Viacom's new lead independent director pledges close eye on strategy

NEW YORK (Reuters) - Viacom Inc's VIAB.O new lead independent director pledged on Wednesday to represent all of the media company's shareholders and improve board and management coordination, including on potential mergers and acquisitions.

A woman exits the Viacom Inc. headquarters in New York April 30, 2013. REUTERS/Lucas Jackson

On Wednesday, Viacom, which owns MTV, Comedy Central and Paramount, named Frederic Salerno, former vice chairman of Verizon Communications Inc VZ.N and a Viacom board member, as its first lead independent director as the New York-based company looks to counter investor criticism of its corporate governance.

As first reported by Reuters earlier on Wednesday, Viacom’s board was looking to name one of its independent board members to the new role to assure independence after it voted to make Chief Executive Philippe Dauman executive chair last month. He replaced Sumner Redstone despite calls by the 92-year-old media mogul’s daughter for an “independent voice” in that position.

Roughly a quarter of the independent shares voted was in opposition to Salerno’s reelection to the board on Monday, the lowest level of support among board members. But overall, investors cheered the move on Wednesday, and Viacom’s stock rose 3.7 percent.

Salerno told Reuters he wanted to ensure Viacom’s independent directors had a good handle on every aspect of Viacom’s business, including mergers and acquisition activity. Last month, Dauman said the company was looking to sell a “significant stake” in Paramount.

“The priorities are that we clearly understand the strategic plan that exists and to make sure it’s holistic enough for each and everyone of the directors to not only understand it but to be able to input their views as to the doability [and] the appropriateness,” he said in an interview on Wednesday after the announcement.

“We will make sure that we represent all shareholders, which is important in a controlled company,” he added.

Proxy adviser Institutional Shareholder Services recommended that Viacom investors withhold support for six of the company’s directors, including Salerno, who chairs the compensation committee, citing concerns about executive pay.

Viacom awarded Dauman a $54.2 million pay package for the last fiscal year, when the company’s shares fell 44 percent.

Salerno noted that much of the compensation was in equity tied to business performance, not cash. He disputed the perception that the board was in some way beholden to Dauman.

“It is a high number in comparison to the industry. No one denies that, but it’s a number that is not high in comparison to the peer group,” he said.

About 80 percent of Viacom’s Class A voting shares are owned by Redstone’s family, a level of control that Paul Hodgson, a partner at PHJ Partners, a Portland, Maine-based corporate governance consultancy, said undermined Salerno’s independence.

“His actual level of independence is probably questionable,” Hodgson said.

Salerno drew 96 percent support from all shares voted at the annual meeting this week, in line with typical levels for uncontested directors at S&P 500 companies, according to several analyses.

But his support among outside investors was roughly 76 percent of shares voted, a level corporate governance consultant Francis Byrd said should be taken as a sign of discontent among the independent shareholders.

“There’s a significant minority of shareholders who do not feel that Salerno adequately represents them,” Byrd said.

Salerno, who noted that a majority of independent shareholders supported him, said he saw his new role as “a matter of refinement” rather than “revolutionizing” the board.

The appointment of an independent lead director could help quell investor concern surrounding Viacom after Redstone’s ex-girlfriend Manuela Herzer filed a lawsuit questioning his mental competence when he removed her last year as his health care agent in favor of Dauman.

Sal Muoio, whose investment firm is a top owner of voting Viacom shares, applauded the new independent director role.

“They absolutely should have this,” Muoio said. “I always thought that was standard operating procedure for companies that have the CEO as chairman.”

Additional reporting By Ross Kerber