Viacom’s Top Execs to Face Off Before Board

The well-publicized clash of egos at the top of Viacom Inc. could come to a head today at a meeting of the board of directors in New York and set the stage for the departure of company’s No. 2 executive Mel Karmazin, according to several sources close to the situation.

The board hopes to resolve a standoff between Viacom Chairman and Chief Executive Sumner Redstone and his chief operating officer, Karmazin. In recent months numerous news reports have detailed clashes in management style of the two celebrated executives. The disputes have created anxiety within top management and on Wall Street, helping drive down the stock of the world’s second-largest entertainment company by 11% this year.

Some executives and investors were bracing Tuesday for a boardroom showdown, predicting that Redstone would force out Karmazin, the former chief executive of CBS Corp. who joined Viacom after the companies merged in May 2000.

Although Karmazin, 58, is a favorite on Wall Street because of his focus on profit and his tough-minded style, Redstone owns 68% of Viacom’s voting stock, relishes the limelight and is eager to resume the controls he ceded after the merger, said sources close to the company.

Redstone, 78, built Viacom over the last 15 years from a small theater chain into a sprawling media company with holdings that include CBS and UPN television networks, Showtime and MTV cable channels, Paramount Pictures and Blockbuster video.

But Redstone has bristled under a management arrangement that gives Karmazin operating control of Viacom, including the ability to hire and fire executives, until his employment contract expires at the end of 2003. Redstone can reconfigure Viacom’s board and reduce Karmazin’s power in May of next year, on the third anniversary of the Viacom/CBS merger.

It was unclear Tuesday whether the board would vote on Karmazin’s fate. The board may demand that the two executives work out their differences.

Under the company’s bylaws, Redstone cannot fire Karmazin without the approval of 14 of the board’s 18 members. Such a vote could be difficult to orchestrate because eight of the 18 board members are CBS appointees.

In recent weeks, money managers have pressured Redstone to patch relations with Karmazin, worried that Viacom’s stock price would drop dramatically if the former CBS executive left the company.

Other money managers, however, said privately Tuesday that the management conflict had escalated beyond control, causing Viacom executives to choose sides, and that the two leaders needed to split up.

Some Wall Street analysts say it is time to resolve the management crisis. “It’s better if this comes to a head,” said Jessica Reif Cohen, an analyst at Merrill Lynch. “Investors need some certainty.”

Viacom spokesman Carl Folta on Tuesday would not comment on the Redstone-Karmazin feud, but confirmed the board meeting, which he said was a regularly scheduled one.

However, several sources said this was a special meeting called by Viacom’s board in the aftermath of a front-page article in the Wall Street Journal last week that focused on the tensions between Karmazin and Redstone.

Last fall in an interview with The Times, Redstone said he would not give up his title as CEO to Karmazin, and that there were other Viacom executives who contributed just as much to the company’s success and were worthy of the job.

In the same interview, Redstone said the company’s money-losing television network, UPN, would not be merged with CBS because the executives in charge of the fledgling network, Kerry McCluggage and Jonathan Dolgen, were doing a good job.

But Karmazin was irate at Redstone’s comments, sources said, and within weeks he retaliated by restructuring TV network operations. He merged UPN with CBS, which prompted McCluggage, one of Redstone’s favorite executives, to leave the company.