Viacom CEO Philippe Dauman "Fighting for His Life"

Philippe Dauman Selfie Hole Illo - H 2016
Illustration by: Matt Collins

Philippe Dauman Selfie Hole Illo - H 2016

Dauman — whose pay has increased to $54 million as the media giant's stock price has gone down — controls the company's board but not a trust that will take over for Sumner Redstone as shareholders, Shari Redstone and Sumner's ex put him in a fight for his executive life.

This story first appeared in the Feb. 5 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

In late January, geriatric psychiatrist Stephen Read is expected to spend up to an hour evaluating the mental fitness of Viacom executive chairman Sumner Redstone at the frail 92-year-old’s Beverly Park home. Only Redstone’s nurses and speech therapists may be present for the examination ordered by Los Angeles Superior Court judge David Cowan.

Read has been hired by former Redstone companion Manuela Herzer, 43, who alleges in court that the aged billionaire did not have the mental capacity in October to drop her as his health-care agent and install Viacom CEO Philippe Dauman in her place. Redstone also altered his will in a manner unfavorable to Herzer, as her detractors note, though she insists she has only his welfare at heart.

Whatever Herzer’s motive, the fact that her lawsuit has gotten this far hardly quieted a growing chorus of Viacom shareholders concerned about Dauman’s entanglement with Redstone’s personal life. The investors fear that there is – for now – no way to pry Dauman, 61, loose from his grip on the faltering media conglomerate, whose shares have plunged more than 40 percent in the last fiscal year.

Viacom’s board — which seems to be unusually supine among public companies — apparently has at best limited knowledge of Redstone’s condition. The executive chairman hasn’t appeared at an annual meeting or actively participated in an investor call since 2014. Herzer alleges that Viacom’s chief executive is lying when he claims that Redstone has in recent months engaged in extensive business and personal discussions with him. In that respect, even some of Redstone's top executives find her credible. In response, Dauman’s attorneys say Herzer is trying to turn the focus on him as “a continuation of her legally irrelevant harassment campaign.”

The situation is awkward, to say the least, for Redstone’s daughter Shari, 61, who can take the reins of both Viacom and and CBS if her father is sidelined. No fan of Dauman, she nonetheless is outnumbered on the Viacom board. And she may have reason to support the contention that Redstone is compos mentis. Insiders believe he left not just a few million dollars but enormous wealth to Herzer in an earlier version of his will, which would presumably become valid if a judge determines that he was not competent to make changes in October. Redstone is said to have amassed a personal wealth northward of $5 billion. (The money will not benefit Shari or her children, according to a source, but that hardly would incline her to put it in Herzer’s hands.)

Even crediting Herzer’s insistence that she is motivated only by concern for Redstone, the possibility that a great deal is at stake would seem to be supported by the fact that she has retained an army of costly lawyers. The team includes litigators Pierce O’Donnell and Bert Fields, and also the not-inexpensive publicist Allan Mayer of 42West.

Dauman insists that Redstone is fine. But Moody’s Investors Service analyst Neal Begley is not the only observer to note that Redstone has in the past showed little patience with executives when the stock price faltered. If the company had turned in a comparable performance 10 or 15 years ago, Begley says, “I don't think Mr. Dauman would still be running Viacom.” He adds: "Without Mr. Redstone taking a firm grasp of the governance, there really is no governance."

Others agree. A shareholder lawsuit filed Jan. 19 in Delaware Chancery Court accuses Dauman of failing in his duty to shareholders and questions the board’s independence. Activist shareholder SpringOwl Asset Management published an online 99-frame slideshow excoriating Viacom – home of MTV, Comedy Central, and Paramount -- for "chronic underperformance against peers" and slamming the board for being “too large, too cozy and too overpaid for underperformance." (Viacom describes the suit as “without merit.”)

Now Viacom has drawn further ire for the manner in which it revealed Dauman's fiscal 2015 compensation of $54.2 million. Viacom issued a statement on Jan. 20 indicating that Dauman was paid $36.9 million, encouraging press reports that the executive had taken a cut from the $44.3 million he was awarded a year earlier. But two days later, Viacom revealed in a regulatory filing that Dauman’s total 2015 compensation was actually $54.2 million thanks to stock awarded as a signing bonus for extending his contract. Viacom said it had no obligation to mention that award in its earlier statement because the stock begins to vest in 2017, and the value will depend on how much shares are worth at the time.

The unusual disclosure left many observers baffled in that it only served to create an appearance that Viacom wanted to distract from the fact its CEO got a hefty raise in the midst of an ongoing stock inferno. And that only provokes SpringOwl managing director Eric Jackson, who tells THR that Dauman’s “egregious" payday, coupled with the confusing way it was disclosed, has strengthened the argument that he should be relieved of his duties.

Addressing the stock bonus, he says, "I've never even heard of that. It's like they're saying: 'Wow, Philippe, we know you have so many options to get $40 million elsewhere, so as a token of our gratitude. . . we're going to give you $17 million just for putting your John Hancock on this extension.'” (Viacom says its board and management are “completely focused on delivering long-term value.”)

By now, Dauman is characterized by a source with close knowledge of the situation as a man "fighting for his professional life." He may control the board, this person says, but he will not control the trust that takes control when Redstone is out of the picture. Shari Redstone is said to have an agreement to install Leslie Moonves as chairman of CBS, assuming she eventually takes control, but has no such understanding with Dauman.

Meanwhile, Herzer’s lawyers are hoping to force Dauman to sit for a deposition; a New York court set a March 15 hearing on the matter. Herzer will likely be seeking to demolish Dauman’s credibility if he is forced to testify. For instance, what Dauman described as an hour-long meeting with Redstone on October 8 actually lasted less than 30 minutes, she contends in a court filing. Herzer adds that she was present throughout that encounter, while Redstone was mostly “gazing somewhat vacantly toward the television.” As for discussion between Redstone and Dauman, Herzer asserts there was “none whatsoever.” Redstone’s ability to communicate, she says, was by then “reduced to largely unintelligible grunts and parroting a few simple words or phrases.”

Her medical expert’s upcoming examination of Redstone may be largely a formality: Read has already concluded that Redstone lacked the capacity to sign a recent court document based on the mogul’s peculiar signature. The doctor said in a court filing that his handwriting appeared “as if someone moved the paper under his pen." Redstone’s attorneys have their own experts attesting to Redstone's capacity to sign, including geriatric psychiatrist James Spar. (He's the co-author of a book with Herzer’s expert, Read, and joined him in finding that Donald Sterling was not competent to be the owner of the Los Angeles Clippers.) Redstone’s lawyers also submitted a declaration from his general practitioner but the judge was not impressed, finding that the doctor had given “equivocal” testimony about Redstone's capabilities in a deposition that was “inconsistent with the assured opinion presented in his declaration.”

Herzer’s team hopes Dauman has overplayed his hand. Aside from his declaration in court, for example, Herzer notes an October 7 statement that Viacom released to the press and the board. Ostensibly provided by Redstone, the statement read that Dauman “continues to have my unequivocal trust” and said the CEO had articulated “a smart, innovative and sustainable path to success” for Viacom. She asserts that Redstone can neither speak nor write, and was incapable of “communicating the general gist” of such a statement.

“In reality,” she says, “Mr. Dauman wrote all of the statements heaping praise on himself.”

Paul Bond contributed to this report.