Exclusive: Viacom should end non-voting stock, give vote to all investors – California fund

BOSTON/NEW YORK An official for the second-largest U.S. public pension system on Thursday urged Viacom Inc (VIAB.O) to do away with its dual-class share structure, the latest call from an investor for change at the media empire controlled by the aging mogul Sumner Redstone as doubts grow over his ability to lead.

Redstone, 92 years old, controls about 80 percent of the voting rights at Viacom, and the company has a second class of shares with no voting rights. The California State Teachers’ Retirement System has 1.1 million non-voting shares.

“Ideally we think there should be a one-share, one-vote capital structure,” said Aeisha Mastagni, an investment officer for the $184 billion system known as CalSTRS, in an interview on Thursday.

While not a top-20 investor in Viacom, CalSTRS is an influential activist shareholder and has supported calls for the end of dual-class structures at other companies. It has not previously focused on Viacom.

Mike McCauley, senior officer at the Florida State Board of Administration, which has $144 billion in pension assets and is another high profile voice on governance with a mid-sized stake in Viacom, said on Thursday that he also supports the idea that Viacom should move to a one-share, one-vote capital structure.

Viacom has denied any issues with Redstone’s mental capability. Asked about its share structure, Viacom spokesman Jeremy Zweig said via email that “we believe that it has contributed, and continues to contribute, to our stability and long-term stockholder returns.”

He added that it “allows investors an opportunity to participate financially in companies in which the existing owners may not wish to part with voting control.”

Other media companies use dual-share class structures as well, making similar arguments that they can help stave off attacks by activist investors.

Questions about Redstone’s health have been growing for months, raising concerns about management’s ability to focus on recovering from a drop in TV ratings. Investors are becoming more vocal in their requests for information and control as Redstone’s own influence wanes.

Mastagni’s remarks come after Manuela Herzer, a former girlfriend of Redstone, said in a lawsuit he was no longer mentally competent, leading two major investors in Viacom on Wednesday to question whether Redstone should step down as executive chairman.

Mastagni said she would have the concerns about the share structure whatever Redstone’s health might be, though she did say the situation is “like a soap opera.”

The lack of voting rights for many investors means Viacom’s board is insulated from investor pressure, she said.

The company has faced criticism from corporate governance advisers over its high pay for executives, but Mastagni said there is little investors can do.

“This is an example, putting Mr. Redstone aside, where the minority shareholders have no way to hold the board accountable,” she said. “Our view is that if you’re tapping into the public markets, you should have a one-share, one-vote capital structure.”

Investors have raised other governance concerns at Viacom. One issue is that Viacom CEO Philippe Dauman is also executor of Redstone’s will and has power of attorney over his health care, a potential conflict, according to one top-10 Viacom investor, who wished to remain anonymous.

Viacom declined to comment on the concerns about Philippe’s roles.

Such an arrangement would not stand in a public company with a single share class, where investors would have more ability to push for changes, said James Post, a professor in the business school of Boston University.

“This is clearly not something you would see in most public companies,” Post said. “It’s really residue of the transition from a family-owned business to a publicly traded one.”

As a large investor CalSTRS has come to play an influential role on U.S. corporate governance matters. In addition to its stake in Viacom, it owns 1.9 million non-voting shares of CBS Corp (CBS.N), the other big media company controlled by Redstone.

The Florida board holds 763,303 non-voting shares in Viacom and 763,458 non-voting shares in CBS.

Calls to expand voting rights or to eliminate dual-share class structures have been a common theme for pension funds in recent years, especially as technology firms have embraced multiple share classes.

While Viacom has not faced a shareholder proposal on its structure in recent years, according to FactSet data, Mastagni said CalSTRS supported proposals to eliminate dual-share classes at social media company Facebook Inc (FB.O) and at cable television firm Comcast Corp (CMCSA.O). Both proposals failed to get a majority of votes.

(Additional reporting by Jessica Toonkel in New York)