Business Management

Viacom Inc. is world’s known Transnational Media Corporation

Viacom Inc. is world’s known Transnational Media Corporation (TNMC), which deals in the production, as well as sale and distribution of various electronic media entertainment. It owns and also operates over 30 television stations, which significantly reaches 15 of the overall top 20 TV markets that are present in the US (Bloomberg, 2018). The highly diverse company has business interests in the following: radio, as well as television broadcasting, film entertainment, video rentals, and advertising, amongst others. The company’s long-standing CEO, known as Sumner Redstone has portrayed aggressive leadership management skills, as he deeply engages in aspects that relate to the company’s operations. Moreover, it is evident that Redstone has been able to shape and influence the company’s operations, and as such, his actions have been able to influence the company positively in terms of profitability and overall positive performance (Reuters, 2018). It is worth noting that Viacom somehow differs from other Transnational Media Corporations, owing to the fact that it is not able to claim an origin product of the media software, with its long-standing history. However, it is evident that the company has a unique entity, which it has been able to build over time through constant and steady acquisition of the already existing media companies, with the help of its established brand identity. In this regard, the company has been able to avoid some normal risks, which are associated with start-up companies. Notably, Viacom Inc. started as a small chain dealing in Movie Theater but over the years, it has evolved into world’s second largest TNMC (Encyclopaedia Britannica, 2018).

A critical challenge that Viacom Inc. managers face is that they are unable to find a suitable successor that can lead as the company’s chairperson, as well as the CEO, whilst Sumner Redstone the current CEO and chairman is preparing for his retirement. This then raises a question regarding the managerial succession planning. In accordance with the writings of Tricker & Tricker (2015), CEO succession has a significant impact to a company, when considering various strategic planning, organizational stability, as well as financial performance. It is clear that the Viacom board had re-nominated Sumner Redstone, although Fredric Salerno, who is a member of the company’s governance and nominating committee said that Redstone was not capable of making significant decisions regarding the company’s future, as he cannot stand, or even maintain a coherent communication (Encyclopaedia Britannica, 2018). A key research question, which can aid in solving this managerial problem would be “should Viacom Inc. alter its succession planning structure, in order to find a suitable CEO successor?” if so, how should it be altered, to change the company’s strategic planning, organizational stability, as well as financial performance, which are attached to the planning?

Concept and theory

CEO succession is regarded as an important, unique, as well as a visible event, which has a profound on an organization and to its strategies (Reuters, 2018). In the recent years in Viacom, there has been greater pressures, which require that the board directors should select a successor, in order for the sitting CEO to step down, thus ensuring a smooth transition based on the executive leadership. The present issue is relating to the question regarding what happens on the question of what happens in an instance where a CEO of Viacom fails in providing a succession plan. Over the years, there are three reasons why Viacom Inc. managers need to choose its successor. First, owing to the fact that there is an impending retirement, selecting the company CEO successor is principally for maintenance strategy (Encyclopaedia Britannica, 2018). In this regard, the CEO should come from the organization, for example when the CEO, General Electric retired in the year 2000, there were three internal candidates who were ready to step in and continue with the role of the CEO (Bloomberg, 2018). Secondly, choosing a CEO successor is a response to the company’s poor financial performance as it represents a company’s response towards getting the company of track. In accordance with this view, a change in the CEO represents a significant effort that can aid the company in getting back on track. This would help Viacom to develop significant international services operation, which would transform the fortunes of the company (Jesen & Meckling, 1976). The third reason is that choosing a CEO successor could be due to the result of corporate misconduct. In this regard, a scandal that may involve corporate misconduct at the top position (CEO level) may have a devastating impact on the standing, as well as reputation of the company, which would then call for a selection of a new CEO. Lack of Investor confidence can often lead to the lowering stock value of billions of dollars, as well a public perception, which may regard the company as unstable. This paper will base its focus on four theories/concepts that aid in explaining the succession plan, which would help in understanding and solving Viacom’s current managerial problem or designing significant and effective succession plans.

