Family Business Series—Lessons in Control by Sumner Redstone

Sumner Redstone Teaches Us Something Useful

Keach Hagey’s book, The King of Content—Sumner Redstone’s Battle for Viacom, CBS, and Everlasting Control of His Media Empire (2018), tells the story of how Redstone parlayed his father’s drive-in movie theater business, National Amusements, Inc., into a multi-billion dollar media empire controlling Viacom, Paramount and CBS. Along the way, Redstone became known as one of the savviest dealmakers in Hollywood and a feared adversary in the world of corporate take-overs. This well-researched book reveals information and insights not covered in the previous accounts of the Redstone saga in Vanity Fair and the Wall Street Journal. 

Hagey’s account teaches how (and how not) to control a company. Redstone was a control “freak” who did all he could (sometimes with questionable legality) to take power from everyone around him. His widely proclaimed scheme: “to live forever,” prevent Viacom from ever being sold, and prevent his daughter, Shari, from becoming CEO. He may live forever, but Shari, as holder Sumner’s healthcare power of attorney, now controls everything. How did this happen?

The Redstone saga involves allegations of adultery and abuse, litigation between fathers and sons, and a polyamorous nonagenarian. But it teaches important lessons for all family business owners, including:

·        Family leaders need to communicate their expectations for how the family business will be run. Those expectations should be memorialized in writing and enforced with trusts or other appropriate instruments.

·        Who will control the company in the next generation must be clear; avoiding this issue and letting “the kids decide later” is a recipe for future conflict.

·        Good corporate hygiene is essential for long-term survival: loss of control of the business from death, disability and divorce can be avoided with early planning.

These lessons are highlighted below with my commentary noted in italics.

What is Control?

Control is critical to sustaining a family business over generations. In its most robust form, control defends against the loss of the business from death, incapacity or divorce. Control also means power over all critical decisions, including how the business is run, how profits are allocated (and to whom), governance, dividend policy, leverage policy, acquisition strategy and management succession. For a private company, control generally requires owning a majority of the voting power; for a public company, 20% ownership is usually sufficient.

Redstone owns 80% of his family’s private business, National Amusements, and Shari owns the remaining 20%. National Amusements, in turn, owns voting control of approximately 79% of Viacom, a publicly traded company that owns CBS, but National Amusements owns economic control of only about 8% of Viacom. Viacom’s market capitalization is approximately $15 billion, making Redstone’s interest worth about $1.2 billion (a fraction of what it was worth at its peak). 

Viacom’s dual-class share structure permits this splitting of voting and economic interests: one class of shares holds more voting power than another.

Public companies controlled by families are common around the world, e.g., Wal-Mart,

Ford, New York Times, Samsung and EXOR. The families usually own more than 30% of the common stock or they own enough voting or super-voting stock in a dual-class structure to have similar voting power. Many tech companies and IPO candidates in other industries use a dual-class share structure to preserve control in the hands of the founders.  

Comment:  Many publicly traded companies in the U.S. have material family/founder ownership, meaning greater than 5%. Generally, family control is assumed if the family owns as much as 20% of the stock. (The University St. Gallen Global Family Business Index uses 32% ownership for public companies to be included in its data set of the 500 largest family businesses in the world.) Publicly traded companies can have “degrees” of control from family ownership---they can be family controlled, family led or family influenced. Family business issues arise in all these situations, so hard-and-fast rules do not apply.

The Redstone ownership structure is unique in that the “control” of Viacom/CBS arises from the ownership of its super voting stock by a private holding company, National Amusements, which in turn is controlled by the Redstones. Sumner levered National Amusements to finance acquisitions. This apparently included pledges of Viacom/CBS shares as backing for loans for at least some of his acquisitions.

National Amusements had a dozen theaters when Sumner joined it in 1954. It 1971, it had 52 drive-ins and 41 indoor ‘screens’. By 1982, Sumner had more than doubled the number of screens to 250, making the company the tenth largest theater chain in the country. Today, National Amusements operates more than 950 screens across its various brands in the U.S., U.K. and Latin America.

