Trouble in the House of Redstone
Starting with nothing more than a local theater chain and a streak of ambition, the Redstones built a media empire that ultimately would span the globe– then spent years fighting over it. Now the family is engaged in its biggest battle yet, between Sumner Redstone and his enigmatic daughter, Shari. Could this be the final act for one of the greatest business dynasties Boston has ever seen?
Such a conclusion wasn’t always foregone. Four years ago, before the Redstone feud erupted into open warfare, Shari was considered a “magnate in waiting.” Viacom board member Joseph Califano went so far as to compare her to the late Washington Post chair Katharine Graham. “When [Shari] comes out of the shadows, she will clearly be a star,” Califano told the Wall Street Journal.
War can be a series of small skirmishes that add up to an intractable conflict. And those looking to chart how the sniping between Sumner and Shari escalated into the battle that now divides them should look to April 2007.
Sumner had decided to make a gift through his charitable foundation using $105 million of National Amusements’ shares in WMS Industries, a slot-machine maker. He has been generous with his money over the years, giving away millions, mainly to hospitals. Part of this gift would go toward creating the Sumner M. Redstone Emergency Department at Massachusetts General Hospital.
But Shari protested. She wanted the gift to come from the company, not Sumner’s foundation. National’s board overruled her. Her stance upset Sumner. It fit a pattern, dating back to at least 2005, of Shari challenging her father, often at meetings in front of his disciples.
In previous years, Sumner had praised Shari in public, calling her “a great businesswoman” and “a hotshot.” Behind the scenes, it was different. When Shari decided to recruit new members to the companies’ boards, she irritated her father. Some of Shari’s picks for directors were her friends; Sumner viewed a few of them as lackeys. Two were gone within a year. (One who stuck due to his own merit is Patriots owner Bob Kraft.) Shari had also opposed Sumner when he tried to give himself a raise at National. She seemingly won that battle, but he was stung by her comments about “good corporate governance.”
Shari’s demeanor was a problem for other executives at Viacom and CBS, who saw her as pushy and overly keen for power. Mel Karmazin, a former Viacom president, demanded she stop attending budget meetings. Philippe Dauman, current CEO of Viacom, and Leslie Moonves, CEO of CBS, made it a point to avoid her. Moonves later restructured his contract to shield himself from Shari’s influence. “She rubs everyone the wrong way,” says a family adviser.
In the scuttlebutt channels, parsing the truth can be difficult. How much Shari deserved her snubbing may never be known, and people who have worked with her in other contexts speak warmly of her. “She always makes time,” says Sandy Sedacca, vice president of development at the John F. Kennedy Library Foundation. “She’s very down to earth. Our favorite meeting place is Starbucks.”
Some have wondered whether sexism played a role in Shari’s alienation: The aggressive son earns admiration; the aggressive daughter doesn’t know her place. Insiders say it wasn’t like that at all. “Sumner’s not easy, but he was not the same with Shari,” says an old family friend. “He was not as tough with Shari. He wasn’t as tough on her as he was with Frank Biondi or Mel Karmazin or any of the others. He believed in a girl. Not many dads believe in a girl, especially in a Jewish family. She had his affection. He used to take her out—he didn’t distance himself from her. He was really proud of her.”
By 2006, though, that goodwill had apparently dried up. During an interview that year on CNBC, Sumner declared that Paula Fortunato, his wife at the time, was closer to him than Shari was. In 2007, after Shari questioned Sumner’s charitable donation, he skipped a USO of Metropolitan New York luncheon honoring her as woman of the year.
Then he wrote the letter.
On July 20, 2007, Sumner sent a missive to Forbes that used Shari’s favorite phrase against her. “While my daughter talks of good governance,” Sumner wrote, “she apparently ignores the cardinal rule of good governance that the boards of the two public companies, Viacom and CBS, should select my successor…. It must be remembered that I gave to my children their stock; and it is I, with little or no contribution on their part, who built these great media companies with the help of the boards of both companies.”
The effect on Shari was devastating. She considered legal action. But the letter mentioned something else: a buyout. Sumner was willing to purchase Shari’s stake in National so that the two could part ways. In exchange for her shares and her departure from the Viacom and CBS boards, Sumner offered Shari a choice: She could either take the theater chain and its debt, or walk away with a payout greater than Brent’s $240 million settlement. Negotiations broke down after the economy soured, and National’s debt woes emerged.
In September 2008, one month before National’s debt crisis exploded into view, Shari appeared on a special edition of CNBC’s Squawk Box from Gillette Stadium. Deep into Shari’s promotional spiel about the new Cinema De Lux theaters, a question winged in from host Becky Quick: Will you succeed your father? A grimace flashed across Shari’s face and was immediately smothered, the billion-dollar question deflected.