Agency theory

According to Tricker & Tricker (2015), agency theory relates to an agency relationship, existing between shareholders and the directors of a company. The shareholders as principles elect the suitable executives who act and also take decisions on their behalf. In this regard, their aim is to represent the views of the shareholders (the owners) and also purpose to conduct various operations as per their interests. Despite having this clear rationale that is accompanied by electing the directors, there are instances when complicates issues arise and the executives, either knowingly or unknowingly, make decisions, which do not reflect on the best interests of the shareholders as in the case of Viacom (Bosse & Phillips, 2016). This theory provides a suggestion that in an imperfect labor, as well as capital market, the board of directors often maximize their personal utility and not considering the expense that it causes to the corporate shareholders. This is because of asymmetric information (For example, when the directors know than the shareholders, whether they can meet the objectives of the shareholders) (Aguilera et al., 2015) and uncertainty (for example, the myriad factors that contribute to the outcome and it may never be evident even whether the agent may have caused a given positive or negative outcome). This is illustrated in the case of Viacom, where the directors have put an incompetent leader in position and this is not in line with the interests of the shareholders. This theory has a limitation, whereby the shareholders face a risk appetite, as they are not involved in the daily operations of the company and as such, they are not fully equipped to be able to understand the criticalities behind the business decisions. On the contrary, the board of directors is much far-sighted and has greater risks appetite because of their close access to the company’s relevant information (Bosse & Phillips, 2016). This is as presented in the figure below:

Stewardship theory

This theory holds the idea that ownership does not own a company. However, it is merely holding the company in trust. The board of directors seek other ends aside the financial ones and these include altruism, sense of purpose, a well-done job, and a sense of worth (Glinkowska & Kaczmarek, 2015). This theory suggests that the managers purpose to do a good job, thereby, maximizing on the profits of the company, in order to bring good returns to various stockholders. As such, they do this, not for their personal financial interests, but because they owe the firm a strong responsibility and this illustrates the reason Viacom has a good financial performance. Overall, this theory assumes that managers are just stewards whose behaviors are in line with the objectives of the company’s principals (Van Puyvelde et al., 2012; cited in Davis & Schoorman, 1997). As such, it requires a structure that needs harmonization to be effected between the managers and the shareholders, and this can be achieved with a suitable CEO in position. However, this theory has a limitation, whereby the responsibilities of the stewards are over-simplified and unrealistic. Moreover, the theory reinforces the ego of the top-level management as witnessed in the personality of Redstone and his lieutenants (Schillemans, 2013). This is as illustrated in the figure below:

Transaction cost theory

This theory was initiated in 1963 and later had its theoretical basis described by Williamson in 1966 (Sinnewe et al., 2016). This theory views a firm as an organization, which comprises of people that have different views, as well as objectives. In this regard, the underlying assumption in this theory is that firms are becoming so large and as such, they provide a substitute for the market in an attempt of determining the provision of various resources (Kathuria, 2018). In this regard, the organization of a firm then determines the price, as well as production, and the analysis unit of the transaction cost theory involves transaction. Therefore, a combination of various individual have transaction suggests that the transaction cost theory directors/managers are opportunists, as they arrange the transactions of the firms to their own interests (Mayer & Weber, 2015). Such a case has not been witnessed in the case of Viacom.

Stakeholder theory

This theory was embedded in the year 1970, under the management discipline and it has gradually developed by incorporating the accountability of the corporate body to the wide range of stakeholders. This theory is derived from a combination of sociological, as well as organizational discipline (Jensen, 2017). As such, it is a formally unified theory, which entails a broad research tradition that incorporates ethics, theory, law, and political theory among others. Contrary to the urgency theory, which suggests that managers work and also serve the stakeholders, the stakeholder theory provides a suggestion that the managers in an organization have a variety of relationships to serve and this includes the company employees, the business partners, and suppliers. It is arguable that these network groups are significant as compared to the owner-manager-employee relationship that is portrayed in the agency theory. According to Pigé (2017), the stakeholder theory addresses a group of stakeholders who deserve and require the attention of the management (Mitchel & Agle, 1997). The theory has a limitation, which states that the network of relationships that should engage many groups often affects the decision-making process, owing to the fact that this theory is concerned with the significant nature of such relationships, as regarding both the processes, and the outcomes of the company and its stakeholders. In this regard, this theory focuses on the managerial decision-making, as well as the interests that the stakeholders have, and as such, no interest is assumed to be dominating that the others (Du Plessis et al., 2018). This is as provided in the figure below:

Hypothesis

Based on the above-discussed concepts/theories, various hypotheses can be developed, in order to answer the research question, “should Viacom Inc. alter its succession planning structure, in order to find a suitable CEO successor? if so, how should it be altered, to change the company’s strategic planning, organizational stability, as well as financial performance, which are attached to the planning?”

The first hypothesis would be that Viacom board of directors should explain to the shareholders the reasons why Redstone cannot relinquish his reins of power to the next Viacom successor, even with the fact that he has be involved with the company for over 20years (Larcker & Tayan, 2015). Additionally, they should compare the performance of the company to those of its competitors. The CEO of the company, Redstone’s has denied the idea of seeing his executive position diminished in a manner that was done to Turner at AOL-Time Warner. However, owing to the fact that Viacom needs a competent CEO successor, there is need for internal training, in order for qualified employees to assume the positions of great responsibilities (Bloomberg, 2018).