Family Business or Sumner’s Business?

Mickey Redstone envisioned his company being passed down evenly to his two sons, Eddie and Sumner, and then evenly to his grandchildren, Michael, Ruth Ann, Brent and Shari. Hagey captures HOW, nonetheless, Sumner gained near exclusive voting control of his family’s business. In a family business, this information rarely escapes the family.

Redstone caused National Amusements to redeem shares owned by Eddie and the four grandchildren at heavily discounted valuations. He also negotiated a very favorable divorce settlement with his first wife. Phyllis. Over a 12-year period starting in 1958, Sumner’s ownership interest increased from 33 1/3rd to 66 2/3rd. After he bought out his son, Brent, in 2002, Sumner owned 80% of National Amusements and Shari retained 20%.

Mickey’s Wish: A Family Business

Mickey first indicated this intention in 1959 when he consolidated the family’s growing theater ownership to facilitate bank borrowings to fund growth:

“So as they looked to add another drive-in in Maryland, they decided to consolidate all of the corporations into a single entity named National Amusements based in Maryland. Mickey put in $30,328 worth of stock, along with $3,000 in cash. Sumner put in $17,845 in stock and Eddie put in $18,445 worth. And then, at its first meeting in Norwood, Massachusetts, on September 1, 1959, Mickey doled out 300 Class A shares of voting stock: 100 for himself, 100 to Eddie and 100 to Sumner. In ownership, the three Redstones were equals, though the articles of incorporation made the hierarchy clear: Mickey was president, Sumner vice president, and Eddie secretary-treasurer. Five years after his older brother arrived on the scene, Eddie was officially second fiddle. This tension—the son’s equality in ownership but inequality in daily operations and management decisions---would very nearly tear the family, and the business apart.” (p.67-68) (emphasis added)

About ten years later, as Mickey was nearing retirement, his long-term plans for the ownership of the company became clearer still:

“He began creating a plan to gradually retire from active involvement in the business, and on May 6, 1968, he put it into motion by transferring half his stock to a trust set up for his grandchildren. The gift tax return he filed with the Internal Revenue Service valued these 50 shares at $564,075, meaning all of National Amusements was worth a little more than $3 million. In December of that year, Mickey enacted the second stage in his retirement plan, exchanging his remaining 50 shares of common stock for nonvoting preferred stock. By the end of the 1960s, the number of voting shares in National Amusements had shrunk to 250, with Sumner and Eddie each owning 100 shares, and the Grandchildren’s Trust---of which Sumner, Eddie, Mickey, and Belle [Mickey’s wife] were trustees---owning the remaining 50. The grandchildren would receive their shares outright when they turned thirty-five. (p. 72) (emphasis added)

Eddie Exits the Business….Sumner Takes Control

 In 1971, for personal and business reasons, Eddie decided to leave the business. He made a demand for his 100 shares of National Amusements, which the company held. Mickey refused Eddie’s demand, claiming, among other things, that half of Eddie’s shares (50) were intended to be held in an “oral trust” for the benefit of Eddie’s children. After months of negotiations, Eddie threatening to sell his shares to an outsider, and litigation among Mickey, Eddie and Sumner over the disposition of Eddie’s shares, the dispute was resolved:

“Eddie would get 66 2/3 shares and agree to put the remaining 33 1/3 shares into a trust for his children. Eddie then agreed to sell his shares back to NAI for $5 million and to walk away from National Amusements forever. Most important, for the future of the company, Sumner was named the sole trustee of both of Eddie’s children’s trusts.” (p. 80) (emphasis added)

Comment: Eddie could hardly be faulted for wanting “out” of the family business. Despite having joined the business five years before his younger brother, Sumner quickly became his father’s favorite, as the job titles he assigned to them in 1959 make clear. Sumner had a sterling academic record and impressive real-world experience (serving as a code breaker in WW II and as a tax lawyer for the U.S. government and in private practice). Personality wise, Sumner and Eddie were worlds apart—Sumner domineering with a take-no-prisoners attitude and Eddie, more emotional and lacking “the killer instinct.” In 1971, Sumner hired an outsider to handle Eddie’s responsibilities, which infuriated Eddie. Other issues also motivated Eddie to move on—his wife’s family was wealthy and socially prominent in Boston and did not mix well with the Redstones. He and his wife were also preoccupied dealing with the serious behavioral challenges of their son, Michael.

