Shari Redstone's Path to Power -- WSJ

Date : 06/23/2018 @ 3:02AM
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Shari Redstone's Path to Power -- WSJ

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How she pushed past closed doors, boardroom snickers and a falling out with her father to take over a media empire

By Keach Hagey 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 23, 2018).

On the sidelines of the Super Bowl last year, Shari Redstone had a run-in with a CBS Corp. director that left her wanting him removed from the board of the broadcasting giant her family controls.

The 64-year-old media heiress already had a previous interaction with 75-year-old Charles Gifford that she considered " intimidating and bullying," she claimed in court documents. When he allegedly grabbed her face and told her to listen to him, that was the last straw. She said that Mr. Gifford later apologized, explaining that was just how he treated his daughters when he wanted their attention.

In a statement, Mr. Gifford said he was walking with a cane after surgery when he saw his friend of more than 20 years. "I remember greeting her and giving her a quick hug, just like I would my own family. I am very disappointed Shari felt our encounter was any more than this," he said. Another person who witnessed the encounter saw no hug, but did see Mr. Gifford cupping Ms. Redstone's chin and speaking to her in a demeaning paternal manner.

Ms. Redstone had hoped that a merger of CBS with Viacom Inc., which the companies had been negotiating throughout the month of April, would provide an opportunity to quietly remove him. But as those talks began to falter in May, she pressed to have him removed anyway. The next business day, CBS went nuclear, suing her in court, accusing her of meddling with the board and seeking to strip her family of their voting control.

In the two years leading up to this lawsuit, Ms. Redstone had been doing something that no American woman had ever done before: actively controlling a media empire worth more than $30 billion. As the de facto leader of National Amusements Inc., the family holding company that owns nearly 80% of the voting shares of CBS and Viacom, she calls the shots at both companies, which she lately had been trying to nudge toward a union in the face of a rapidly consolidating media industry.

Although she came by this power somewhat strangely -- and some say against the wishes of her ailing 95-year-old father, Sumner Redstone -- there is no question that she has it. That effectively makes her the most significant female media owner since Katharine Graham took over the much smaller Washington Post Co. in the 1970s. Indeed, Ms. Redstone's story has many parallels to Ms. Graham's. Both of their fathers amassed great media assets, which they handed, not to their own flesh and blood, but to their daughters' Harvard-trained husbands. For a time, both women were content to play the part of wife and mother, a role Ms. Graham once called being the "tail to his kite." Ms. Redstone often said she was happy baking cookies, telling a local newspaper in 1995 that she thought the family movie-theater chain "was a business I'd never go into." It took calamity -- Ms. Graham's husband's suicide and Ms. Redstone's divorce -- for the two women to claim their birthright. And once they got into the boardroom, they were often belittled, talked over and snickered at behind closed doors -- in Ms. Redstone's case, sometimes by her own father.

Ms. Redstone was there on the winter day in 1963, an 8-year-old in her best dress, when her father, uncle and grandfather unveiled their drive-in chain's first indoor theater in Worcester, Mass. For a decade, the three Redstone men had worked together to expand National Amusements from a handful of drive-ins to a chain of 27 theaters. They bought up the land under each, giving them the flexibility to turn the sites into indoor theaters, then multiplexes, and ultimately to take control of holdings stretching from MTV to Paramount Pictures to Simon & Schuster. When Ms. Redstone revisited Worcester decades later to unveil a theater of her own, she declared, "It's in the blood."

As a child, Ms. Redstone was her father's favorite. While her older brother was reserved, she inherited her father's auburn hair, blue eyes, intelligence, combativeness and obsessive streak. "He always spoke more admiringly about Shari than about Brent," said Winn Wittman, the son of Sumner's longtime mistress, Delsa Winer. As a teenager in the Boston suburbs, she fell for Ayn Rand's objectivist philosophy that a person's primary moral duty was to her own happiness. But she was also pulled toward public service and working with children, volunteering at Boston Children's Hospital and spending her free periods in high school teaching kindergartners. In the end, she became a lawyer like her father and brother before her.

It was in the dubiously romantic setting of a Boston University tax-law lecture that she met her future husband. A slight man with intense brown eyes and an air of great confidence, Ira Korff was the scion of a prominent family of Boston rabbis, with a dizzying number of professional degrees. Mr. Redstone, who valued academic achievement above all else, saw a lot of himself in his eloquent, ambitious son-in-law, and recruited him to join the family business. Ms. Redstone, meanwhile, decided to stay home with their three children.

Mr. Redstone doted on his grandchildren, making his home kosher for them. But his first love was his business. When his daughter told him her marriage to Mr. Korff was ending, his response, according to people close to the family, was, "Does that mean Ira's going to leave the company?" Mr. Redstone tapped his consigliere, Philippe Dauman, to figure out a way to keep Mr. Korff in the fold, giving him a long-term consulting contract that angered his daughter. People close to the family point to this episode as the initial break between father and daughter.

Nevertheless, Mr. Redstone recruited his daughter into the business, and by 1995, she was the executive vice president of National Amusements, the same title her father had held under his father.

For the first year, Ms. Redstone mostly kept her mouth shut and listened to the veteran executives who had been running the theater chain together for decades. But when they closed the door behind her after she left a meeting so that they could talk about her behind her back, she marched back into the room, making clear she wouldn't tolerate such isolation.

She befriended Nikki Rocco, Universal Pictures's head of distribution, in part because they were the only women anyone could think of who did what they did. "As a woman in the business, you have to go the extra mile to get along with men," Ms. Rocco said. "There is no room for weakness."

