Did Paramount Directors Step Up For Shareholders By Stepping Down?

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A letter the shareholders sent to the board suggests several factors that might have influenced these directors to step down.

According to news reports, as many as four corporate directors are rumored to be leaving the Paramount board over disagreements about how a potential sale of the company is being handled. When several directors from the same company announce they are stepping down at the same time, it raises questions about what may be taking place in the boardroom. Situations like these are a reminder that all corporate board members should be aware that there may come a time when it may be in their best interest to voluntarily step away from their director position.

In the case of Paramount, former Spotify executive Dawn Ostroff, former Sony Entertainment Inc. president Nicole Seligman, investment banking executive Frederick Terrell and Rob Klieger, a longtime attorney to Paramount Chair and controlling shareholder Shari Redstone are rumored to be leaving the board over disagreements about how a potential sale of the company is being handled. Paramount shareholders Aspen Sky Trust and Matrix Asset Advisors have joined forces to object to Skydance Media engaging in exclusive talks to purchase the company through National Amusements, which is owned by Redstone. A letter the shareholders sent to the board detailed the reasons for their opposition and threatened legal action if the talks aren’t stopped.

According to news reports, the letter states, “Any merger discussions and/or transactions that systematically foregoes competitive bidding in favor of exclusive discussions with a single company—especially where that bidder is offering to promote the financial position of a single shareholder over that of the general base—is averse to the fair market valuation of the company… Such a result would, at a minimum, provide cause to investigate the ethical motives underlying the transaction. Assuredly, such a result would expose Paramount to liabilities for investor losses based on breaches of fiduciary duties (among other obligations), potential personal liability exposure of the Board of Directors engaging in this reprehensible behavior and should spark security compliance investigations.”

The letter suggests several factors that might have influenced these Paramount directors to step down. It calls the director’s ethics into question, accuses the board of breach of fiduciary duty, and suggests that there would be “potential personal liability exposure of the Board of Directors,” if the company is sued because of the board’s actions. The potential legal consequences here are significant enough to compel directors to step down if they couldn’t convince the board to move in a different direction. So, was the act of stepping down the Paramount Director’s way of stepping up for the shareholders? We can’t say for sure, but there are other reasons directors might consider stepping away from a board:

When ethical boundaries are likely to be broken. Every board member has their own sense of what behavior is ethical and what is not. Having ethical standards is part of good governance and if there comes a time when a director’s personal ethics do not align with those of the board they are serving on, it is probably a good time to step down.

When legal and safety issues are consistently disregarded. If compliance issues are lacking at a company and the board can’t seem to work with management to alleviate the problems quickly, it may be smart to step away before a major crisis occurs.

When company limits for board tenure or age are reached. Every good board takes succession planning seriously and that includes replacing board members. Make sure there are candidates that can replace you before you depart.

When you no longer have a voice in the boardroom. If it appears that your viewpoint is not being heard by your fellow board members or your contribution to the board is minimal, it might be time to consider an exit. Directors should add value to the board, and if that value is questioned efforts to remove you from the board will likely be soon underway.

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