Brent and Shari Get a Trust…..Sumner Takes Control

Like Eddie, Sumner put one-third of his shares in trust for his children, Brent and Shari. But Sumner added a twist: he appointed himself as sole trustee. When these share transfers were all concluded, this was the ownership picture:

“By 1972, Sumner was firmly in charge, not just of the company’s operations but its shares. In addition to his direct ownership of 66 2/3 shares (or 36.4%), he was the sole trustee of the Brent and Shari Trusts [for his children] and the Ruth Ann and Michael Trusts [Eddie’s children], which together made up 66 2/3 shares (or 36.4% of the company). He was also still one of the trustees on the Grandchildren’s Trust, which contained 50 shares, or a 27.2% interest.

“The Ruth Ann, Michael, Brent, and Shari Trusts were written such that they would not have access to the money until they turned forty, giving Sumner a long and unencumbered runway to fly National Amusements to another altitude entirely.” (p. 81) (emphasis added)

Comment: Sumner may have established the trusts for his kids for “optics,” to appear family friendly by doing what Mickey forced Eddie to do. But, unlike Eddie, Sumner gave up no control because he designated himself as trustee. In 2004, the IRS –with nephew Michael acting as whistle-blower---came after Sumner for failure to pay gift tax for this trust. Sumner paid the IRS $16 million in back taxes.

Michael Exits the Business…Sumner Takes Control

As National Amusements business grew (developing more theaters and converting drive-ins to indoor theaters and its indoor theaters into multiplexes), Sumner wanted to consolidate his power. The opportunity came in 1984, when Michael opted to cash out of NAI:

“Sumner was only too happy to oblige. On March 8, 1984, he drew up an agreement to have National Amusements redeem all 83 1/3 shares of National Amusements stock held in the three trusts for $21.4 million, based on Rosen’s [the company accountant’s] valuation. As trustee of the trusts and president of National Amusements, Sumner, was, as Michael would [later] complain, both buyer and seller in the transaction.

“….That left Sumner with 66 2/3 shares—clear, overwhelming control. As a hint of what he planned to do with that control, six weeks after the redemption, he amended National Amusements’ articles of organization to authorize it to engage in either cash or margin transactions in commodities and securities.” (p. 109) (emphasis added)

By then, Redstone Theaters had become the tenth largest theater chain in the U.S. Sumner owned outright 67% of the voting control and his children, Brent and Shari, owned the remaining 33%.

Next Generation Strikes Back

We learn more about the “fairness” Sumner’s valuation of National Amusement shares in 1984 from litigation brought in 2002 by Sumner’s nephew, Michael, and son, Brent:

“Years later, both Michael and Brent would accuse Sumner of low-balling the trusts for his own benefit. Michael complained that Rosen [the company accountant] made National Amusements appear far less valuable than it was by using financial information that was more than two years old and failing to count National Amusements’ substantial investment income, treating it as a nonrecurring event even though the company had been investing in media stocks since the mid-1970s. Perhaps more deviously, the valuation included all of Sumner’s naysaying about the state of the theater industry, raising “serious concerns about [the company’s] future ability to continue its past performance ” because the motion picture industry had been “flat” for nearly two decades and faced a “serious and potentially devastating threat”.

“What Rosen failed to mention, was that Sumner had a plan for how to fight that threat. But he would need total control to carry it out.

