Corporate Shoot-Out At Black Rock
By George Russell
The mystery and suspense surrounding the meeting were enough to impress even faithful viewers of the CBS show Murder, She Wrote. For 9 1/2 hours last week the network's 14 directors locked themselves away in 35th-floor chambers at the Manhattan headquarters building, which has come to be known as Black Rock. Their agenda amounted to nothing less than a shoot-out over the future of a communications giant that has been bludgeoned by takeover bids and internal dissension for much of the past 20 months.
CBS Anchorman Dan Rather got word of the outcome just as he was finishing up the network's Evening News on Wednesday. The flustered Rather announced that CBS Chairman Thomas Wyman, 56, was "out." More startling was Rather's disclosure that Wyman's duties would be temporarily shared by William Paley, the network's legendary founder, who retired three years ago, and Laurence Tisch, the billionaire chairman of Loews Corp., who joined the CBS board only last October.
The sudden transfer of power is sure to quiet some of the turmoil that has roiled CBS, but it raises new uncertainties about the future of one of the nation's most prestigious and influential companies. While a five-member management team searches for a permanent successor to Wyman, Paley will be acting chairman and Tisch will serve as chief executive. For the 84-year-old Paley, it is a triumphant return to a throne that he had never really wanted to relinquish. But clearly the man who has captured control of CBS is Tisch, 63. The shrewd investor and conglomerateur is now far and away the company's largest shareholder, with 24.9% of its stock (Paley is next with 8.1%). The irony of Tisch's sudden rise to dominance was considerable, since the soft- spoken, bald executive first purchased CBS shares last year largely at Wyman's behest, in an effort to buttress the network's anti-takeover defenses.
Tisch had been dissatisfied with Wyman's performance for months, but the new chief executive did not win the support of a majority of the CBS board until last week. In fact, when the marathon board meeting began at 9 a.m., most of the directors apparently had no intention of firing their chairman. The turning point came when Wyman, the sole CBS executive with a board seat, announced he had secretly begun negotiations that could lead to the sale of the $5 billion company to Coca-Cola. The stunned directors, all of whom were determined to keep CBS independent, asked Wyman to leave the room. Sometime after 5 p.m. two directors told Wyman that his backing among the group was gone. He then resigned his $680,000-a-year job and left the building.
Word of Wyman's departure quickly spread to a party on Manhattan's East Side. A nebula of CBS and other journalism luminaries had gathered on the day of the board meeting at the Park Avenue apartment of Designer Mollie Parnis to fete 60 Minutes Host Mike Wallace and his bride of 2 1/2 months, Mary Yates. The already festive mood brightened considerably as an old Wallace friend telephoned over the news. There is little love lost for Wyman in CBS journalism circles, where the ex-chairman's decisions have been a target for strident criticism. Partygoers vied to congratulate a late arrival at the celebration: Laurence Tisch. Exulted one guest: "CBS has returned to its origins." Said 60 Minutes Correspondent Morley Safer: "It's back to the future. That's good news."
Whether the CBS shuffle actually amounts to a return to halcyon days of yore is debatable. The return of Paley provides a powerful symbol of continuity at the tradition-minded network. But Tisch, though a respected executive, has no experience in broadcasting. As equal partner in Manhattan- based Loews Corp. with his brother Preston Robert, Tisch controls holdings in hotels, tobacco and insurance worth an estimated $17.5 billion. His CBS appointment immediately raised the question of how he would balance the demands of public service and the bottom line. On that score Tisch offered quick words of reassurance. "I'm really wearing two hats," he said in an interview with TIME. "My first obligation is to do what's best for the network and ensure quality programming. My secondary role is as a businessman to manage the company in a way that is right for the employees and shareholders."
In that role Tisch is sure to be forceful. He is, as one CBS board member puts it, "a tough, gut fighter who wants his way." One of the first things Tisch wanted was the resignation of CBS News Division President Van Gordon Sauter, 51, a close ally of Wyman's who had drawn increasing criticism within CBS for eroding his division's cherished autonomy and injecting too much show biz into the news. According to one network insider, Paley and Tisch ousted Sauter without conferring with the board of directors' management committee, a move that irked members of that group. Tisch issued a memo to CBS employees, however, expressing his "complete confidence" in remaining top executives, ) including, at least implicitly, Gene Jankowski, 52, Sauter's boss and president of the CBS Broadcast Group.
The dramatic shoot-out at Black Rock brought an extraordinary denouement to one of the most convoluted, agonizing and, above all, public corporate power struggles in recent U.S. history. Wyman's departure was the climax of months of upheaval at CBS, caused in part by his efforts to elude a raft of corporate-takeover artists, ranging from North Carolina Senator Jesse Helms to Manhattan Arbitrager Ivan Boesky to Atlanta Broadcaster Ted Turner. The battle was also triggered by austerity and shrinking fortunes in the broadcast- television business, as No. 2 network CBS has struggled -- so far unsuccessfully -- to cope with losing its top place in the lucrative television ratings over the past season to resurgent NBC (see chart).