The second hypothesis is that Viacom needs a CEO successor, in order to improve on the company’s strategic planning, organizational stability, as well as financial performance. The managers need to explain to the shareholders whether this should be best accomplished outside or inside the organization (Larcker & Tayan, 2015). According to scholar, CEOs recruited from outside the organization have a less understanding of the business, and as such, they contribute less to the firm as compared to the insiders. In this regard, it is evident that outsiders can have a disruptive influence on the operations of the organization. In a bid to establish this, Redstone needs to have a specific successor who possesses a strong and positively influential message to the investors and employees of the company, in order to improve the strategic planning, organizational stability, as well as financial performance of Viacom Inc (Bloomberg, 2018).

Another hypothesis is that the board of directors should hold a board meeting and discuss the three major discussed reasons for choosing a successor. In an instance where Redstone is found not qualified for this position, then the shareholders, together with the board of directors should remove him from position, for the interest of all parties in the organization. This is because there are other competent individuals who can still better the performance of Viacom Inc (Reuters, 2018).

Methods

It is worth noting that qualitative analysis had been used in testing the three hypotheses, owing to the fact that there was no quantitative data for this specific case. This method provided sufficient data that aided in providing answers to the research question.

Results

In relation to the first hypothesis, it is evident that Sumner Redstone has a legacy regarding his accomplishments in various sectors of Viacom management, especially in the network television, feature film, as well as syndication (Bloomberg, 2018). However, the 95-year-old Sumner’s considerable success legacy has been overshadowed by a legal battle over his personality controlling stakes, both in Viacom and CBS, and this indicates that both Viacom and CBS have had failed succession plans. Viacom can possibly avoid various lurid headlines, which are associated with the current situation in the company. However, it is also clear to the board of directors that succession can either be a make or break affair for the company (Mitchel & Agle, 1997). In this regard, it is clear that a CEO succession can aid the company to reach new heights, whereas badly managed successions can as well cause the company to decline in its performances. As such, investors need to understand various common themes, which are associated with failed CEO succession plans. In this regard, it is evident that despite the fact that Viacom is regarded to have failed succession plans, the board of directors made it clear that Redstone has a deeper understanding of the media industry, which then makes them reluctant towards selecting another suitable successor (Bloomberg, 2018).

On the contrary, it is also evident that Viacom is currently in the crosshairs, partly owing to the recent financial performance, the turmoil that surrounds the impending ownership changes, as well as the long-term outlook. These have been attributed to the frail health of the controlling stockholder, Redstone. The decline in Redstone’s health has reduced his ability to make strategic decisions and this has even been challenged by the court of law. As such, investors question ho then will be in control of Viacom, not long from now, and they do not know what this uncertainty implies to the shareholders. It is then evident that Redstone is no longer competent to lead the company operations and that is seen in the recent decline in the performance of the company (Reuter, 2018).

Finally, results indicate that as related to the agency theory, where the directors make decisions of behalf of the directors, it is then noteworthy that the two parties should share a common interest (Reuter, 2018). As such, in an instance where it has been determined that Redstone is not capable of running the company, both the shareholders and the board of directors need to hold a board meeting and discuss the three major discussed reasons for choosing a successor. Based on valid reasons, if he is found incapable then the two parties should remove him as the CEO and this would be for the interest of every individual in the company. In this regard, is need for internal training, in order for qualified employees to assume the positions of great responsibilities, and that includes the position of the CEO (Encyclopaedia Britannica, 2018).

Conclusion and Recommendation

In conclusion, It is evident that, despite the apparent turmoil in the succession plan of Viacom Inc. Redstone remains the most successful in TNMCs. However, there is need for the company board of directors to come up with a significant succession plan whilst the siting CEO is preparing for his retirement. This paper has made it clear that there are various reasons why the need to select the company CEO is paramount, especially when considering the need to improve of the company’s strategic planning, organizational stability, as well as financial performance. The paper then brings forth the following recommendations: First, it is recommended that Viacom Inc. board of directors should come up with a strategic plan of removing the CEO, Redstone, owing to the fact that he has become of age. As such, he is not able to make strategic decisions, which can better the performance of Viacom Company. Secondly, the company should ensure that the person to be selected in succession of Redstone should be competent enough, in order to make the performance of the organization steady or even to better it, whilst considering the organization’s strategic planning, organizational stability, as well as financial performance. Evidently, this would take Viacom Inc. to another level.

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