power over Viacom and CBS for the foreseeable future.
A version of this story first appeared in the July 15 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.