After months of speculation, Viacom Inc. sealed a deal to keep president and
chief operating officer Mel Karmazin on board for another three years.
Karmazin's employment contract was set to expire this year. According to the
new deal, which becomes effective May 5, he will remain at Viacom at least until
May 5, 2006.
As part of the new employment agreement, Karmazin conceded what appeared to
be the main obstacle between himself and Viacom chairman and CEO Sumner Redstone
-- the provision that it would take a supermajority of Viacom's board of
directors to oust the COO.
In the earlier employment agreement, 14 of Viacom's 18-member board of
directors had to agree to oust Karmazin. Now, it would take only a simple
majority of the board vote.
Redstone, who also signed a new employment deal, had chafed at that provision
in the past, along with what he considered a diminishing of his powers as
chairman and CEO.
Redstone regained many of those powers -- he now has the authority to
overrule any significant decision Karmazin makes regarding policy or strategy
Viacom defined corporate-policy and strategy issues as significant
acquisitions or dispositions of assets, significant partnerships or joint
ventures, significant shareholder relations or corporate-governance matters, the
entry into or withdrawal from significant lines of business and other matters of
comparable significance to Viacom.
However, in regaining that authority, Redstone gave Karmazin the ability to
leave Viacom if he disagrees with the chairman's veto decision and makes a "bona
fide objection" to the board.
"Basically, Sumner gets back full operating power and Mel gets to walk if he
wants to," one person familiar with the situation said.
Redstone, in a prepared statement, praised Karmazin's leadership since Viacom
merged with CBS Corp. in 1999.
"Mel has done a masterful job of integrating those businesses and operating
them at peak performance," Redstone said. "I look forward to continuing our
successful partnership and taking Viacom to new heights in the years to
Karmazin had equal praise for his boss, calling Redstone "one of the great
visionaries and executives in the entertainment industry."
The new agreements remove a major overhang on Viacom stock. Karmazin is a
Wall Street favorite known for his hard-driving nature and attention to detail.
Solidifying his status at Viacom is even more important as the advertising
market has shown signs of weakness in the face of war with Iraq.
Investors appeared pleased with the deal, pushing up Viacom stock about 53
cents each (1.4 percent) to $39.43 per share in Thursday-morning