In more general terms, CBS has faced the same challenge that pressures the entire $8.2 billion broadcast-television industry. Threatened as never before by competition from cable, videocassettes and independent television stations, network TV operates in an environment of shrinking audiences, weakening advertising revenues, and predatory outsiders who see profit in taking over and streamlining a high-cost business. Says Fred Anschel, a media analyst at the Dean Witter Reynolds investment firm: "The networks aren't what they used to be."
Indeed, CBS is the last of the three major networks where management has held out against intruders intent on gobbling up a bigger chunk of the communications business. In January, third-place ABC (1985 revenues: $3.3 billion) was swallowed by a company less than one-third its size, Capital Cities Communications, for $3.5 billion. The chairman of the merged company, Thomas Murphy, has since trimmed 615 of 14,900 jobs. In June, General Electric absorbed front-running NBC (1985 advertising revenues: $2.7 billion) by purchasing the network's parent, RCA, for $6.3 billion. GE Executive Robert Wright will take over as NBC's president and CEO this week; he is expected to launch his own austerity program. The biggest factor in broadcast television's changing climate is that the networks no longer enjoy the hefty automatic annual increases in advertising rates and volume that they did in the past. This year overall ad revenue for the networks is projected at $8.2 billion, down slightly from $8.3 billion in 1985. By contrast, in 1980, total annual network revenue amounted to $5.1 billion. Last year CBS garnered $2.89 billion of the advertising pie, or about 35%, while rival NBC took $2.73 billion, or 33%. This year the roles are expected to reverse, with NBC taking about 36% of the total and CBS 32%.
The reason for that difference is, of course, popularity with viewers. In that competition CBS has suffered from a double whammy. The three networks' share of the prime-time viewing market has dropped from 90% of the country's viewers in 1980 to 76% today, and analysts expect that percentage to drop to as low as 70% in 1990. Within the shrinking network slice of prime-time audience, the CBS portion has narrowed, from 29% in 1982-83 to 26% last year. NBC's helping, on the other hand, has grown from 24% to 27% on the strength of such winners as The Cosby Show and Family Ties. This year only NBC was able to raise its prime-time ad rates, hiking the average cost of a 30-second commercial by 5%. Both CBS and last-place ABC were forced to cut prices by as much as 5%.
To win back viewers, CBS needs to produce some hit programs, which have been notably rare for the network in recent years. CBS did not have a single prime-time hit last season. Profits in Jankowski's broadcast division fell by almost 12%, to $361 million, in 1985.
Nor was the malaise limited to the CBS network. Earnings for the diversified company's publishing group (among its titles: Car & Driver, Field & Stream) dipped 30% last year, to $41 million; and profits in the records division were down about 30%, to $87 million. Results have been better so far in 1986, but at the end of July, CBS said television advertising revenues for the second half of the year would soften because of the increasingly competitive climate.
But the concern in CBS's boardroom last week was less about the treacherous economic waters than about the quality of Wyman's stewardship. Says Ernest Levenstein, a media analyst at the Shearson Lehman Brothers investment house: "This is not a story about a financially troubled company. This is a story about power and control."
For much of his six-year tenure at CBS, first as president and then as chairman, Thomas Wyman was never sure he had enough of either of those commodities. Recruited by Paley from a job as No. 2 at Pillsbury, the diversified food firm, Wyman from the beginning was tarred by CBS insiders as not mindful of the needs of broadcast television, and of CBS News in particular. As 60 Minutes' Morley Safer put it last week, "He seemed to be not only cold and aloof as far as the news division is concerned, but extremely so as far as the company is concerned."
Wyman's internal troubles really started with the series of takeover bids that began plaguing CBS last year. A campaign orchestrated by North Carolina's Helms urging grass-roots conservatives to buy stock in order to "become Dan Rather's boss" was mostly a nuisance. But then came a play by Arbitrager Ivan Boesky, who took an 8.7% position in CBS stock until warded off with a lawsuit. Finally, in April 1985, Atlanta Cable-TV King Ted Turner launched his own $5.4 billion bid to take over the network. Turner may not have had the resources to do the job, but his noisy, four-month assault had to be taken seriously.
To thwart Turner, Wyman authorized the repurchase of 21% of the company's stock for $150 a share, or $954 million. By contrast, Turner's offer was valued by Wall Street at about $130 a share, and the stock was then trading at about $118. In financing the purchase, CBS ran up its debt from $510 million to a high of $1.44 billion. Before last week Wyman had managed to bring the amount down to $780 million. To help do so, he sold off such assets as the CBS toy division, a 29% interest in the Tri-Star movie production firm, and a St. Louis television station.