The issue of where control will reside once Sumner is gone has intrigued and baffled observers for years. Financial analysts who stake their careers on knowing what’s what atop one of the world’s biggest entertainment companies admit to knowing not much at all. “I haven’t figured this out myself,” says Richard Greenfield of Pali Capital. “I’m still trying to piece together the trust…. It’s a closely guarded secret.”
He refers to the irrevocable SMR Trust, the legal vehicle that will decide the fate of the empire. It includes a “presumption” that Shari will succeed Sumner as chairman of Viacom and CBS, provided she sits on the boards of both companies when her father dies (Shari currently serves as vice chairman on both boards).
Like most things Redstone, this presumption can be traced back to a lawsuit. When they split, Phyllis sued Sumner for $3 billion, which would have been the largest divorce payout ever. In order to quell Wall Street worries about how the divorce might affect Viacom and CBS, Sumner agreed to a settlement that is sealed so tightly in Middlesex Probate Court that visitors can’t even look at the docket. According to a family adviser, instead of dividing his assets with Phyllis, Sumner agreed to split with her the substantial income his stock earned. (CBS alone pays National more than $75 million in dividends annually.) He also gave her 3.6 million shares of Midway and, reportedly, a multimillion-dollar suite in New York’s Pierre hotel. The arrangement allowed Sumner to retain control over Viacom and CBS. But Phyllis still wanted security. What if Sumner died before she did? The two agreed upon a presumption in the trust that names Shari as Sumner’s successor.
Shari believes the trust guarantees her succession, a theory she may test in court if Sumner doesn’t first oust her from the Viacom and CBS boards, a move within his power as chairman and majority vote holder. When Sumner dies, control of his shares will fall to four trustees: Shari, Philippe Dauman, and a pair of Boston attorneys, George Abrams and David Andelman. All three men are Sumner partisans. Abrams sits on the Viacom board. Andelman is on the CBS board. Dauman has had problems with Shari in the past. The likely outcome is that the three men will pool their votes and decide the future of Viacom and CBS, with or without Shari. If Sumner died today, a family adviser says, “technically she would succeed him as chairman, but only until the stockholders spoke. And Philippe controls those votes at that point.”
Nevertheless, Shari has pushed hard to be publicly named as Sumner’s heir, especially before the Midway meltdown. Of course, she must know what any sharp executive does: “Wall Street does not like nepotism,” says Laura Martin of Needham & Company. It’s just bad for business.
Comparisons to Citizen Kane and King Lear have been made many times before. In truth, the Redstones require their own opera seria: The family’s drama has played out in public, an American tragedy so profound that only the coldest heart wouldn’t go out to them. The dynasty is now just a father and a daughter, cleaved by years of dysfunction. “I think the wounds are too deep at this point,” a family friend says.
Sumner will be sitting alone now, in the cream-colored office inside his gated mansion in Beverly Hills, phone by his side, surrounded by aquariums filled with the saltwater fish that bring calm and tranquility to his racing mind. This is the man, widely regarded as a cruel money freak, who once hung a tender birthday poem from his daughter on his office wall. His net worth ebbs and flows, but he remains one of the richest people in the world. He is bullish about the future.
The stock market has recovered enough in recent months for Sumner to prevent the theater business from careening into oblivion. In October he offloaded $1 billion in nonvoting Viacom and CBS stock to pay down National’s remaining debt. The planned dismantling of the circuit was avoided. Now it’s clear that a smaller version of National will survive, with its New England theaters intact. But it remains to be seen what this means for Shari. She’ll likely stay on as president, albeit a humbled one. She and Sumner are said to be negotiating her future. For the first time in a long time, they’re talking.
At 86, Sumner stumbles occasionally. In court testimony in July, he mixed up his centuries: 1905. No, 2005. He is still clear-eyed, but he is stooped. When asked about his legacy at a media conference last year, he said, “I guess I’d like to be known as a loving and supportive father and grandfather.”
Shari is alone now, too. Winter has arrived. She will be watching football, the Patriots, her only identifiable passion outside of cooking and running theater circuits. She sits on the boards of charities like the Dana-Farber Cancer Institute and the John F. Kennedy Library Foundation, but she doesn’t attend many meetings, preferring to be briefed privately.
In August 2008, one month after Sumner appeared on CNBC and bluntly stated that his daughter would not succeed him, Shari registered her own “investment” business in Massachusetts. This March, when National Amusements put dozens of theaters on the block, she registered two similar LLCs, naming herself as the only officer. Was she (is she?) preparing to strike out on her own? At 55, Shari is nine years younger than her father was when he secured his own legend and began to cast the shadow she now lives in.
Shari named her new companies Legacy Ventures.