Last Wednesday, upon news that Sumner Redstone would step down as Viacom's (VIAB) Chair, the non-voting shares climbed to almost $50 per share in the after-hours market.
The next day, Viacom's board voted 10-1 -- with only Shari Redstone voting against -- to elevate Viacom's 10-year CEO, Philippe Dauman, to the additional post of Executive Chair. The stock immediately gave back all its gains.
Yesterday morning, Viacom released its latest set of quarterly earnings before the market open. Results, as they have been for the last few years, were disappointing. Yet, the stock was only down 2% initially in pre-market trading.
Then, the earnings call began, and Dauman started to speak. His comments did nothing to comfort shareholders, analysts who cover the company or Viacom employees. Instead of being contrite, Dauman was supremely defiant. Instead of providing further details about exactly how the company would turn around its fortunes, he was purposely vague.
Dauman placed Viacom's problems at the feet of "naysayers, self-interested critics, and publicity seekers." He said that much of the stock's nearly 50% decline in 2015 was due to "a lot of noise that existed around us." When asked to clarify what that noise was, he responded: "Well, if you haven't been listening, you don't know what the noise is. I think it's obvious to everybody what the noise is."
This is no way to run a company.
The stock immediately started to drop on Dauman's comments on the call -- and it didn't stop until the closing bell rang. What had initially been a 2% loss in the pre-market ended up being a loss of value for Viacom shareholders of about 21.5% in a single day.
Near the end of the day, CNBC's David Faber tweeted: "Viacom's board just made Philippe Dauman the company's chairman. Today, its shareholders fired him (figuratively)."
This morning, the stock is down again to around $32. From near $50 to $32 in the span of a week. It's incredible.
How did Viacom's board come to elect Dauman as Chair in 10-1 fashion and be so out of touch with its shareholders?
SpringOwl Asset Management's view is that Viacom's board of directors is not representing the wishes of its shareholders but of Philippe Dauman. As we said in our initial report released last month, we think a big part of the problem is that this board is "too large, too cozy, and too overpaid."
This is a board of 11 people. Only six of 11 are independent directors.
Let's now look at the six, supposedly independent directors:
-- Deborah Norville, who hosts a TV show that's produced by CBS Television, owned by Sumner Redstone. How independent can you be when your livelihood depends on agreeing with your boss?
-- William Schwartz has been on Viacom's board and predecessor boards since 1987. How independent are you when you've been on the same board for nearly 30 years?
-- Frederic Salerno has been on Viacom's board and predecessor boards since 1994. How independent are you when you've been on the same board for 22 years?
-- Charles Phillips has no media or digital/OTT work experience over his career.
-- Blythe McGarvie has no media or digital/OTT work experience over her career.
-- Cristiana Falcone Sorrell has no media or digital/OTT work experience over her career unless you count being a trustee of The Paley Center.
The average age of these directors is 61.
We believe that if Viacom had had a more diverse group of independent directors representing 75% of the board who were truly arm's length independent from the company, who were younger, who had direct media or digital/OTT experience, and who represented more diverse backgrounds, there wouldn't have been a 10-1 vote in favor of Dauman.
We call on these current "independent" directors to immediately step down from their posts, given how out-of-step they are with the views of the shareholders.
We also call on Shari Redstone to chair a new board committee to appoint the new independent directors to help ensure that Viacom properly turns itself around for the sake of all shareholders and employees.