As part of his takeover defense, Wyman went looking for a "white squire" who would buy a major portion of CBS in case a hostile bid seemed likely to succeed. He found Tisch, largely at the urging of CBS Board Member James Wolfensohn, a friend of the billionaire's who is also a former partner at the Salomon Brothers investment firm. According to Wolfensohn, Tisch had become interested in CBS during the Helms takeover crusade, which the investor deplored.
In May, according to Journalist Ken Auletta, Wyman telephoned Tisch at his Manhattan offices down the block from CBS headquarters and chatted about the Turner bid. By the end of July Tisch had accumulated a 7% stake in the communications company. Even as the Turner threat waned, Wyman apparently continued to feel insecure about further raids on the corporation. He prodded Tisch to buy more CBS stock, up to 25%, and by mid-October last year Tisch had agreed.
Meanwhile, Wyman was creating trouble for himself on the home front. To pay for the billion-dollar stock buyback, he decreed a company-wide austerity program that had led in September to the firing of 74 of some 1,400 CBS News employees. (In all, about 600 of the 24,000 jobs at CBS were eliminated in 1985.) The move infuriated CBS News journalists, whose independence is a cherished tradition stretching back to the days of Edward R. Murrow. Adding to the outcry were complaints about efforts to jazz up -- critics said trivialize -- the division's approach to reporting the news. As discontent grew, a group of senior CBS journalists, including Anchorman Rather, 60 Minutes Executive Producer Don Hewitt and Commentator Bill Moyers, made an offer to buy the news division outright from the parent company. They were told it was not for sale.
The bitterness continued to swell this year. In July the CBS Broadcast Group announced that it was eliminating 700 additional jobs, more than 8% of the work force. Some 90 positions in the news division were included. Emotions flamed higher when the network announced the removal from the air, effective next January, of the CBS Morning News, a program that cost $34 million annually to produce but perennially finished last in the breakfast sweepstakes. In his syndicated newspaper column, 60 Minutes Commentator Andy Rooney wrote, "CBS . . . no longer stands for anything. They're just corporate initials now."
Much of the news division's rancor had focused on Sauter, an 18-year CBS veteran who climbed from news division president to executive vice president of the Broadcast Group, but who also took back the news division title after the incumbent president, Edward Joyce, was shunted aside last December. CBS journalists were scathing about the role they felt that Sauter, a former journalist, had played in adding dollops of entertainment value to the news side. In particular, he drew scorn for hiring Phyllis George, a onetime Miss America, as an anchor for the ailing Morning News; George was later yanked. Said a news division source: "Sauter lost his reputation as being a dedicated news guy. He lost allies." Sauter defended his actions by declaring that "no matter who was sitting in my chair, the same steps would have been necessary" because of CBS's economic woes.
Whatever other effect the CBS hubbub had, noted an ABC vice president, it "gave the impression of a shop being out of control." In this rival view, a new problem began to loom for Wyman and his lieutenants: "What was at stake here was the perception of the ability to govern." The attacks on Wyman's authority, in other words, were hurting, particularly as they gathered media attention.
But Wyman was perhaps more alarmed by Tisch. Says Paul Kagan, publisher of the industry newsletter Broadcast Investor: "It was pretty obvious early on that Tisch was something more than the man Wyman invited in to help stop a takeover." Along with some $750 million that he has poured into CBS stock, Tisch had made a strong and still growing commitment of his personal attention to the network. Wyman and his supporters on the CBS board -- at one time they numbered at least eight -- began to worry that their white squire was a serious takeover threat on his own.
Those concerns grew in March, when Tisch's brother Bob, in an interview with USA Today, declared that the eventual goal of Tisch's policy "is to control CBS." When pressed by CBS board members, Laurence reportedly did not disavow the remark. When pressed further to put into writing his oral commitment to Wyman that he would never buy more than 25% of CBS's stock, he also refused.
About the same time, Tisch reportedly began disagreeing aloud with Wyman's optimistic assessments of CBS's future. He wondered whether the incumbent chairman's management style encouraged creativity, and began comparing Wyman's methods unfavorably with those of Paley. At the same time Tisch, a relentless bottom-line manager, cast doubt on whether Wyman's austerity measures, which have saved at least $100 million this year, were enough.
Step by step, Tisch's concerns were drawing him closer to Paley. The former chairman had his own grievances against Wyman (see box). As CBS-TV's fortunes declined, Paley fumed at the fact that Wyman never consulted him. Said a CBS board source: "He believes he can still put his imprint on programming."
