Even if they wanted to, Viacom’s (VIAB) public shareholders have no power to challenge CEO Philippe Dauman’s pay package or the company’s directors. In fact, most shareholders don’t even have a vote. So, they are being told to do the next best thing: withhold votes from the directors who sit on the board’s compensation committee.
Viacom only gives some of its shareholders the ability to vote against executive pay once every three years; this year is not one of them. The company’s bylaws do not allow shareholders to vote against board directors. They only allow them to withhold votes from directors. So, Glass Lewis and ISS, the two biggest shareholder advisory firms, have recommended their clients express their disapproval of executive pay at Viacom in the only way available to them: by withholding votes from all four of the compensation committee directors.
What’s wrong at Viacom? As far as pay goes, Glass Lewis doesn’t like the fact that CEO Philippe Dauman can earn so-called performance shares even without hitting the targets attached to them. It doesn’t like the fact that Dauman was controversially elected chairman after Sumner Redstone stepped down from that post. Dauman was given the position in part because his contract said that, if he weren’t offered the job, he could resign and walk away with around $75 million.
Viacom’s governance problems go even deeper. There are two classes of stock at Viacom: Class A and Class B. Former chairman and CEO Sumner Redstone, now chairman emeritus, controls almost 80% of the Class A shares. These are the only shares that have any voting rights. Class B shareholders cannot vote despite the fact that they own 80% of the company.
Viacom did not respond to a request for comment for this article.
Glass Lewis and ISS have advised Viacom shareholders to support a proposal to do away with the two share classes and implement a one-share one-vote policy. Similar proposals have been filed at Facebook and Google, which also have problematic shareholder voting structures.
These undemocratic corporate voting systems are more common today than they have been for a while. Many recent IPOs—not just of Facebook and Google, but also Zynga, Groupon, and a bunch of other tech firms—went public with similar voting structures. Media firms are also prone to going this route as well. The New York Times Co., Scripps, virtually every cable and media company touched by Liberty Media tycoon John Malone (and there are a lot of them), and Viacom’s spin-off CBS all have such systems.
Warren Buffett’s Berkshire Hathaway restricts its voting power more than most of the companies listed above. Publicly traded stock at Berkshire Hathaway is entitled to only one-ten-thousandth of one vote.
These restrictive shareholder voting systems were put in place so that company founders could maintain control over either editorial issues or the firm’s future strategy. But this is not the case at Viacom; Redstone is not the company’s founder, he gained control of it in 1986.
Once these unequal voting rights are in place, they rarely go away. It can only happen if controlling shareholders vote to give up their rights. Only one example of this comes to mind in the last 10 years; when newspaper company Media General merged with Young Broadcasting in 2012, the company’s controlling shareholders, in this case the founding Bryan family, voted to change the structure of the company to a one-share, one-vote operation.
There’s little hope for change at Viacom. Even if every share not controlled by Redstone voted for the one-share one-vote proposal, it wouldn’t pass.
Absent a sudden rash of corporate founder altruism, there is only one solution to this problem: to prevent companies from ever adopting these voting structures in the first place and reform all the ones that already have them. U.S. exchanges could refuse to list companies with unequal voting rights—such systems are virtually non-existent in every other Western economy—and the SEC could draft regulations to reform existing unequal voting structures.
Only then would we have ownership with representation.
