As CBS Corp. grapples with an investigation into allegations of sexual misconduct by its chief executive, the company's high-stakes legal battle against its controlling shareholder family took center stage Wednesday in a Delaware courtroom.
During a hearing to determine what evidence could be used to prepare for a trial in October, Delaware Chancery Court Judge Andre Bouchard denied CBS' request that its lawyers be allowed to grill 95-year-old Sumner Redstone in a deposition. But the judge expressed "a great deal of skepticism" that the elderly mogul had a grasp on the decisions that were being made in his name by his family's investment firm, National Amusements Inc.
"I need to know who is calling the shots at NAI," Bouchard said during the hearing, according to Bloomberg News. Bouchard said that CBS' attorneys had a right to inspect documents that would shed light on the decision-making at National Amusements.
That decision was "significant" because it could reveal machinations inside National Amusements, said C. Kerry Fields, a finance and business law professor at the University of Southern California Marshall School of Business.
"This is fascinating and reminds us of the final days of Howard Hughes," Fields said. "No one could come in and interview him _ instead he was being manipulated by a small circle of executives."
CBS board members sued National Amusements in May after Shari Redstone, the billionaire's daughter, pushed for a merger with the other company her family controls, Viacom Inc. The board wanted to issue a special dividend to give ordinary shareholders a say in CBS' affairs. The company has a dual-class stock structure, wherein only a small of group of shareholders are allowed a vote. The Redstone family, through National Amusements, controls nearly 80 percent of the vote.
At issue is whether Sumner Redstone is capable of making such high-level decisions as replacing CBS board members or requiring a 90 percent threshold for important CBS board votes. The 90 percent rule was established by National Amusements two days after CBS board members sued the family.
On Wednesday, the judge and lawyers for both sides spent more than two hours debating what evidence could be used to prepare for a trial scheduled for Oct. 3. The evidence includes a video that CBS board member Arnold Kopelson recorded in January of the ailing Redstone. Kopelson, an 83-year-old Oscar-winning film producer for "Platoon," is a longtime friend of Redstone's.
The video, which the judge has watched but which has not been made public, infuriated Shari Redstone and her lawyers. The existence of the video, and its contents, reignited the festering dispute over whether the mogul is aware of the decisions being made by his daughter and others at National Amusements.
Sumner Redstone tries to express himself by grunting or using an iPad that is programmed to provide "yes" and "no" responses, along with his favorite swear word, according to court documents.
"We are very pleased with the court's ruling today, which will now allow us to conduct appropriate discovery from NAI on the issue of who controls NAI," CBS spokeswoman Kelli Raftery said in a statement. "We are pleased that the court, while keeping the tape confidential, recognized today that the tape is relevant to the issues in this case."
A National Amusements spokesperson declined to comment Wednesday. Sumner Redstone controls about 80 percent of the National Amusement shares, while Shari Redstone controls 20 percent.
Two years ago, Viacom managers were embroiled in a similar dispute with the Redstones, but they ended up abandoning their legal case. Bouchard, the judge, also presided over that lawsuit.
CBS' independent board members suspect Shari Redstone has been undermining the management of CBS, including orchestrating damaging media leaks, according to court documents.
CBS' attorneys have demanded mountains of evidence _ including thousands of emails _ sent by Redstone, her children, family employees and even a public relations firm that represents Redstone and National Amusements. CBS' lawyers are trying to demonstrate that Redstone has been working behind the scenes to discredit the company's management, making moves that have prompted CBS' stock to plummet. Redstone has denied such claims.
In one instance, public relations executive Sara Evans, who is with the New York-based firm Finsbury, acknowledged in court papers that she and Shari Redstone had a phone conversation with CNBC reporter David Faber on April 10.
The next morning, CNBC broadcast a report by Faber that said Redstone was planning to replace CEO Leslie Moonves _ a development that caused CBS' stock to tumble. In the report, Faber attributed the information to "sources familiar with the situation."
Evans, in her court testimony, said Redstone had not told Faber that she intended to replace Moonves or CBS board members. Even in April, CBS appeared convinced that Redstone had planted the CNBC report to weaken CBS' management to help her push through a plan to unite CBS and Viacom. She and Moonves have clashed over the merger idea, which Moonves opposes.
The allegations of sexual harassment lodged against Moonves were not raised during Wednesday's hearing.
"The harassment thing is just a distraction," said Charles M. Elson, a corporate governance expert at the University of Delaware. "The real issue here is whether the dual-class share structure of the company is appropriate for a publicly traded company."
Last week, the board voted to hire two high-powered female lawyers to investigate the allegations of sexual harassment, which were detailed in a July 27 article in the New Yorker magazine. Several of the women interviewed said Moonves "forcibly kissed" them decades ago. Separately, a former employee from Lorimar Productions told police late last year that Moonves assaulted her on at least two occasions in the mid-1980s. Los Angeles County prosecutors declined to bring charges because the statute of limitations had expired.
Moonves has acknowledged that he may have made "some women uncomfortable by making advances," but the longtime CEO has denied forcing himself on women who said "no."
"The board is neither beholden to Shari nor are they beholden to Moonves," Elson said, noting the investigation into Moonves' alleged misconduct. "The board is really in the middle of all of this _ and they should be representing the interests of shareholders."
The Redstones, in their court documents, are trying to stipulate that should Moonves leave CBS, he would be denied a $180 million golden parachute outlined in his contract. Nor do the Redstones want Moonves' lieutenant, Joseph Ianniello, to exit with a handsome payout.
