by Keach Hagey
On October 7, 2015, the Wall Street Journal wrote a front-page story about the growing investor unrest over Viacom’s performance and questions about Sumner’s mental state. The story counted Shari, who had lost a huge share of her and her children’s personal fortune from the stock drop, among the unhappy investors, and included the ominous line for Dauman that, while Shari had not been clearly named as her father’s successor, she saw a path to control of the trust. Hours before the story was to be published, Sumner emailed the Journal voicing full-throated support for Dauman, saying he “continues to have my unequivocal support and trust.” And then he took a swipe at Shari with echoes of the 2007 Forbes letter, saying that “the transfer of what I created—my controlling interest in Viacom and CBS—to an independent trust that I set up decades ago will ensure that the assets are professionally managed for the benefit of all shareholders. Recent speculation about personal agendas has only confirmed for me the wisdom of my decision.”
This was Daumanese for “Back off, Shari.” The idea that Sumner could have written, or even dictated, this statement strained credulity, but Viacom’s leadership had closed ranks, pointing to the mental capacity tests that he had recently passed when he wrote Sydney out of his will.2 The Journal later reported that Dauman had written the statement heaping praise on himself with the help of Folta, though there had been some editing changes—from whom it wasn’t entirely clear—made at the mansion.3
The day after the article ran, Dauman went to visit Sumner. The old man sat in his upholstered armchair watching baseball on mute while Dauman took the seat to his left and Manuela took the seat to his right. In a later affidavit, Dauman claimed that Sumner was “engaged and attentive” during this visit. “We had an extensive business discussion regarding articles that had appeared recently in the New York Times and the Wall Street Journal, and we also discussed personal matters,” he said.4 Manuela described the scene differently. “During the time that Mr. Dauman was in the room, Sumner looked at him only a few times. Most of the time, Sumner was gazing somewhat vacantly toward the television or me. During the entirety of Mr. Dauman’s visit, there was no two-way conversation or discussion between Mr. Dauman and Sumner. None whatsoever . . . It was a monologue by Mr. Dauman that Sumner did not appear to comprehend.”5
Sumner’s mental state during this apparently inconsequential meeting would turn out to be very consequential indeed—because of what happened next. Exactly how Manuela Herzer came to be ejected from Sumner Redstone’s mansion less than a week after this meeting is lost in a fog of accusations and counteraccusations, but a few things are clear. The first is that Sumner did not handle the breakup with Sydney well. He cried all the time and was more fragile and vulnerable than at any point in his long life. The second is that Manuela was not beloved by the household staff. She was a tough, demanding boss on a good day, and in the tense weeks following Sydney’s departure—when the tabloids were beginning to whisper she was next—she unleashed what staff called a “reign of terror” on the people working in the house. The third is that this terror extended into her wanting to keep rivals out of the house, whether they be Sydney or any of the women who Sumner casually paid for sex.
According to Manuela’s legal filings, in the days following Dauman’s visit, a group of nurses and staff members loyal to Shari—Tuanaki, Jagiello, and another nurse named Igor Franco—went to Sumner to stage an “intervention” against Manuela. Tuanaki presented Sumner with his will, telling him that he had only planned to leave Manuela $15 million instead of the $50 million that he had left her. According to the filings, Sumner responded with a simple, final statement ending their relationship: “Call Leah.”6
According to Sumner’s legal filings, the staff’s mutiny against Manuela was about love, not money. In this version, the staff told Sumner that Manuela had been making them lie about the availability of one of his favorite female companions, Terry Holbrook, and had intercepted Sydney’s real letter of apology.
Manuela woke up on the morning of October 12 worried about Sumner’s health, according to her legal filings. He had seemed particularly out of sorts at the previous evening’s movie night with his friends, CBS board member Arnold Kopelson and his wife, Anne, and had even had to have the room cleared at one point so that his windpipe could be suctioned. Manuela told one of the nurses that his doctor should examine him that day, and then went out to run errands. When she got back later that morning, everything had changed.