“Years later, Brent would claim that Sumner justified seizing that control---in a maneuver that, in redeeming the Grandchildren’s Trust, would end up costing his own children millions---by telling Brent and Shari that they would manage and control the company. He just didn’t say when.” (p. 109-110) (emphasis added)

Comment: Sumner’s relationships with his kids, Brent and Shari, and Eddie’s’ kids, Michael and Ruth Ann, were never cozy. Unlike Mickey, Sumner did not “groom” the next generation to run the business. Ruth Ann left college to join an anti-capitalist cult. Shari initially was not interested in joining the business, but when her interests changed, her father rejected her. Brent early on decided he wanted nothing to do with the business. Michael, after years of struggling with his mental issues, finally stabilized and, at 27, decided he wanted to get his money from his trust. Sumner obliged (with enthusiasm!).

When Mickey Redstone said he wanted his company to be a “family business,” what did he mean? Should this wish have prevented Sumner from buying family members out of the business? Should it have prevented family members from selling?

Mickey was involved in Eddie’s decision to sell his interest back to the company in 1971, but he insisted that 33 1/3rd of Eddie’s shares be left in trust for Eddie’s kids. What would he think of how Sumner, acting as trustee for those trusts and CEO of the company, bought out all of the shares earmarked for Eddie’s kids at a bargain price a few years later? [In litigation brought by Eddie and his second wife, Madeline, in 2004 against Sumner, they alleged that the real estate alone owned by National Amusements at the time of the sale was worth more than $150 million. The case was dismissed as time-barred.]

Mickey initially left shares to both Sumner and Eddie individually. Mickey could have left the shares in trust with an independent trustee in charge with direction not to permit transfers unless they met certain standards (perhaps even with a pricing formula for redemptions). The Grandchildren’s Trust had four individual trustees, which Sumner eventually removed so he could force the redemption of those shares. An independent corporate trustee could have prevented that from happening.

Were the family members’ redemptions “fairly” priced when made? Did Sumner actually “force” everyone to sell? With the benefit of hindsight, the redemptions look like a bad deal for the sellers. But look at it today: the value of National Enterprises has collapsed and its loans are all in restructuring mode due to the pandemic. Had the family members retained their shares, would Sumner be liable to them for mismanagement?

 What alternatives other than redemption did Sumner have? How could he be sure he would not be thrown out as CEO had he not increased his shareholdings to at least 51%? Could Sumner have run the company, with the leverage and risk he took on, without having 51% control? Would banks lend money to the business with no clear controlling owner in place?

What if Sumner was the only competent one to run the business? Does that justify his pushing the other family members out? Is it fair to Sumner to put in 100% of the work but reap a smaller fraction of the reward?

Two important lessons come from this redemption history. First, if you want your company to remain a family business you need to be clear about what that means to you. Second, control mechanisms need to be in place to assure that your wishes are followed. A well-crafted trust instrument and an independent corporate trustee for the grandchildren shares can prevent premature redemptions. 

Power to the Spouses!

In early 1984, Sumner’s first wife, Phyllis, mother of Brent and Shari, filed for divorce. She had grown tired of Sumner’s philandering ways and abuse. She did not support Sumner’s plan to acquire media properties, i.e. “content.” She knew that under Massachusetts divorce law she was entitled to half of Sumner’s assets, which would threaten Sumner’s control of National Amusements. Sumner, realizing this, begged Phyllis to stand down. She did.

In 1998, Phyllis struck again. This time it was for good. One week after the merger of Viacom and CBS was publicly announced she filed for divorce and demanded half her husband’s $6 billion fortune. As Hagey explains, the timing of this was the point of maximum leverage on Sumner:

“Instantly, analysts began to fret about what the divorce meant for the CBS deal, and Viacom was forced to put out a statement that same day to placate them: “The Redstone family interests in Viacom’s parent company, National Amusements Inc., are structured in such a way that the personal matters between Mr. and Mrs. Redstone will not affect the ownership, control or management of Viacom, nor will they affect the merger with CBS”. Then, George Abrams, Sumner’s personal lawyer who served on the boards of both Viacom and National, delivered the shot across Phyllis’s bow: “In the interest of his family, Mr. Redstone chooses not to reply publicly to any allegations, no matter how false or misleading they may be. This is a personal matter to which Mr. Redstone intends to resolve in a private way. Mr. Redstone and both his children are united on all matters affecting the family’s business interests”.