Ms. Redstone steered the theater chain through rough waters, holding back from the late 1990s frenzy of building megaplexes and as a result, keeping National afloat as its peers later went bankrupt. With the American market mature, she focused on international expansion and introducing upscale amenities like cocktails. But her father retained the CEO title and still had the box-office grosses faxed to him each morning.

It was really only when Mr. Redstone's wife of 52 years divorced him in 2002 that his daughter gained true power. Because she and her brother owned a significant minority of shares in National Amusements, Mr. Redstone needed their cooperation to ensure he didn't lose control of the company. Ms. Redstone gave it and was named her father's successor as chairman of Viacom. Her brother did not and was removed from Viacom's board the next year. Two months before the divorce was finalized, Mr. Redstone praised his daughter in print for the first time, telling Forbes, "She is a great businesswoman."

She wanted a larger role at Viacom, but Viacom's management hated the idea. When her father brought her around the executive offices one day, Viacom's then-president sarcastically asked Mr. Redstone if it was "take-your-daughter-to-work day."

But after Mr. Redstone decided in 2005 to split Viacom and CBS, he tapped his daughter to be vice chairman, telling the Los Angeles Times that when he dies, "control of the company is likely to pass to Shari."

Ms. Redstone was not afraid to use the vice chairman's seat to disagree with her father. After shareholders sued Viacom in 2005 for paying her father and his top two lieutenants $160 million in a year in which the stock dropped 18%, she helped recruit new independent board members and successfully pressed to tie pay more to performance. (The lawsuit was settled.) Three of her recruits were women, ending her tenure as the lone woman in the room. But within a little more than a year, they all resigned.

Her relationship with her father deteriorated the most over his obsession more than a decade ago with investing in the struggling videogame maker Midway Games Inc., best known for its early-'90s hit "Mortal Kombat." He borrowed against National Amusements shares to buy Midway stock, and when Midway's poor performance prompted a margin call, he asked National Amusements -- which Shari owned a minority stake in -- to bail him out. She agreed, but only if he agreed to stop using the family fortune for Midway investing. When he wanted to use National Amusements to resume his Midway purchases a few years later, Ms. Redstone was the lone voice on National Amusements' board -- which included confidants of Mr. Redstone such as Mr. Dauman -- to oppose it. The moment crystallized for her the impossibility of her situation: So long as these men were on the board of National Amusements, her stake would always be meaningless.

She hired lawyers and began negotiating her possible exit from the empire. In the midst of these talks, her father blasted her in a 2007 letter to Forbes, saying the boards of CBS and Viacom -- not the trust set up to oversee his stakes when he dies or is incapacitated -- would decide his successor, adding that "it is I, with little or no contribution on their part, who built these great media companies."

But when the financial crisis hit, Sumner's Midway bets contributed to a debt crisis that threatened National Amusements' control of CBS and Viacom -- exactly the scenario Ms. Redstone had warned against. She led the debt restructuring, selling off many of the theaters. But she blamed her father for destroying her grandfather's legacy. In 2009, her lawyer delivered an explosive, 80-page draft lawsuit to her father detailing years of alleged mistreatment -- including the Midway fiasco -- threatening to file it the next day. Negotiations followed, and Ms. Redstone ended up with a settlement that gave her National Amusements' Russian theaters, a lifetime employment contract, charitable donations and $5 million, with which she would go on to reinvent herself as a venture capitalist, far from her father's shadow.

By 2013, Mr. Redstone was twice-divorced and living with two women half his age. His daughter was largely estranged, and as he gave his companions more and more of his money -- up to $150 million in total -- the father-daughter bond deteriorated even further. She blamed the women for turning the crack between her and her father into a canyon. They, in turn, argued that the gulf preceded them. She hired a private investigator to research their pasts and relied on a network of nurses to secretly report on the happenings in his Beverly Hills mansion.

But in the end, it was not Ms. Redstone's actions but the women's fear of her that caused their downfall. In 2015, they chose to participate in a Vanity Fair profile, jockeying for weeks (ultimately unsuccessfully) to get Mr. Redstone -- by then on a feeding tube and barely able to speak -- to publicly slam his daughter to the magazine. They hoped that the airing of his dim view of his daughter would protect them from any legal attacks on his gifts to them after he died, according to people familiar with the matter. A secret lover of one of the women read the article and went public with their affair. Within months, both women were gone from Mr. Redstone's mansion and will, clearing the way for Ms. Redstone to reconcile with her father.

This reconciliation is the linchpin of the power struggle that Ms. Redstone led at Viacom in 2016, which led to the ouster of Ms. Redstone's longtime rival, Mr. Dauman, and the overhaul of Viacom's board, following years of poor performance. CBS's recent court filings in its case against the Redstones suggest that Chief Executive Leslie Moonves is worried he will meet the same fate.

As with Mr. Redstone's ex-companions, it was not what Ms. Redstone had done, but what CBS feared that she might do, that prompted the board's extraordinary vote in May to strip her family of control.

A Delaware judge will ultimately decide the outcome, but given Ms. Redstone's track record of battles, it would be unwise to count her out.

-- Adapted from Keach Hagey's new book "The King of Content: Sumner Redstone's Battle for Viacom, CBS, and Everlasting Control of His Media Empire," to be published by HarperBusiness on June 26, 2018. HarperBusiness and The Wall Street Journal are both owned by News Corp.

 

(END) Dow Jones Newswires

June 23, 2018 02:47 ET (06:47 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.

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