“Mr. Redstone doesn’t want you here,” Tuanaki told her as she approached him in the hallway, according to her filings. She walked past him, down the hall, and into the sitting room, where Sumner, a nurse, several aides, and Bishop were awaiting her. Mayhem broke out. Bishop, who had Andelman on the line, held up her cell phone and yelled, “You can’t be here!” And then, to Andelman, “Manuela is here but is not supposed to be here. I don’t know how she came in.”
Manuela went up to Sumner, who was staring vacantly. “Are you okay?” she asked him. In Manuela’s telling, Sumner said nothing. In the telling of Gabrielle Vidal, Sumner’s lawyer at Loeb & Loeb, he said, “Yes.”
Bishop demanded that Manuela leave the house so that she could talk to him alone. “Do you want me to leave? Are you mad at me?” Manuela asked Sumner. Again, in Manuela’s telling, Sumner said nothing. Again, in the telling of Sumner’s lawyers, he said, “Yes.”
Manuela asked a third time, and Sumner grunted and began to bawl. Manuela asked Jagiello what Sumner said. Jagiello replied that Sumner had said he wanted her to leave. “What do I do?” Manuela asked Bishop. Bishop said that Sumner wanted to talk to her alone and that Manuela could come back later and collect her things. As Manuela left the room, she looked over her shoulder at Sumner, who was still sobbing.7
When Manuela called Bishop later to ask why she had been kicked out, Bishop would only tell her that she had “lied” to Sumner. When she asked Dauman, he told her that the “lie” had been the credit card that Sumner had allowed Keryn to use and then forgotten about, and the cameras she had installed, she claimed with Sumner’s permission. (“I did not lie,” Manuela said in court papers. “Sumner had simply forgotten what he said.”)
On October 16, Manuela was removed as Sumner’s health care agent and erased from his will, paving the way for Shari and her children to reenter Sumner’s life. Dauman was made the health care agent. The house was stripped of photos of Manuela and her family and, according to Manuela’s filings, household staff was made to sign loyalty oaths promising not to speak to Sumner about Manuela or communicate with her. Keryn was also banished, unable to visit her “Grumpy” until a lawyer-negotiated visit in February.8
But Manuela was not about to go quietly. In the spring, she and Sydney had hired Pierce O’Donnell, a charismatic, high-profile, and wildly expensive Hollywood lawyer expert at using the press as a weapon in litigation, to protect them from the legal challenge they expected from Sumner’s family after he died. O’Donnell had just become a household name in Los Angeles for his role in another case that involved a rich, older man of questionably sound mind, a much-younger girlfriend, and a high-profile media asset hanging in the balance. He had represented Shelly Sterling, the wife of Los Angeles Clippers owner Donald Sterling, in a case that led to her selling the team to former Microsoft chief Steve Ballmer after her husband’s racist rant was released to TMZ by an ex-girlfriend. Sumner had paid O’Donnell’s $100,000 retainer, and for months he had worked closely with Bishop to shore up Sumner’s gifts to the women.
Now, with those bequests stripped away, O’Donnell suddenly found himself squaring off against Loeb & Loeb as he tried to get Manuela an audience with Sumner and a chance to reclaim her belongings. Finally, on November 23, after a blizzard of negotiation between their legal teams, Manuela was allowed back into the mansion briefly. The scene resembled “trying to enter the White House,” recalled another of her lawyers, Ronald Richards. Plainclothes security guards were all over the grounds, each guard wearing a Secr
et Service–esque radio earpiece. An opaque black curtain had been hung near Sumner’s bedroom with a half-dozen security guards around it so that there would be no visual or auditory contact. “It was as if Mr. Redstone was a prisoner in his own home,” Richards said, adding that after they left, the house was swept for bugs.9
On November 25, 2015, with her designer clothes now safely in her possession, Manuela dropped the bombshell that would alter the future of two major public media companies. She filed a petition in Los Angeles Superior Court to be reinstated as Sumner’s health care agent, arguing that Sumner was non compos mentis when he signed the papers removing her and demanding that his mental capacity be tested by an independent doctor. It was a tricky argument for her to make, because she had to show that Sumner had had his marbles as recently as early September, when he left her $70 million in his will and made her sole health care agent, and then suddenly lost them over the next six weeks. The lawsuit was a stalking horse for her lawyers to be able to gather evidence about Sumner’s mental capacity, with the aim of challenging his decision to strip her from his will after he died. Its impact, however, went far beyond that because the question that Manuela was asking—is anybody in there?—was the same one that Viacom and CBS investors were asking. The media feasted on her complaint, which was brimming with prurient details about Sumner’s life as a spaced-out, incontinent, wholly dependent “living ghost” who was nonetheless obsessed with eating steak and having sex daily. Most damningly for the boards and top management of Viacom, CBS, and National Amusements, Manuela claimed he was “unable to follow plot lines of films or television shows or follow conversations of more than a brief duration,” unable to write, unable to converse “except for brief grunted responses to directed questions,” and no longer aware of what was going on in world events or the financial markets.
