Associated Press
Cablevision's Governance Under Scrutiny
Friday March 11, 1:59 pm ET
By Rachel Beck, AP Business Writer
ALL BUSINESS: Cablevision's Governance Is Under Scrutiny by Its Shareholders
NEW YORK (AP) -- When a company's chairman ousts three board members and replaces them with his own slate of directors who just happen to be his business associates, it sounds like corporate governance at its worst.
No doubt that's what some Cablevision Systems Corp.'s shareholders have been thinking since founder Charles Dolan earlier this month threw out the directors, who joined one of his sons in opposed the funding of a struggling satellite television venture Dolan has been championing.
But this apparent power-play may not be as bad as it looks when you consider who the new board members are -- media tycoon John Malone and other seasoned corporate leaders who have a lot to lose should they just rubber stamp Dolan's wishes.
Of course, there is no telling what Dolan's intentions were when he triggered the board shake-up or how the new board will ultimately operate. The only sure thing is that Dolan's moves have stirred up lots of controversy, which has yet to subside.
The trouble started when the company's board on Feb. 28 announced that Cablevision would exit its money-losing high-definition satellite television service called Voom after failing to reach an agreement with Dolan, who wanted to buy the remaining assets of the business. His son, James, the company's CEO and a board member, sided with those in favor of the divestiture.
Two days later Dolan sent a letter to the company stating that he had removed from the board former Cablevision executives William Bell and Sheila Mahony as well as investment banker Steven Rattner, all of whom had voted against his Voom purchase. Another seat had been vacated by the late John Tatta, a co-founder of Cablevision.
That maneuvering was allowed because the company operates under a dual-class share system, so that special super-voting stock gives a select group of investors -- namely the Dolan family with its 75 percent voting bloc, controlled by Charles Dolan -- most say over the company's decision making.
The new board members that Dolan tapped are Rand Araskog, the former chairman and CEO of ITT Corp.; Frank Biondi Jr., a former president and CEO of the media conglomerate Viacom Inc.; Malone, a pioneer of the cable industry and chairman of Liberty Media Corp.; and Leonard Tow, a former CEO of Century Communications Corp., a cable TV company.
Dolan quickly came under attack for his actions. In the wake of all the business scandals in recent years, executives' decisions are under close watch, especially if they seem to serve their own interests.
"In this era of corporate governance, Mr. Dolan's actions are remarkable for a public company," said Merrill Lynch analyst Jessica Reif Cohen in a note to the investment firm's clients.
At least one shareholder has already filed a lawsuit against Dolan as well as his new appointees in Delaware Chancery Court. Cablevision investor Eleanor Leonard, in her complaint, alleges that "the board is in turmoil as a result of Dolan's high-handed interference with the directors' managerial prerogatives."
Yet the jury's still out on how these new appointees will influence the 15-member board. In their first action, the entire board on Tuesday agreed to operate the Voom satellite TV service until the end of the month. That gave Dolan more time -- but also a strict deadline -- to get his financing together to buy the business.
These new directors know the risks of putting a personal relationship with another executive above their fiduciary duty to shareholders. The same goes for quickly signing off on a related-party business transaction with the company's chairman. That's because in this new governance-focused corporate environment, directors can be held personally liable for the decisions they make while sitting on the board.
And given the intense scrutiny of board members today, these new directors are unlikely do anything that could put both their sizable personal fortunes as well as reputations at stake.
Lawrence Hamermesh, professor of law at Widener University's School of Law in Wilmington, Del., argues that the new directors could help the company because they are more independent than those who were ousted. "I know what side I would choose to have on my board," he said.
Maybe a bigger concern should be over Dolan's power to pack the board with more cronies in the months ahead -- and whether they will be of the same caliber as those who were just brought in to serve as directors.
According to his March 2 letter to Cablevision, Dolan said the super-voting shareholders planned to exercise their right to elect 75 percent of the company's board at the May annual meeting. If the board stays at its current size, that would give preferred investors 18 new board seats to fill, Dolan said.
Now that may be a governance outrage worth worrying about.
