by Keach Hagey
People close to Sumner pointed to his anger over his pay cut as another reason he was ready to ax Dauman and Abrams. When their replacements were formally announced a few days later along with the appointment of Shari’s daughter, Kim, to the National Amusements board, Sumner’s statement had an Old Testament quality: “This is my trust and my decision,” he said. “I have picked those who are loyal to me and removed those who are not.”7 If you listened hard enough, you could almost hear the theme from The Godfather playing in the background.
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Fred Salerno knew this movie was unlikely to end well for him. Just a week before, the telecommunications veteran had been named to the newly created position of lead independent director—a role he had played on other public company boards—in a last-ditch effort to quell the critics of Viacom’s corporate governance. But as soon as the Redstones made their move against Dauman, Salerno cast his lot with the beleaguered CEO, with whom he had served on Viacom’s board for nearly three decades. “We believe that Philippe and the entire management team have a strong and smart plan to move forward and prosper, and we support that plan,” he wrote in an email to the entire Viacom staff the weekend of Dauman’s ouster.8
For weeks, Salerno had been playing a cat-and-mouse game with Sumner’s lawyers, trying in vain to get an audience with Sumner so that he could judge for himself whether Sumner really knew what was being done in his name. Before the trial, the lawyers nixed any visits to avoid upsetting Sumner. After the trial, Klieger said any visits had to wait until Sumner had his corporation counsel. Once Tu was hired, he then took up the mantle of keeping Salerno at bay, saying any meeting would “need to be considered carefully” given Salerno’s comments to the press about Sumner and Shari, and asking Salerno to submit an agenda of the proposed meeting. Salerno sarcastically followed orders, saying the meeting would open with “greetings and pleasantries about our shared experiences over decades together as colleagues,” followed by a “Q&A session” and “anything else Sumner would like to share with us” and finally “good-byes.”
But he knew that it was just a matter of time before he and much of the rest of the board would be ousted as well. They laid plans to sue to block their ousters in Delaware, where National Amusements was incorporated.9 “We know that such an attempt, on its face, would be completely inconsistent with Sumner’s lifetime commitment to an independent Board and professional management for Viacom after his incapacity or death,” Salerno wrote in an open letter on May 30 responding to speculation about his imminent ouster. “More specifically, it would be equally inconsistent with his stated judgment for many years that his daughter, Shari, should not control Viacom or his other companies.” It would be easier to just leave, he said, but “to a person” the board felt morally bound to fight because “of the inexplicable assertion that Sumner was acting of his own free will” while simultaneously dodging a face-to-face meeting with Salerno and another director.10 The board was unhappy with Viacom’s performance, he wrote, which was precisely why it wanted to explore a sale of a part of Paramount to provide much-needed cash and strategic help to aid the company get back on its feet.
Viacom’s slump proved to be just the leverage Shari would need. Viacom’s stock leaped 13 percent in the week after Dauman was kicked off the trust, signaling that investors were eagerly awaiting his departure. In response to Salerno’s attacks, Shari ceased at least part of the charade that she had nothing to do with the shake-up. Through her spokeswoman, she once again reiterated that she had “no desire to manage Viacom nor chair its board” but made a forceful case that an overhaul was needed. “The shareholders whom Salerno and the other independent directors purport to represent have already spoken—they want new management at the top and strong Directors with independent oversight on the Board.”11 Reports began to surface that she was already on the hunt for a CEO to replace Dauman, talking to luminaries from the company’s glory days like Judy McGrath and Jeffrey Katzenberg.12 When Sumner’s lawyers filed their motion to block Dauman’s suit, arguing that Sumner had been found to have “legal mental capacity,” they also mentioned that Dauman had done “a bad job running Viacom.”13 As if to hammer home the point, Paramount’s big summer movie, Teenage Mutant Ninja Turtles: Out of the Shadows, had just bombed at the box office, opening to an estimated $35.3 million after costing $135 million to make.14 Its weak performance would force Viacom to lower its profit guidance for the third quarter.
