Cablevision's Founder Loses Voom Unit Fight to Son
See the NYT article below;
By GERALDINE FABRIKANT and ANDREW ROSS SORKIN
Published: January 19, 2005
A major showdown in the family that controls the Cablevision Systems Corporation ended yesterday with the son outmaneuvering the father and persuading directors to vote to put the company's troubled satellite business up for sale.
Yesterday, during a hastily scheduled meeting, directors of Cablevision, debated the fate of Voom, the satellite unit, in a showdown that pitted the father, who wanted to keep the business, against the son, who wanted to sell.
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In the end, people close to the board say directors sided with the son, James L. Dolan, the 49-year-old chief executive and the heir apparent, against his father, Charles F. Dolan, the 78-year-old founder and controlling shareholder of Cablevision, based in Bethpage, N.Y.
The meeting appeared to have been prompted by outside directors who are concerned about Voom.
Mr. Dolan's opposition to his father's desire to keep the business was somewhat of a surprise because he has never been seen as particularly independent, and his role on the board has often been unclear.
The friction had drawn lines on the board between some supporters of the elder Mr. Dolan and several independent directors, according to several people close to the board.
One of those people said that two of Mr. Dolan's sons - Patrick Dolan, president of Cablevision's News 12 Networks, and Thomas Dolan, executive vice president of Cablevision Systems - have often lined up with their father against James, who is chief executive of Voom, and is more visible with investors than they are.
Thomas Dolan was scheduled to be named Voom's chief executive when the company was spun off, but that move was shelved in December.
Voom, which broadcasts high-definition television via satellite, has been a money pit. The service had 26,000 subscribers and has lost more than $76 million. When Cablevision canceled plans to spin off Voom and its Rainbow Media group, it said it would "pursue strategic alternatives" instead.
The main candidates to buy Voom - DirecTV and EchoStar - have shown little interest in buying the company's satellites. .
Cablevision had no comment.
But, according to a person close to a director, several independent directors were concerned about the possible legal implications of supporting Voom despite its losses and criticism on Wall Street. Problems at Voom are so noticeable that even longtime family supporters have started to oppose the project.
Several executives said yesterday that they were not surprised that directors were worried about the issue of independence in an era when directors at Enron and WorldCom, who did not take any action to stop mismanagement, have been forced to spend their own money to settle suits with shareholders.
The person close to several board members said some directors had obtained a legal opinion that said they needed to address the matter of what to do with Voom. This person said, "It is clear that the only reason they have kept it going is because of Chuck's dominance of the board and because it is a pet project of the chairman."
Nell Minow of the Corporate Library, a corporate governance monitoring organization, said her group had concerns about the independence of the Cablevision board, as well as executive pay. She noted that James Dolan's $1.6 million salary and $2.8 million annual bonus exceed the median for a company of Cablevision's size by over 20 percent. Ms. Minow added that there were many issues that would make a court look closely at a decision to support Mr. Dolan's interest in Voom.
"Keep in mind that the courts look only at the process and the structure," she said. "They ask whether the board followed the right steps and reviewed the questions. Given the coziness of this board it is hard to make a case for its independence. Therefore the genuine outside directors are under an obligation to take a scrupulous, skeptical look at what the management presents to them."
Though James Dolan has been chief executive since 1995, he has never distinguished himself with Wall Street investors in the manner of the chief executive of the Comcast Corporation, Brian L. Roberts, son of the founder Ralph Roberts.
Still, Charles Dolan who started Cablevision in 1973, has given his son a bigger title than Rupert Murdoch, the chairman of the News Corporation, has given his sons.
Mr. Dolan's support of Voom, however, had undermined his credibility on Wall Street, and James Dolan's opposition to his father could win him investor support.
"This is an important step in Jim's credibility with investors since it shows that he is focused on driving Cablevision's stock price," said Richard Greenfield, who follows Cablevision for Fulcrum Global Partners.
Over the last several years, analysts have found it hard to evaluate James Dolan's tenure. While they have questioned his management of Madison Square Garden, they have generally applauded him for the hiring of Thomas Rutledge as chief operating officer of Cablevision's cable systems business. But even there it is not clear that James Dolan was primarily responsible for bringing in Mr. Rutledge.
Ken Belson contributed reporting for this article.
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