If Manuela’s account of Sumner’s status was correct—and in this matter, her credibility was greatly aided by the fact that she was calling for an independent doctor to come examine him—then a great fraud had been perpetrated upon the shareholders of Viacom and CBS, who had been paying tens of millions of dollars to an “executive chairman” who could not manage to stay awake until the end of a televised baseball game and sobbed through the opening credits of Deadpool. Worse still, his name and quotes were being used to justify the continued employment of a CEO who had just overseen the evaporation of half his company’s value in the last two years. Dauman had almost no choice but to respond. And so, immediately after Manuela filed her suit, Sumner’s lawyers at Loeb & Loeb filed their response trying to block further discovery, attaching an affidavit from Dauman in which he described finding Sumner “engaged and attentive” during his recent visits.10
Wall Street howled in protest, sending Viacom’s stocks and, to a lesser degree, CBS’s, tumbling. Mario Gabelli, whose funds own the second-largest portion of Viacom voting shares outside the Redstone family, asked Dauman for more disclosure about Sumner’s mental competency. “All I know is, you cannot have Philippe Dauman, the CEO of a company that has some business issues, in a position where the press is saying maybe there’s some lack of credibility,” he said. “I’m just asking for some clarity, which is what any public company has to do.”11
Sumner’s lawyers at Loeb & Loeb furiously fought to keep Sumner from having to submit to a mental exam, but they could not protect Dauman. Because of his earlier affidavit, Manuela’s lawyers had grounds to subpoena him seeking his deposition. Dauman was forced to hire his own legal team to try to quash the subpoena.12 Meanwhile, as Dauman was fighting a legal battle to preserve his credibility, an activist Viacom investor named Eric Jackson attacked his business acumen in a scathing ninety-nine-page slideshow arguing that he should be fired. With just $300 million in assets under management, Jackson’s SpringOwl Asset Management could hardly throw its weight around in the tightly controlled company. But Jackson’s cheeky slideshow—with its multiple Weekend at Bernie’s references and sarcastic French cartoons reacting to Dauman’s outsize pay (“Oo-la-la, c’est trop cher!”)—was a viral hit among the investor class. Bob Kraft’s office asked for a copy.
The effect of the slideshow was such that, as Viacom’s annual disclosure of its executives’ compensation loomed a few days later, the company attempted to bury the news of Dauman’s latest pay raise by releasing information about his compensation in pieces. On January 20, Viacom took the highly unusual step of announcing that Sumner’s pay had declined 85 percent in fiscal 2015 due to his reduced responsibilities and that Dauman’s bonus had declined 30 percent, without any further elaboration.13 But when the full proxy came out two days later, Dauman’s total compensation had actually grown 22 percent to $54.2 million in fiscal 2015, while the company’s stock price dropped 44 percent.14
It was just too egregious. Wall Street wanted his head on a pike. Instead, it would have to settle for the knowledge than Manuela’s hand-picked geriatric psychiatrist would soon be evaluating Sumner’s mental state, following the order of a California judge in her case.15 For the boards of Viacom and CBS, that meant the jig was up. Although the results of the exam were to remain sealed, just days after the doctor drove through the gates of Beverly Park to administer the exam, both Viacom and CBS announced that Sumner was stepping down from his position as executive chairman.
