A dramatic clash between the Redstone family and one of the companies they control, CBS, highlights the potential perils for family businesses that have floated, or are considering an IPO.
This week, the board at CBS filed an unsuccessful lawsuit and restraining order against controlling shareholder Shari Redstone, her elderly father Sumner, and their family holding company National Amusements.
The board wanted to vote at a Thursday meeting to dilute Redstone’s control of the company from 80% to 17%. Redstone—via National Amusements—has a 9% equity stake in CBS, but owns the vast majority of the Class A voting shares.
The CBS board’s ultimate concern is preventing Redstone from merging it with Viacom, a combined company she believes could respond more “aggressively” to a challenging media and entertainment landscape. Viacom, a fellow US media giant, is also 80% controlled by the Redstone family, though CBS has been more commercially successful. Both businesses—formerly one company—have been in the family since the 1970s.
Despite a Delaware judge ruling they could not legally wrest control of $20 billion CBS from Redstone, the board went ahead with the meeting late yesterday. They voted 11-3 to dilute her voting power, but the vote can only be validated—or not—through legal action.
The judge has already rejected a claim by CBS chief executive Les Moonves, pictured, that Redstone “presents a significant threat of irreparable and irreversible harm to the company and its stockholders”.
Earlier this week, National Amusements said it was “singularly focused on ensuring the long-term success of CBS”.
“NAI (National Amusements Incorporated) believes the irresponsible action taken by CBS and its special committee put in motion a chain of events that poses significant risk to CBS,” the company said.
Making family business public interest
The appeal of going public is understandable. Floats give a family business plentiful capital and mean the company can attract the best and brightest by including share options in employee packages.
They also raise the company’s profile, and allow families who have worked hard to build their dynasties to extract some value from them, freeing up capital for other ventures, philanthropy, or diversification.
But as the Redstone/CBS example shows, being a family-controlled public company comes with its own set of challenges, including the risk of a total loss of control.
Melanie Wadsworth, partner at Feagre Baker Daniels, wrote for Real Business that family members can be “easy targets” for other investor when “the going gets tough”.
“There is no possibility of guaranteeing the family legacy or succession to key roles once control has been ceded,” she says.
What used to be private family business is also thrust into the public arena, as is the case with the widely-reported feud between Shari Redstone and her father Sumner, where the former has been portrayed as wanting to get one up on her father through the Viacom/CBS merger.
If families want to take their company to market to help it thrive, they need to make sure they know their family business values and can continue to demonstrate them—in public—in in the long run.