“The statement was a bluff, but it revealed Sumner’s weakness. As the owner of two-thirds of the voting shares of National Amusements, he effectively had control, but he did not own all of it. The other third was split between his children, Brent and Shari. Because Sumner did not know how the divorce was going to turn out, he suddenly needed his children in a way that he had never had before.” (p. 168-169) (emphasis added)

The lesson: spouses have power even if they do not directly own any shares of the family business. When Sumner married a second time, in 2003, a pre-nup protected his assets.

Comment: Divorce must have terrified Sumner: he would no longer be the sole decision maker at National Amusements. Phyllis threatened divorce twice before going through with it the second time. In the interim, Sumner contemplated divorcing Phyllis but withdrew the threat when he realized she might be awarded 50% of his interest in National Amusements and left him at the mercy of his two children. Had Mickey utilized a trust with independent trustees when he transferred shares to his sons, he might have prevented this. A pre-nup with Phyllis would have helped as well. The lesson here: Spouses have a lot of power in family businesses!

The Voting Trust Compromise

Threatened with losing control, Sumner cozied up to Shari and Brent, who, together, owned a combined 33 1/3 % of National Amusements. He promised them future leadership of the company in return for putting their shares in a voting trust that he, Sumner, would control. Brent refused, but Shari agreed. This forced Phyllis to settle the divorce dispute:

“Sumner’s deal with Shari helped him get a divorce settlement that assured his continuing control of National Amusements and, therefore, of Viacom. In essence, instead of getting half of Sumner’s assets, Phyllis agreed to take half of the income from them. As part of the settlement, Sumner agreed on June 28, 2002, to put his two-thirds stake in National Amusements into a new trust, the Sumner Redstone National Amusements Trust, overseen by seven trustees: Sumner, Phyllis, Dauman (CEO of Viacom and former M & A lawyer for Sumner), George Abrams (Redstone family lawyer), David Andelman (Sumner’s tax lawyer and a director of National Amusements and Viacom), Norman Jacobs (Sumner’s divorce lawyer), and Leonard Lewin (Phyllis’s divorce lawyer). During Sumner’s life, he would be the sole beneficiary, though if he took any disbursements, he had to give half of the after-tax amount to Phyllis. If he died while Phyllis was still alive, half the shares would go into a section of the trust for Phyllis’s benefit, while the other half would go into a section (the General Trust) for the benefit of Brent, Shari, and their children. After Phyllis died, the remainder of the National shares would go into the General Trust, which would be overseen by two family trustees and five nonfamily trustees. Initially, the two family trustees would be Brent and Shari, and the nonfamily trustees the same as above…...But from the outset, Shari had a more prominent role than her brother in the trust. So long as she was still a director of both National and Viacom at the time of her father’s death, the trust stated, “Shari shall succeed [Sumner] to the Chairmanships” of both National Amusements and Viacom and hold them “for at least a three year period”. The idea was to give Phyllis some comfort that her interests would be looked after as the main source of the family’s wealth after Sumner died”. (p 177-178) (emphasis added)

The complete terms of the voting trust are not included in the book (nor are they available in any SEC filings for Viacom), but one thing is clear: this deal gave Sumner control (via five loyal trustees) of 80% of the voting power of National Amusements and, therefore, voting control of Viacom (and, soon, CBS).

Brent was the odd man out. Eventually, he sued his father for his one-sixth share of the father’s $8 billion media empire. In his lawsuit, he alleged that “Sumner had ‘repeatedly’ told Brent and Shari that they would ‘run the company’”. The lawsuit also emphasized that Mickey’s intent was for the company to be passed down from one generation to the next. Brent settled this lawsuit with his father for $240 million and has not spoken to him since. 

