The past few years of Shari Redstone’s life sound like something taken directly from a soap opera after her aging father, Sumner Redstone, fell ill and required a full-time nurse to take care of him.
You probably know Sumner Redstone as the media mogul who ran the National Amusements theater chain (which owns CBS) for more than half a century. When he got sick, Shari kicked his long-time girlfriend out of his mansion, moved in herself, and took control of her father’s media company. Sumner’s girlfriend is suing Shari for having kicked her out and allegedly turned Sumner against her.
But now Shari Redstone has a bigger problem on her hands. Leslie Moonves, the CBS chief executive, has led a sort of a coup against her with other CBS directors. Moonves and the board of directors are suing Redstone for allegedly acting in her own best interests, even when it allegedly went in direct opposition to the best interests of the company’s shareholders. As a result, they are seeking to dilute Redstone’s voting rights as the majority shareholder of CBS and to strip her of much of her control over the media company.
Since Redstone has the power to fire anyone from the board of directors, why would they do all this at the risk of their own jobs?
In a world where media and digital communications companies are continuously merging, Redstone allegedly rejected the idea of a merger between CBS and Verizon Communications. CBS executives were reportedly furious that Redstone had turned down a deal they claimed had the potential to add significant value to CBS, and by extension, its shareholders.
In a dual-class share system, a company has controlling shareholders who maintain managerial control, while public shareholders just hold onto their stocks until they can sell them for a profit. This kind of structure has long been opposed by advocates of shareholder rights, even as it has grown in popularity, especially in Silicon Valley where founders are reluctant to give up control of the companies they started and grew to maturity.
What makes this situation unique is that Redstone is the controlling shareholder of both CBS and Verizon, a position that legal experts say puts her in a clear conflict of interest. When it comes to a board of directors suing their largest shareholder, most courts will rule in favor of the board, as long as the board can provide sufficient evidence that they have reason to believe the controlling shareholder is acting in their own best interests, rather than the best interests of the company.
The lawsuit is unusual because, when a board tries to go against the wishes of their controlling shareholder, the directors usually get fired by the controlling shareholder. But Redstone’s hands are tied by a court order prohibiting her from firing any CBS directors until the court makes a final ruling on the issue.
At the same time CBS had formed a special committee to discuss the possibility of a merger with Viacom, a move the committee ultimately rejected. Redstone was allegedly pushing for that particular merger, but every time rumors circulated to the public that the deal was off, CBS share prices rose. The controlling shareholders declined to say why, exactly, they had determined a merger between the two companies would not be in CBS’s best interests, but the reaction of the stock market could certainly have been a factor. Super Lawyers named Wheaton and Naperville Illinois closely held corporation law trial attorney Peter Lubin a Super Lawyer and Illinois business dispute attorneys Patrick Austermuehle and Andrew Murphy Rising Stars in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. Lubin Austermuehle’s Illinois business trial lawyers have over thirty years of experience in litigating complex business disputes, shareholder freeze-outs, and squeeze-outs, breach of fiduciary duty and partnership dispute claims and many different types of business and commercial litigation disputes. Our DuPage County business dispute lawyers, civil litigation lawyers, and copyright attorneys handle emergency business lawsuits involving injunctions disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist businesses and business owners who are victims of fraud. You can contact us by calling at 630-333-0333. You can also contact us online here.