Rachel Beck is the national business columnist for The Associated Press
Cablevision's Governance Under Scrutiny
Friday March 11, 1:59 pm ET
By Rachel Beck, AP Business Writer
ALL BUSINESS: Cablevision's Governance Is Under Scrutiny by Its Shareholders
NEW YORK (AP) -- When a company's chairman ousts three board members and replaces them with his own slate of directors who just happen to be his business associates, it sounds like corporate governance at its worst.
No doubt that's what some Cablevision Systems Corp.'s shareholders have been thinking since founder Charles Dolan earlier this month threw out the directors, who joined one of his sons in opposed the funding of a struggling satellite television venture Dolan has been championing.
But this apparent power-play may not be as bad as it looks when you consider who the new board members are -- media tycoon John Malone and other seasoned corporate leaders who have a lot to lose should they just rubber stamp Dolan's wishes.
Of course, there is no telling what Dolan's intentions were when he triggered the board shake-up or how the new board will ultimately operate. The only sure thing is that Dolan's moves have stirred up lots of controversy, which has yet to subside.
The trouble started when the company's board on Feb. 28 announced that Cablevision would exit its money-losing high-definition satellite television service called Voom after failing to reach an agreement with Dolan, who wanted to buy the remaining assets of the business. His son, James, the company's CEO and a board member, sided with those in favor of the divestiture.
Two days later Dolan sent a letter to the company stating that he had removed from the board former Cablevision executives William Bell and Sheila Mahony as well as investment banker Steven Rattner, all of whom had voted against his Voom purchase. Another seat had been vacated by the late John Tatta, a co-founder of Cablevision.
That maneuvering was allowed because the company operates under a dual-class share system, so that special super-voting stock gives a select group of investors -- namely the Dolan family with its 75 percent voting bloc, controlled by Charles Dolan -- most say over the company's decision making.
The new board members that Dolan tapped are Rand Araskog, the former chairman and CEO of ITT Corp.; Frank Biondi Jr., a former president and CEO of the media conglomerate Viacom Inc.; Malone, a pioneer of the cable industry and chairman of Liberty Media Corp.; and Leonard Tow, a former CEO of Century Communications Corp., a cable TV company.
Dolan quickly came under attack for his actions. In the wake of all the business scandals in recent years, executives' decisions are under close watch, especially if they seem to serve their own interests.
"In this era of corporate governance, Mr. Dolan's actions are remarkable for a public company," said Merrill Lynch analyst Jessica Reif Cohen in a note to the investment firm's clients.
At least one shareholder has already filed a lawsuit against Dolan as well as his new appointees in Delaware Chancery Court. Cablevision investor Eleanor Leonard, in her complaint, alleges that "the board is in turmoil as a result of Dolan's high-handed interference with the directors' managerial prerogatives."
Yet the jury's still out on how these new appointees will influence the 15-member board. In their first action, the entire board on Tuesday agreed to operate the Voom satellite TV service until the end of the month. That gave Dolan more time -- but also a strict deadline -- to get his financing together to buy the business.
These new directors know the risks of putting a personal relationship with another executive above their fiduciary duty to shareholders. The same goes for quickly signing off on a related-party business transaction with the company's chairman. That's because in this new governance-focused corporate environment, directors can be held personally liable for the decisions they make while sitting on the board.
And given the intense scrutiny of board members today, these new directors are unlikely do anything that could put both their sizable personal fortunes as well as reputations at stake.
Lawrence Hamermesh, professor of law at Widener University's School of Law in Wilmington, Del., argues that the new directors could help the company because they are more independent than those who were ousted. "I know what side I would choose to have on my board," he said.
Maybe a bigger concern should be over Dolan's power to pack the board with more cronies in the months ahead -- and whether they will be of the same caliber as those who were just brought in to serve as directors.
According to his March 2 letter to Cablevision, Dolan said the super-voting shareholders planned to exercise their right to elect 75 percent of the company's board at the May annual meeting. If the board stays at its current size, that would give preferred investors 18 new board seats to fill, Dolan said.
Now that may be a governance outrage worth worrying about.
Rachel Beck is the national business columnist for The Associated Press