Comment: The terms of the Voting Trust were heavily negotiated as part of the divorce settlement and each side had something significant to crow about.

Sumner now had control of his 80% of the company at a low cost: giving Phyllis the same amount of money he took from company each year (plus applicable taxes). He was assured that at death or incapacity, his “team” would continue to oversee the business and pick a successor other than Shari.

Phyllis was assured that the busines would be left to her grandchildren. [When this would have occurred is somewhat of a mystery since we do not have access to the duration terms of the trust and its trustee succession provisions. My guess is that the trust was designed to stay in place long after Phyllis passed, maybe perpetually, and be managed by Sumner’s pals and the successors designated by them. Of course, this was a horrible future to look forward to. The good news is that Shari got rid of these unfriendly trustees and the family no longer has to fear this outcome…see below.]

Shari, of course, must have been very disturbed by this development as Sumner never wanted her as his successor and his minions would undoubtedly follow his wishes when they took charge of the voting trust.

The estate tax implications of the voting trust are not mentioned in the book. The key was to make sure that Sumner’s shares were “out of his estate” once his shares were deposited in the trust. He likely “sold” his shares to the voting trust at a significant discount to fair market value in return for a note that would amortize over a long period of time. All the appreciation of the business from then on would be out of Sumner’s estate and via periodic gifting the remainder of his interest in the shares could be transferred to the trust. Tax planning is an essential part of “hygiene” or the business would need to be sold at Sumner’s death to pay the estate taxes.

Incapacity and Health Care Powers of Attorney

The next challenge to Sumner’s control of his empire came in 2013, as he approached his 90th birthday. He was now divorced from his second wife and had taken up with not one, but two female companions with whom he was sexually active at his Beverly Hills mansion. His debauchery and profligate spending on his new companions (and others) were attracting media attention. Viacom and CBS were flagging.  He had not been seen in public for months and had stopped participating in company earnings calls. Investors wanted to know “Where is Sumner?”

Sumner’s health was in severe decline and he was nearing “incapacity” under any legal definition. He had given his two lovers an unlimited credit card allowance and cash ($90 million at one point). He had revised his will to provide the two of them $150 million and named them as co-agents on his health care power of attorney. Holding this power enabled them to “control” Sumner in many ways, most importantly, his access to prescription medications and physical access to him by his family and business associates.

Shari and the other family members were apoplectic. The people around Sumner, including Shari and the trustees of the voting trust loyal to him, knew he was of diminished capacity and had no business continuing in his role as the highly paid Executive Chairman of both Viacom and CBS:

“At least two of these people—Dauman and Andelman—were among the trustees with the power to determine whether Sumner lacked the capacity to remain in control of the trust that held all National Amusements shares. According to the terms of Sumner’s trust, Sumner could be deemed “mentally incapacitated” only if he was judged “incompetent” by a court of proper jurisdiction, or if three doctors sent the trustees certification that he was “unable to manage his affairs in a competent manner”. And yet they never did it. So long as Dauman and his supporters, like George Abrams, were on the trust, Shari had no incentive to trigger it, since she would likely be outvoted in exactly the same way she had on the Midway [a major investment gone bad] fiasco. And so long as Sumner kept signing off on ever-larger pay packages for Dauman, he had no incentive to take action, either. In the next couple of years, both Dauman and Shari would file lawsuits alleging that Sumner lacked legal capacity or was subject to manipulation. But for now, Sumner continued to pass the mental capacity tests that Bishop arranged, and the status quo rolled on.” (p 254) (emphasis added)

Shari had few options to end this disastrous situation, but two things were clear: she needed to become Sumner’s agent on health care matters AND she needed to jettison the trustees loyal to Sumner on the voting trust. Showing grit and determination similar to her father’s, she managed to “orchestrate” her father to do just that, all the while claiming that the nearly comatose man was not “mentally incapacitated” so as to trigger the voting trust incapacity provisions too soon. How she and her lawyers managed to accomplish this is the dramatic highlight of the book and roadmap for others who become trapped in a similar situation.

