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What Silicon Valley companies like Facebook should learn from the Viacom family drama

Will the real Sumner Redstone stand up?

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Sumner Redstone
Photo by Frazer Harrison/Getty Images

Sumner Redstone, the 93-year-old billionaire in control of MTV, Nickelodeon, Paramount, CBS and Showtime, is currently enmeshed in a fascinating train wreck of a family drama that could cripple his media empire.

It’s also a lesson for Silicon Valley, but more on that later.

For most of the year, Redstone has been in a fight with the board of Viacom, his own company, over who should be running the business and whether or not it should sell a stake in movie studio Paramount, a bizarre turn given that he controls 80 percent of the voting shares in Viacom.

Today, Redstone replaced five of Viacom’s board directors with new members who include venture capitalist and BuzzFeed Chairman Ken Lerer. Among the directors Redstone removed are CEO Philippe Dauman (he’ll remain CEO for now) and independent director Fred Salerno.

Viacom’s current board called the removals “invalid,” and Salerno has already filed a lawsuit challenging the move.

It’s a series of stupefying volleys between an owner and a board, spotlighting one of the most contentious regime changes in corporate history.

Ironically, the disagreement stems from the very controlling structure Redstone had set up a while ago, a structure that’s become popular among Silicon Valley companies like Facebook and Alphabet.

Simply put, the board of Viacom doesn’t believe Redstone, who is wheelchair bound and can barely speak, is being Redstone, and that any directive he’s issued is actually coming at the behest of his daughter, Shari Redstone. (Redstone is being fed steak through a tube, and a judge has determined he’s suffering from some form of dementia.)

The run-up to this has been going on for months, but let’s rewind to last week, when Salerno wrote to Redstone the following letter (which I’ve shortened):

Dear Sumner:

...

Strangely, in the last few months, a host of new advisors and spokespeople say they work for you. They claim that strongly held views you have expressed for decades have, in the past few months, completely reversed. They say you no longer trust your friends, your advisors, or your board. They tell us to believe that you have put your daughter Shari in charge of your trust and your board at National Amusements despite your clearly stated wishes and planning over many years that are to the contrary....

Sumner, we sincerely hope you are doing well. But it is alarming that your representatives refuse us the opportunity to talk with you, express our perspectives, share our friendship, or understand directly from you what your wishes might be and why. Bill Schwartz and I have not been permitted to see you, despite repeated requests. Philippe hasn’t been allowed to meet with you since early March. And we are quite concerned that your voice — and views — are not being heard. When your phone is dialed into our board calls from your home, no one says a word. When we ask for your vote, all we hear is silence....

Fred

Salerno’s letter summed up: Hey, Sumner, is that really you?

Two days later, Redstone’s representatives sent this six-sentence reply:

Dear Fred,

I reviewed your note. I no longer trust Philippe or those who support him. I am being sued by my fellow board members and my wishes are being ignored. I am determined to act in the best interests of the company and all of its shareholders. I do not trust you or the current board to do the same. So there is no doubt, Rob Klieger and Michael Tu are my attorneys and are acting at my direction.

Sumner

Later in the day, Salerno replied:

We could clear a lot of this up if Sumner would share his thoughts with me face-to-face.

Remember, this is a board director of Viacom, an $18 billion company, trying to get in the same room with the man who controls the company. It’s a fascinating series of letters where the once vivid Redstone comes across as a ghostly presence. The exchange itself is unusually beardless, devolving into an I can’t see you, I can’t hear you argument.

Basically, it’s clear Redstone’s troops don’t believe these letters bear the seal of the king, so to speak, and if Shari Redstone is indeed pulling the strings, as Viacom’s board claims, it’s Redstone’s sole control that has made it easier.

There is, in other words, no counterbalance to Redstone’s power, which had been designed as an effective monarchy, and that’s the danger. You only need to convince, or mark, one person to stage a coup — if that’s what’s happening. I’m not saying it is, just that the ownership structure makes such a thing more possible.

An independent board, along with shareholders, acts as a check against management as well as major owners, but that doesn't work when a company allows the majority of power to rest with one individual.

What does this have to do with Mark Zuckerberg, CEO of Facebook, or Larry Page, who runs Alphabet?

Both Zuckerberg and Page also control their respective companies through a share structure that gives them the majority of votes. Tesla founder Elon Musk doesn't control company votes but a series of built-in hurdles in the bylaws make it difficult for anyone else to enact changes.

It’s a fairly common method among media companies, which had long argued that news publishers shouldn’t be held hostage by shareholders out for pure profit.

As examples, News Corp, which publishes the Wall Street Journal, is effectively controlled by Rupert Murdoch, and the New York Times is controlled by the Ochs-Sulzberger family.

Tech companies similarly argued that fledgling technologies needed to be nurtured irrespective of immediate profit, in order to be more profitable later.

It’s hard not to consider, though, that the motives are really be about maintaining control, either by a founder, an entrepreneur or a family who can’t fathom anyone else touching what they think of as their property. These companies are public in name only.

Twitter, by contrast, doesn't have a shareholding structure that allows CEO and founder Jack Dorsey to control the company — and now it's very much in play as a takeover target.

To say they all want the same thing certainly doesn’t mean they’ll all operate the same way, or will ultimately bear families leading to intractable squabbles. But the degree to which Redstone stands as an example: He harbors the same single-mindedness running through a lot of the executives mentioned above.

A mathematical wunderkind, Redstone graduated from Harvard in three years, and he served in the armed forces as a cryptographer during WWII. He beat out a consortium of investors to own Viacom in the late ‘80s, and a few years later fended off Barry Diller and John Malone to win Paramount Pictures. At age 55 he escaped a hotel fire by hanging three stories off a window ledge after flames melted his legs down to the arteries.

Redstone also typifies the dealmaking ethos that pervades the Valley, as well as the highhandedness often seen among startups, if a bit less colorful. It's hard to imagine a lot of successful Valley founders submitting to the check and balance structure public companies are expected to abide. And Like a lot of hard-headed founders, Redstone has never been anyone’s amanuensis, or certainly has never been accused as such.

But as Salerno said in his retort today: “Sadly, it is now clear that Mr. Redstone is being manipulated and used by his daughter in an attempt to accomplish her long-held goal of gaining complete control of Viacom.”

This article originally appeared on Recode.net.

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