At the same time that Sumner’s lawyers were arguing that he had capacity, they were also (rather incredibly) arguing that it didn’t matter whether he had capacity or not. A few days before the first Massachusetts court hearing on June 7, Klieger revealed that four of the seven trustees had ratified Sumner’s decision to kick Dauman and Abrams off the trust, making the move valid regardless of whether Sumner had capacity.15 This meant that David Andelman, long in lockstep with Dauman and Abrams against Shari when Sumner was well, had sided with Shari now that Sumner was sick. Several people familiar with the matter said that Andelman’s signing off on so much of the money that the women received from Sumner left him vulnerable. “David is not a super-wealthy guy,” one of them said. “He billed the Redstones over the years, but he couldn’t withstand a Redstone lawsuit for the rest of his life. He made the pragmatic decision, ‘I’m going to go with Shari.’ He was always the weak link . . . That was basically checkmate, once she had David.” Andelman denies this was his motivation. “Shari never threatened me with litigation over my role in Sumner’s giving money to the women, and I did not ‘flip to her side’ but continued to represent Sumner and act in his best interests,” he said.
The National Amusements vote meant that Dauman and Abrams “literally cannot win,” as one person close to the matter put it. Even if the Massachusetts judge found that Sumner lacked capacity, they were not getting back on the National Amusements board or the trust. Nevertheless, on Monday, June 6, Dauman’s and Abrams’s lawyers pushed for an immediate medical examination of Sumner, who was so unwell, they claimed, that he could not “speak, stand, walk, eat, write or read.”16 Sumner’s granddaughter Keryn, who had decided to join the ousted trustees in common cause, said the last time she saw her Grumpy in February, he just “sat there lifeless.” Represented by O’Donnell—who was still warring on several legal fronts on behalf of Manuela—Keryn claimed Shari and her children had managed to “effectively kidnap, brainwash and take advantage of my grandfather due to his debilitated state of mind and frail health.”17
As a beneficiary of her grandfather’s trust and a mortal enemy of Shari’s, Keryn had a lot to lose if Shari and her allies got control of the trust. The day that Manuela’s case got tossed out, she had tweeted a doctored photograph of Shari looking vampirically white-faced with blood dripping down her chin. A more incendiary tweet, accusing Shari of buying “hookers for her father,” was deleted immediately, but some screenshots were captured by the Hollywood Reporter and the whole episode was enough to earn her a cease-and-desist letter from Klieger.18
Dauman and Abrams weren’t the only ones in a hurry. On the eve of the first court date, the newly constituted National Amusements board announced that it had changed Viacom’s corporate bylaws to require a unanimous vote to approve any sale of any part of Paramount, slamming the brakes on Dauman’s last desperate effort to save the company’s deteriorating finances. Viacom denounced the move as “illegitimate,”19 but it was increasingly clear that Viacom’s management wouldn’t be in charge of the company much longer. Jeffrey Sonnenfeld, senior associate dean at Yale School of Management, told the Wall Street Journal the move “definitely smacks of a cat playing with its prey before the kill.”20
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On the hot and steamy summer morning of Tuesday, June 7, twenty-two lawyers crammed into the fluorescent-lit courtroom of Norfolk Probate and Family Court in the quiet Boston suburb of Canton, Massachusetts, just down the highway from Mickey’s original hometown drive-in in Dedham. On one hand, it seemed appropriate
that the fate of the vast Redstone media empire would be decided here, in this faceless office park in the Redstone homeland, inside this curious modernist building resembling a cartridge of film made by the Eastman Kodak Company—the very company that Viacom had been compared to for its inability to adapt to technological change. But on the other hand, the court seemed unprepared for a fight of this scale and import. Dauman and Abrams had named every trustee and beneficiary of the Redstone family trust in their suit, right down to Kim and Jason’s two small children, forcing every one of them to hire counsel. The courtroom looked, in the words of one observer, “like a bar association meeting.” Judge George Phelan marveled at the sums involved. “I grew up in a housing project where I was lucky to have a quarter in my pocket, so I’m still trying to grasp the concept of billions with a ‘B,’” he said.21
He proved reluctant to make any fast moves—and fast moves were what Dauman and Abrams needed. While their lawyer, Leslie Fagen of Paul, Weiss, claimed Sumner was “holding on to life by a thread,” Klieger countered that he was exercising daily and leaving the house to visit his grandson Brandon and his friends in Malibu.22 When Judge Phelan probed why Sumner, if upset about Paramount, didn’t speak up at the board meeting he was dialed into recently, Klieger said, “Telephone calls are not generally where he expresses his views best.” Judge Phelan said he would need a few days to decide whether to allow the expedited discovery, and he “might or might not” make a decision before Sumner’s lawyers make their motion to dismiss the suit outright later in the month.23 The speed that Dauman and Abrams needed did not seem likely to come from Massachusetts.
