Well, Sumner Redstone sure is the whip-cracker these days, isn't he? First, he let poor Tom Cruise go from Paramount. Then, a little over a week ago, he decided that Tom Freston should no longer be at the helm of Viacom (NYSE:VIA) and instead put Philippe Dauman in charge.
This set off a firestorm. Why the sudden dismissal? More importantly -- was he right?
As we all know, Redstone was the frustrated controlling shareholder of a large media conglomerate called Viacom. He was so stymied by what he perceived as a lack of respect on the part of Wall Street for his conglomerate that he decided to split the behemoth into two entities.
One of the main reasons for his displeasure, however, seemed to stem from the lack of stock appreciation. Simply put, Redstone wants that Viacom stock higher. Which is a very interesting idea, because at first glance, the concept contains an aura of danger -- i.e., does a shareholder really want the CEO to be so devoted to the stock price?
As Rick Munarriz mentioned in his musings on the subject, Freston helped Redstone build Viacom into a major media force. However, I have a lot of empathy with Redstone because, simply put, a lagging stock price does weigh on the psyche, especially when one believes the assets might be undervalued. As a Disney (NYSE:DIS) shareholder for over eight years now, I have a lot of empathy -- after seeing so much improvement in that company over the years, it's frustrating to see that the shares still see incredible resistance at the $30 price point. Ask Time Warner (NYSE:TWX) shareholders how they feel -- that stock has been dead money for a long time now.
As far as I'm concerned, a CEO change in this case is the act of a patient man whose patience is wearing thin. Remember, Redstone already went through a trying time with the old Viacom, which he patiently waited for Wall Street to appreciate and value accordingly. Alas, in his eyes, it never happened, so I can't blame him for not wanting to play the waiting game this time around. He took action and shook things up. And while I might not agree with his sentiment on missing out on the MySpace deal (I'm not sure that would have been the saving grace for Viacom), I applaud his watching over shareholders' interests (which, of course, overlap his own).
So while managing a stock price for the short term is indeed inadvisable -- because such a motive could destroy a company -- I'd argue that, in this case, it really wasn't so short-term.
More Foolish reading:
- Viacom Is on the Move
- The Funny Thing About MySpace
- Paramount Is Right
- Rick Munarriz pens a "Dear Iger" letter.
Disney and Time Warner are both Motley Fool Stock Advisor picks. And now you can take the newsletter dedicated to the very best of David and Tom Gardner's selections for a30-day free spin.
Fool contributor Steven Mallas owns shares of Disney. The Fool has a disclosure policy .