Comment: This situation reminds me of the sage expression that “more pirates are killed trying to share the booty, than in finding it.” EVERYONE had a reason to cozy up to Sumner to keep him both ALIVE and NOT deemed INCAPACITATED. Shari had only one chance to get back into power and that was by turning her dad AGAINST his two lovers and the loyal trustee Dauman (the CEO of Viacom) and have her dad deemed competent when he removed them from their powerful positions. This was a masterstroke by Shari and her legal team!

This part of the story illustrates the POWER of a health care power of attorney. The agent controls all medical decisions relating to the principal—choice and access to medicine and medical care, visitation rights and, absent a court order, control over who administers a competency test. It is very hard to displace someone holding this power properly granted in the first instance.

How Will It End?

Sumner still owns 80% of National Amusements and will “technically” run it until he dies or is declared incapacitated. This is how the book ends:

“Unable to eat or talk, he communicates via buttons on a table loaded with recordings of his voice from stronger days—“yes”, “no”, and his favorite, “f**k you”. The man who always wanted total control, who believed in his own abilities above those of anyone else, who vowed to never sell Viacom, who swore he would never die---as of this writing, this man, Sumner Redstone, still draws breath, thanks, perhaps, to a lifetime of healthy eating and, even more likely, his own iron will. It is he, not Shari, that owns the majority of the controlling shares in the companies, and so long as he is not declared incompetent, it will be he who must technically decide the increasingly urgent question of whether to merge or sell Viacom or CBS. Because while content may still be king, kings, it turns out, can be bought just like anybody else. (p. 306)

We can only imagine what Mickey would say today if he knew how his dream for the family business he created had turned out. How could he have prevented this from happening?

This is the rub for a family business leader: you must act as a parent and business executive simultaneously.  Family conflicts are inevitable. This book is full of them. Most poignant was Shari’s angst:

“Some describe Shari’s involvement in the business as motivated entirely by family dynamics: it was the only way that she could actually become a person in her father’s eyes. The irony was that Shari’s professional ascent could only come about by battling her own father, who obstinately refused to be succeeded. “He didn’t want her in the company, he didn’t want her to succeed him, but when she was there, he caved,” said one person close to the family. Any power that he did give her, she had to wrest from him, as he had wrested it from others.” (P. 304) (emphasis added)

Eddie, Michael and Brent left the company because it wasn’t worth the fight.

When asked recently about the Redstone family business, Shari responded: “It’s a dream life, except when it is not a dream life”. What more can be said?

Comment: I think Phyllis was the real winner in all this. She made sure that this family business would ultimately be left to her grandchildren and, with Sumner’s passing, that Shari would run it from then on. Maybe not everything Mickey wanted, but………

Spencer Burke –July 2020   

                                                                              Post-Script

The Sumner Redstone saga begs the question, “what can a family business owner do to prevent a similar thing from happening among his children?” There are many ways to “try” but it is foolish to think that all eventualities can be anticipated and covered appropriately in advance. Businesses need flexibility. So, too, does the next generation of leaders. Who knows if the business will succeed or fail? Who knows how the children will choose to spend their time?

The starting point: trust documents that establish governance for the family business. A board of directors with a minimum number of independent directors and voting thresholds for major corporate decisions (leverage, acquisitions, mergers etc.) can protect minority shareholders. Conditions and limitations on the redemption of shares by family members, together with a pricing mechanism to assure reasonableness, if not fairness, can allow family members to exit without being punished. An independent trustee to oversee compliance with the terms of the trust can prevent tawdry, painful litigation among family members. 

The interests of those family members who want to remain in the business need to be protected as well. For example, share redemption obligations for exiting family members should be subordinate to the business’s financing needs.

What is the ultimate safeguard to protect a family business over generations? The VALUES. Trust documents are no substitute for a clear understanding of the business’s PURPOSE. Start communicating within your family about VALUES now…don’t wait until it is too late.