Chapter 23
“Cleaning House”
Meanwhile, as the armies of lawyers were assembling in Massachusetts and Delaware in early June, Shari’s son Tyler wondered if he couldn’t defuse the situation in a different way. Without his mother’s knowledge, the thirty-year-old start-up CEO quietly reached out to Dauman to see if they could reach a settlement through back channels. Tyler had served alongside Dauman on National Amusements’ board, and the two exceedingly polite Manhattanite lawyers shared a nerdish delight in the intricacies of business transaction law. Tyler felt sure that Dauman, being both pragmatic and risk-averse, was a reasonable enough person to come to the negotiating table and find a way to a peaceful exit. He was right.
Soon after, Tyler and his lawyer, David Sloan of Holland & Knight, and Dauman and his lawyer, Bob Schumer of Paul, Weiss, sat down in a conference room at Viacom’s headquarters and kicked off what would end up being nearly two months of settlement talks. Tyler felt that the key was to give Dauman some kind of capstone for his long career—for the veteran mergers and acquisitions lawyer, ideally a transaction—that would allow him to leave with dignity. In early talks, Tyler even floated the idea of merging Viacom and CBS, which the National Amusements board had been mulling for three years. But it became clear that the transaction that Dauman felt was most necessary to stabilize Viacom was to find a joint venture partner for Paramount. And so the outlines of the deal came together quickly: Dauman would step down after getting a chance to pitch the benefits of the Paramount deal to the board, and the rest of the troublemaking board members would go, more or less immediately.1
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Meanwhile, unaware of the peace talks, Dauman’s enemies escalated their attacks. In an effort to disprove the argument that Sumner was “holding on to life by a thread,” Shari loaded Sumner into a minivan and drove him to the Paramount lot. Around eleven a.m. on Friday, June 10, they parked in front of the Sumner Redstone Building, which had once housed Adolph Zukor’s office—Sumner had crowed during the naming dedication in 2012 that they hadn’t waited for him to die to name it after him because “I will never die”—and, for ten brief minutes, welcomed Brad Grey into the vehicle for a visit. A source told the Hollywood Reporter that Sumner took a tour of the lot afterward, marking the first time he was seen in public in a year.2 He and Shari performed a similar maneuver at CBS’s West Coast offices in Studio City the following Tuesday, with CBS CEO Leslie Moonves coming down for a roughly ten-minute chat, according to the Wall Street Journal. When Salerno, who had still made no progress in his quest to see Sumner in person, called the visits “staged legal and publicity ploys,” Sumner’s spokesman released a statement saying, “I no longer trust Philippe [Dauman] or those who support him.”3
Up to this point, Tom Freston had mostly kept his dismay over the decline of Viacom to himself, busying himself instead with philanthropy, investing, and helping Vice Media take over the world. But during a June 15 interview with CNBC, he went public with his low opinion of Dauman. “I don’t think he’s been the optimal leader for the company,” Freston said, adding, “There’s been a series of pretty serious errors.” His critique was so scathing, from the folly of the YouTube lawsuit to the corporate culture that had driven all the creative people from the building—including the departure of megastars Jon Stewart, Stephen Colbert, and John Oliver from Comedy Central in a matter of months—that Viacom felt it had to respond. “Viacom is significantly bigger, more global and generates far more profits today than when Philippe Dauman’s predecessor left office in 2006,” Viacom’s spokesman told CNBC.4
In a subsequent interview, Freston said he had not gone on television intending to take down Dauman, but when they started asking him questions, he could not help but answer them truthfully. As to whether Shari put him up to it, he told CNBC that, although they are friendly, “she doesn’t even know I’m on TV.” But after he got off, she sent him an email filled with smiley-face emojis. In the court of public opinion, Dauman was losing.
