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Speculation abounds concerning Sumner Redstone39s generationskipping trust
<p>Speculation abounds concerning Sumner Redstone&#39;s generation-skipping trust.</p>

The Battle of Fort Sumner: What next for Viacom and CBS?

Four Observations about Planning for Family Business Succession

Who will control Viacom and CBS when Sumner Redstone passes?  Will Viacom CEO Philippe Daumann muscle Redstone’s daughter Shari out of the way to take Sumner’s place as Chairman? How much influence do Sumner’s girlfriends have over the 92-year old media mogul?

Speculation abounds concerning Sumner’s generation-skipping trust, which owns 80 percent of National Amusements Inc., which in turn owns just under 80 percent of the voting shares of both Viacom and CBS (Shari Redstone owns the other 20 percent of National Amusements).  An attorney for Sumner has stated that the trust has 7 trustees—two family members and five outsiders.  Media commentators do the simple math and conclude that after Sumner’s death, his long-time advisors, not his family members, will control the GST trust and, therefore, National Amusements, Viacom and CBS.

Other commentators look at the swirl of intrigue around Redstone and make unfavorable comparisons between Redstone’s lack of transparency  and  fellow media mogul Rupert Murdoch’s June 2015 announcement that he had positioned his sons to lead 21st Century Fox.

Redstone’s situation offers plenty of insights for advisors who work with business-owning families.  Four stand out in particular.

1. Succession planning is about more than choosing who will run the company

Complaining that Murdoch has been more transparent than Redstone is confusing apples and … apple trees?  Murdoch’s announcement discussed leadership: sons Lachlan and James will be CEO and Executive Co-Chairman, respectively, of 21st Century Fox.  Sumner’s structure is about ownership.  Murdoch’s announcement clarified that management of 21st Century Fox will likely stay in the family; information released about Redstone’s ownership structure makes clear that control of Viacom and CBS will remain in the hands of a team of family members and knowledgeable, experienced family advisors operating in an intricately designed and governed holding structure.

2. Assumptions about the trust will always be wrong.

Much of the intrigue around the future control of Viacom and CBS stems from speculation over the identity of the trustees of Redstone’s GST trust.  Commentators assume that if there is a majority of outside trustees, then that means Redstone’s family won’t have control of the assets of the trust.  But without access to the trust document, observers simply can’t know how the trustees and their successors are chosen. If family members—or a family-controlled protector—have the right to remove and replace trustees, they will have considerably more power over trust decision-making than if trustees can choose their own successors.  Without seeing the document, we simply can’t know.

And, it isn’t only outsiders looking in who will make assumptions about what a trust says—family members who weren’t in on the planning will almost certainly do so as well.  Trusts are not intuitive instruments.  Redstone will want to keep in mind that his grandchildren who are beneficiaries of the trust will be less inclined to fight the structure if they understand what it does and why—and if there is enough transparency around investment and distribution policies and trust decision-making to satisfy their legitimate desire for information.

3. A holding company provides a buffer—and a training ground. 

The discussion in the press almost always ignores the potential role of Redstone’s holding company, National Amusements Inc., and leaps straight to speculation about which individuals will chair the boards of Viacom and CBS, likely because Sumner himself has been deeply involved in strategic decision-making as chairman of the operating companies.  But once Sumner steps down, the Trust – Holding Company – Operating Company structure offers the opportunity for a more sophisticated, multi-level decision-making process that can bring to bear the talents and perspectives of family members, knowledgeable insiders and trusted advisors.  Given Viacom’s and CBS’s stature as publicly-traded companies, inserting a private holding company between the public entities and the trust offers greater privacy as the family enters a new era without Sumner’s omnipresent leadership.  And the holding company also gives the trustees of the trust—family and non-family alike—a substantial degree of insulation from potential liability for breach of fiduciary duty related to decisions to hold or divest Viacom and CBS stock: to the extent that business-related decisions are made by the National Amusements board, rather than the trustees, they should be subject to the protections of the Business Judgment rule.

The National Amusements board also will offer a training ground for Redstone’s descendants who aspire to participating in the governance of the operating companies and will provide a private, family-controlled forum away from media intrusions in which to make critical decisions about the family’s holdings.

4. Public company governance rules may not apply

Beneath the speculation about the future of Redstone’s empire lies an assumption that decision-making throughout the chain of ownership will follow the extensive body of law that spells out public company governance. While there may be benefits to tailoring the governance of privately-held entities like National Amusements as if they were publicly-held, there is no requirement that families do so, and state law permits considerable flexibility regarding the relative balance of power among owners, board and management.  In most public companies, the balance is shifted heavily towards management, with outside board members providing a degree of oversight for owners who are primarily financially-oriented.  Most business-owning families, by comparison, recognize that there is more at stake than money: their holdings represent human and enterprise capital as well as financial capital, and they may retain the power to decide certain critical questions while delegating others.  The existence of National Amusements suggests that Sumner and the lawyers who built his ownership structure wanted to create layers of governance that would ensure family control of critical decisions while also providing for the input of business, tax and legal advisors familiar with the intricacies of Redstone’s structure and of the markets in which Viacom and CBS operate. 

We likely will never know the terms of Sumner Redstone’s GST trust, nor the bylaws and policies of National Amusements Inc., which together govern the Redstone family’s ownership of Viacom and CBS.  Nonetheless, the swirl of intrigue in the press reminds us outsiders will be quick to assume—or provoke—a battle.  How can we make the structures and processes of succession resilient enough to sustain the family and the business through the chaos that inevitably follows the exit of a dominant founder?

Amelia Renkert-Thomas is joint managing director at Withers Consulting Group LLC in New Haven, Conn. 

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