It could take a courtroom farce to end Redstone's reign at Viacom

US Outlook: CBS is not in bad shape but Viacom looks ugly

Sumner Redstone is the executive chairman and majority owner of broadcasting groups Viacom and CBS (AFP/Getty Images)

If all political careers end in failure, so do an awful lot of business careers. Sumner Redstone, the executive chairman and majority owner of broadcasting groups Viacom and CBS, may be about to find out just how true that is, although if allegations about his mental and physical condition are to be believed it might not matter to him any more. It will be a sad end to a remarkable career.

Knowing when to quit is a skill that very few people possess. Mr Redstone does not have it – at 92 years of age some may argue he is well past the point of being able to effectively contribute to corporations with a combined value of over $36bn. According to a recent court case brought by a former girlfriend, he can no longer speak in complete sentences or write his own name. To put his age in some perspective, he graduated from Harvard a year before the Second World War ended.

CBS is not in bad shape but Viacom looks ugly. Most of its broadcasting assets are no longer hip with the kids – does anyone still watch MTV or VH1? What were once cutting-edge brands have been blunt for many years, killed off by digital music, changing viewing habits and a crisis in cable television subscriptions.

Despite a Viacom share price that has halved in the last three years, Mr Redstone still made $13.2m in salary and other benefits in 2014, although this dropped to $2m in 2015 after he became “ineligible to receive” a bonus (which had amounted to $10m the year before). Owning about 80 per cent of the voting stock helps, but the board is where the blame lies. Viacom’s chief executive Phillippe Dauman remains one of the best-paid executives in US media, taking home over $37m last year. Funnily enough, he remains one of Mr Redstone’s most vocal supporters.

Not surprisingly given the allegations about Mr Redstone’s state of health, Viacom and CBS have now attracted the interest of activist investors. SpringOwl Asset Management launched a public assault on Viacom and its board last week, claiming that it is overpaid, too old and too cozy. Another investor, EF Greenberg, has filed a suit alleging that the company’s board misappropriated shareholder funds by paying Mr Redstone millions of dollars while hiding his physical and mental deterioration from shareholders. Viacom and CBS have said the suit is “without merit”.

Redstone’s team have also responded to his ex-girlfriend’s suit, filing court documents from his physician stating that he remains mentally acute, though his speech is impaired.

Mr Redstone is no stranger to keeping lawyers busy. In 2007 he had a very ugly and public spat over corporate governance issues with his daughter Shari, still vice-chair at Viacom and CBS and a named defendant in the latest suit. Ms Redstone was once heir apparent at Viacom and CBS (ironically, the channel that once broadcast television gameshow Family Feud), but the Greenberg suit also alleges that there is no succession plan in place.

Age is not necessarily a barrier to effective leadership. Rupert Murdoch turns 85 in March, and it would take a brave investor to claim in court that he is unfit to run News Corporation. If he is fit enough to marry Jerry Hall, presumably he is fit enough to control his own media empire.

If the Greenberg suit comes to trial, Mr Redstone should be required to testify in person. It would be his first public speaking appearance for 18 months. At that point, a remarkable career could not only end in failure, it could end in farce.

The American way will leave only supply and no demand

The World Economic Forum in Davos is more narcissistic than a Justin Bieber concert, but must be particularly awful this year. Chinese growth stalling, oil and equity markets in freefall – the great and the good gripped by fear. But attendees can rest assured that if the world economy does indeed go belly-up, the blame will be placed firmly with irresponsible, big-borrowing plebs.

There is no doubt that the world is up to its eyeballs in debt, the US included, and it’s a major problem. Millions of people have accumulated debts that many will never pay back. However, the stagnation of real-terms income growth while corporations make record profits is equally undeniable and equally responsible. According to the Pew Research Center, since 1964 American average hourly wages have risen by 7.7 per cent, adjusted for inflation. Over the same time period US corporate profit has risen from an inflation-adjusted $321bn to $1.78trn, a rise of 455 per cent.

Here is the problem, and for the second week my thanks to ex-Credit Suisse fund manager Bill Mott for this: people have supplemented those stagnant real incomes by leveraging their balance sheet. That means people have borrowed, and been relentlessly encouraged to do so, against an illiquid asset (their home), the value of which is hyper-inflating.

Corporations have benefited massively from this – enormous profit and executive pay growth would have been impossible if it were not for consumers borrowing with reckless abandon. It is a recipe for disaster, one for which business and political leaders deserve a big slice of blame.

It’s not just manufacturing corporations that have benefited from what people mistakenly think is free money. Corporations that lend money to consumers have also grown exponentially. So while on one hand business leaders express their disdain for catastrophic levels of consumer borrowing, on the other they profit from it handsomely.

The US version of capitalism is heading towards an economy where all demand is created by debt and none by income. Eventually it will be all supply and no demand, and that won’t work. It has created an economic imbalance that would baffle and anger Henry Ford, who knew the benefit of paying workers well. Business and political leaders in Davos either don’t understand or don’t care.

There is a decent argument to be made that the current correction is nothing more than a hiccup after which global markets and economies will carry on as before. But perhaps there is a better argument to be made that now would be a good time to re-evaluate the US version of capitalism that we have all embraced so enthusiastically. The one that is busy eating itself.