Against this backdrop of extraordinary public sniping, the next day’s sudden overhaul of Viacom’s board, which would have been shocking on any other day, seemed almost normal. As the various players in the drama had been expecting for weeks, National Amusements announced that it was booting Dauman, Abrams, Salerno, and two other independent directors from the Viacom board. In their place, it put forth a formidable crop of new directors with more media industry experience, including Ken Lerer, the longtime MTV PR consigliere who had gone on to cofound the Huffington Post and chair the board of BuzzFeed; Judith McHale, the former CEO of Discovery Communications; Ronald Nelson, the former COO of DreamWorks SKG who had since become chairman of Avis Budget Group; Nicole Seligman, a former president of Sony Entertainment; and Tom May, the chairman of Boston’s Eversource Energy. Salerno immediately sued in Delaware to block the overhaul, calling it a “brazen and demonstrably invalid attempt” by Shari to get control of Viacom against her father’s wishes. Shari denied orchestrating the move but said, through her spokeswoman, that she supported the shake-up that “has nothing to do with power or personalities and everything to do with maximizing value for all Viacom shareholders.”5 Dauman was not officially out as CEO yet, as that decision was technically up to the board, but there was no question where that train was heading. That same day, according to a later report in the Wall Street Journal, Shari called Tom Dooley to ask him to be interim CEO when Dauman left. Dooley agreed, and padded the few steps over to Dauman’s office to let him know. Dauman was resigned to his fate, saying, “If that’s her plan, that’s her plan.”6
But that didn’t stop him from trying to seal one last deal before he had to hand in his badge. As both the secret settlement talks and the litigation dragged on in multiple states through July, Dauman continued to press for a partner for Paramount, entering into advanced talks to sell a 49 percent stake in the studio to China’s Dalian Wanda Group, a deal he felt would add as much as $10 to Viacom’s stock price. But when news of the talks leaked to Reuters, National Amusements was quick to reject the idea—apparently regardless of the price—arguing that such a deal would limit Viacom’s ability to take on other partners and “chill the interest of parties that may be interested in a larger transaction involving all of Viacom.”7 Analysts expected that the first of these “larger transactions” would likely be a merger with CBS, whic
h many analysts had been pushing for years. Earlier in July, Moonves—who was known to have expressed interest in running a movie studio and been annoyed when Paramount went to Freston in the 2006 split—had been spotted at the annual Allen & Co. media industry conference in Sun Valley, Idaho, driving Shari to dinner in his rented Buick.8
* * *
By July 27, Dauman had negotiated his gentleman’s surrender with Tyler and the rest of the Redstones and was ready to share the news with the rest of the Viacom board. It went over like a lead balloon. Salerno and his fellow independent directors were livid that Dauman had been negotiating behind their backs and even less pleased that the deal had a soft landing for himself but an abrupt departure for his fellow directors. “I think they were very upset with what Philippe had been doing,” said one person familiar with the negotiations. “They did not reject it out of hand, but they slow-played it to see what was going to happen in Massachusetts and Delaware.”
What happened in Massachusetts and Delaware were big wins for Dauman and the other beleaguered directors, which changed the power dynamic behind the settlement talks. In both cases, the Viacom directors’ charges that Sumner was being manipulated were taken seriously enough that trials were set in October. Judge Andre Bouchard in Delaware was particularly dismissive of the argument that Sumner’s mental capacity was irrelevant because they had the votes without him. “There could be total exploitation of somebody who had no desire to do this, and it would be totally unreviewable,” he said.9 Talks went dormant.
They were revived by Viacom’s apocalyptically bad third-quarter earnings report, which, when it was delivered, on August 4, managed to set in motion what dozens of lawyers in multiple states were unable to do. Profit had plunged 29 percent in the quarter. Weak ratings at the cable networks sent advertising revenue down 4 percent. And most troublingly, affiliate sales—those supposedly ever-rising fees from cable and satellite companies that were the engine of Viacom’s growth for decades—were down 10 percent. Paramount, executives warned, was going to operate at a loss for the year—a loss that ultimately turned out to be nearly half a billion dollars.10 After the earnings call, National Amusements, acting more like a particularly aggressive activist investor instead of the controlling shareholder that it was, put out a statement saying that Viacom’s management had “failed to articulate a credible long-term plan to reverse the company’s decline.”11