Originally posted in the Financial Times - https://www.ft.com/content/19bf161a-96c1-11e8-b67b-b8205561c3fe
In his two decades as chief executive of CBS, Les Moonves has hosted dozens of earnings calls, but none quite like this.
In the week since six women accused Mr Moonves of sexual misconduct in an 8,000-word New Yorker article, the powerful executive has tried to go through the motions of running the most popular US television network. On Thursday afternoon, Wall Street analysts were happy to go along with this.
“Great quarter,” Laura Martin, analyst at Needham & Co, remarked without sarcasm to Mr Moonves on the hour-long call, during which CBS’s stock price fell 1.5 per cent. Eight analysts were allowed questions, and none of them broached the elephant in the room: the fate of Mr Moonves. Instead, they dutifully stuck to a script of advertising sales, sports gambling and digital subscriptions, after CBS had warned that executives would discuss nothing other than quarterly results, “in light of pending litigation”.
The surreal phone call capped off a tumultuous week in which CBS’s stock has lost $2bn in market value as investors contemplated a future without Mr Moonves — who has been a singular force in Hollywood, transforming CBS from a stalling broadcaster into an increasingly rare success story in traditional television.
Mr Moonves, who is also chair of the CBS board, flew to Los Angeles to attend a prescheduled board meeting on Monday — where one agenda item was how to investigate the sweeping claims against him. After hours of discussion, the board said that it was hiring outside counsel and “no other decisions were made at this time”.
The lack of more decisive action surprised some observers; CBS had fired anchor Charlie Rose the day after accusations were lodged against him. Perhaps more stunning was Mr Moonves emphatic optimism on the earnings call. In his first public comments since the allegations, Mr Moonves waxed poetic for more than 15 minutes about CBS’s commercial accomplishments, declaring: “We’re as confident as ever that the strategy we have in place is setting us up for continued long-term success”.
Mr Moonves’ confidence seemed worlds away from the cloud of uncertainty surrounding CBS. “In terms of reality, those [numbers] don’t matter much right now,” said Michael Nathanson, analyst at MoffettNathanson.
The 68-year-old is one of hundreds of executives accused of sexual harassment in the past year, as revelations about Harvey Weinstein sparked an industry-wide reckoning about abuse of power and sexism in Hollywood.
But he is among the biggest names to be investigated since Weinstein, and he is also the first such case for a chief executive of a large publicly traded company, raising new questions about corporate governance.
“Les Moonves is unparalleled in the entertainment industry. He is the one person who could bridge Hollywood and Wall Street,” says Brian Wieser, analyst at Pivotal Research. “So previously you could look past a lot of things, as long as CBS was doing well. But this? It’s difficult to look at what’s happened and not conclude that the board is somehow in management’s pocket.”
Anita Anand, law professor and chair of corporate governance at the University of Toronto, said that the way CBS handles this “sets a significant precedent”.
“These stories are continually cropping up. How strong are boards going to be, when members of their own board are accused of harassment?”, she said. “[Mr Moonves] being at this meeting at all was inappropriate, from a governance perspective.”
Complicating matters further, Mr Moonves has spent much of the year locked in a power struggle with CBS’s controlling shareholder, National Amusements, which is owned by media titan Sumner Redstone and his daughter Shari. The CBS board, led by Mr Moonves, effectively declared war on the Redstones earlier this year when it tried to strip their voting power in CBS through a lawsuit.
Mr Moonves made this bold move even as he, and some board members, had been aware of the probes into his behaviour since late last year, according to people familiar with the matter. Ms Redstone was aware of the investigation in December and had raised concerns with CBS management about the rumours, according to people familiar with the matter.
Reactions from analysts and corporate governance experts have ranged from confusion to outrage.
Between the allegations against Moonves and the battle with NAI, CBS faces “overhangs of epic proportions”, said Mr Nathanson. “We admit that while we have no clue as to what will happen here, we do know that CBS stock, at this point in time, is simply uninvestable.” Rich Greenfield, analyst at BTIG, said he was “nothing short of shocked at the decision-making of the CBS board”.
The average CBS board member is 74 years old, and directors include high-profile figures like William Cohen, former defence secretary, and Martha Minow, former dean of Harvard Law School. The board has previously shown loyalty to Mr Moonves: 11 of the 14 members supported the move to strip the Redstones’ voting power.
The board has postponed an annual shareholder meeting that was scheduled for next week, and hired two high-profile law firms to conduct an investigation, promising that Mr Moonves “will have no role in the investigation”.
CBS’s board and National Amusements are supposed to resolve their legal dispute in a Delaware court in October. Larry Hamermesh, a law professor at Widener University in Delaware, says the allegations against Mr Moonves would not affect that trial directly. However, it could indirectly shape the results if the investigation leads to Mr Moonves’ departure before October, he noted, while adding that “this was already a long-shot case [for CBS] . . . There is a tendency not to let a board take away control from a controlling stockholder.”
Mr. Moonves made $69.3m last year. If he is fired without finding cause, he is due for a severance payout of more than $120m, according to Bloomberg estimates.
Perhaps more troubling for CBS investors is whether a successor could match the undeniable success of Mr Moonves, who has overseen a tripling stock price since he took the helm in 2006. Or whether the culture he has cemented at CBS, as depicted by Pulitzer Prize-winning reporter Ronan Farrow, can be changed.
“No company should ever be in the position where its whole operation is tied to one guy so much that if the guy got hit by a bus tomorrow, the organisation would stop,” said a top executive at a large US television company. “And yet that’s the position they’re in.”