CBS went first, offering a master class in Shari relations. The CBS board offered her the position of nonexecutive chairman, in accordance with her rights, but Shari declined the offer and nominated Moonves for the job of executive chairman. In his statement on the move, he thanked her and praised “her business acumen and knowledge of the media space.” At Viacom, which was caught unawares by CBS’s move, there were no such niceties. Ahead of Viacom’s board meeting to vote on its next chairman, Shari put out a statement saying she didn’t believe her father’s successor should be “entwined in Redstone family matters, but rather a leader with an independent voice.”16 Briefly believing this meant that Dauman was out, the market sent Viacom’s stock up 5 percent on the morning of the board meeting. But when the vote for the next executive chairman was held, Dauman got every vote except for Shari’s, sending the stock back down. Wells Fargo analyst Marci Ryvicker wrote that Dauman’s “elevation to executive chairman likely means there will not be a change in control,” adding that “this is the most likely cause of the stock’s pullback.” CBS shares, meanwhile, were up 1 percent.17
Rarely in American business has an executive gotten such a big promotion under such crushing pressure. Three days after becoming executive chairman, Dauman broke from his typically unflappable decorum and lashed out at his critics on an earnings call with analysts, saying, “Our outlook and the facts have been distorted by the naysayers, self-interested critics and publicity seekers.” But these words rang hollow amid reports of yet another catastrophically bad quarter, in which revenue and profit declined, revenue missed analysts’ estimates, and the company was forced to lower its earnings guidance for the future because it wasn’t going to be able to get as much money from subscription fees anymore. The stock dropped 13 percent on the earnings, close to a five-year low. When an analyst asked what qualities the board had seen in him and his performance to merit his new role, Dauman replied that the stock drop was accentuated by “a lot of noise that’s surrounding us,” adding, “I think it’s obvious to everybody what the noise is.”
If Dauman was going to survive, he would need to do something big, and fast. In the last year, he had made several smart deals, including the purchase of the British broadcaster Channel 5, which immediately bolstered Viacom’s international division’s results, and a forward-looking deal with Snapchat to sell advertising against the vanishing-messages app company’s owned and operated content. But none of these could offset the effects of the huge ratings declines and distribution woes that the core cable channels were still suffering. For years, many on Wall Street had grumbled that Viacom ought to get rid of Paramount, which was financially hardly worth the headache it
took to run. Paramount had been able to provide some surges of profits at key moments in the past, but by early 2016, it had come in last at the box office for each of the last four years, as Brad Grey pursued a cautious strategy of making fewer movies than competitors in hopes of focusing more on profits. As franchises like Transformers and Paranormal Activity began to age, losses widened. By the end of fiscal 2016, Paramount had lost $445 million.
So, two weeks after becoming executive chairman, Dauman announced that Viacom was looking to sell a minority stake in Paramount by the end of June. The plan made some sense. The market was only assigning Paramount a value of about $1 billion, but Dauman believed that the mystique of the 104-year-old Hollywood studio, along with its vast library of more than three thousand titles, could get a partner to value it at closer to $10 billion—particularly if that partner was of the deep-pocketed, starstruck, Chinese variety like Dalian Wanda Group Co., which had just paid $3.5 billion for Legendary Entertainment, the production company behind Jurassic World that wouldn’t even qualify as a “mini-major” studio, let alone a major. Indeed, by mid-March, Dauman claimed to have received interest in Paramount from three dozen firms, including “some Asian interest.” It would later emerge that Wanda, led by China’s richest man and with ambitions to form an entertainment powerhouse with assets like AMC Entertainment and Dick Clark Productions, was in talks to buy a 49 percent stake in Paramount. Analysts and investors largely applauded the idea, especially Gabelli, who had publicly called for Paramount to do a similar deal with Alibaba or Amazon a few months earlier.