Tensions continued to rise before the convening of last week's decisive board meeting, the first since the latest layoff announcements. The final stages of the drama began the night before the Sept. 10 session, over dinner in a private room at Manhattan's Ritz-Carlton hotel. Originally Wyman had planned to be host to the affair for a number of board members, but then he suddenly canceled. Tisch also was not present.
One of those in attendance described the meal as a "brainstorming session." The main topic: CBS's continued independence. Said the board source: "We just didn't want the company to go the way of ABC and NBC. We didn't want CBS to be part of a big conglomerate."
Investment Banker Wolfensohn was said to be among the first to raise the topic of CBS's purchase by another firm. Some of the directors were disturbed by reports, including those in a Newsweek cover story on CBS's troubles, that Wyman had talked to officials at several companies about a possible merger. (TIME has learned that feelers were indeed received by Philip Morris.) According to one of those present at the Ritz-Carlton, the directors considered such a purchase a bad idea; Paley was especially opposed. As a board source later explained, "We don't want the management of a big company that is in some other business to exert an unfair and self-serving influence on public attitudes."
The CBS news division's grievances with Wyman were also raised at the dinner by Veteran Correspondent Walter Cronkite, who is a board member. The former anchorman apparently argued that the chairman was not sensitive enough in maintaining the news division's autonomy. At the end of the evening, though, a feeling persisted that the drama could end without Wyman's resignation.
That feeling began to change soon after the board convened the next day in the Italianate boardroom personally designed and decorated by Paley. Wyman and other senior executives briefed the directors on CBS's prospects and strategy. The presentation was later described by some of those present as lackluster. But it contained a bombshell: at the outset Wyman asked the board to authorize continued negotiations with Coca-Cola over the purchase of CBS. By implication, that meant he had already held talks of some kind; a Coca-Cola spokesman later volunteered that "there was contact, but there was nothing of substance in those contacts."
After the meeting, Tisch told TIME his first reaction to Wyman's Coca- Cola proposal was "shock." He had heard "rumors" that various other companies were eyeing CBS for a possible buyout, Tisch added, "but I didn't think any of it was real. It was a complete surprise to me. Eventually I said that when I bought stock in this company it was with the intention of maintaining CBS as a completely independent company. I said that the CBS stock of Loews Corp. was not for sale. It was very upsetting."
Once Wyman's proposal was broached, however, board members gave it a thorough airing. The dissection of the pros and cons went on for several hours. Board members heard legal opinions that they had no obligation to put CBS up for sale. But as one of those present put it later, the directors were also warned ; that "once you begin entertaining outside offers, you have to listen to all offers." A participant recalls that Tisch declared once again that his stock ownership "wasn't a takeover by Loews. He emphasized that he had a big stake in the company and that he was willing to work very hard as a director."
Finally, with Paley, Tisch and Wyman out of the room, the remaining directors reached a unanimous decision. "The board was not willing to put the company up for sale," said one of them. "Once that was conveyed to Mr. Wyman, he resigned." The rest of the marathon meeting was spent on arrangements to hand over temporary control of the company to the new team of Paley and Tisch.
In the aftermath of the resignation, at least one board source said, "I am uncomfortable with what happened." Wyman, said the source, "didn't mend his fences with the board. He was somewhat aloof. The board would hear about important things for the first time at meetings." But overall, in this view, Wyman's record during his tenure was "not sufficient to call for dismissal." At the same time, the change was "really foreordained," given the strong feelings that had arisen between Wyman, Paley and Tisch.
What next at Black Rock? Around CBS, broadcast employees were enormously relieved that a long ordeal was over. There was considerable speculation on successors to Wyman. Among those being mentioned as potential candidates for the job: Robert Daly, a former CBS entertainment president who is currently head of Warner Bros., and Douglas McCorkindale, vice chairman of Gannett. Daly has declared publicly that he is not interested, while McCorkindale reportedly said he had not been approached. Another possible candidate: Michael Eisner, a former ABC executive who is now chairman of Walt Disney Productions.
Amid the euphoria among CBS rank and file over the shake-up, at least one board member injected a note of caution. Said he: "The news people are saying we're going back to the good old days. That's probably not true. All the pressures to cut costs remain. Larry is someone who knows how to cut costs, and it will be quite uncomfortable for those who are now overjoyed at the change."
In his new executive office on the 35th floor of Black Rock, meanwhile, the man who had suddenly become one of corporate America's most important public figures insisted he understood the magnitude of his new responsibilities. "CBS is a unique institution," Laurence Tisch declared. "While this is ( supposedly a profit-making institution, it also has an obligation to the American people, and I take that obligation very seriously. It is our duty to put on programs that enhance American life." He added, "There will be no turmoil ahead. One thing this company doesn't need is additional turmoil." On that, almost everyone who has watched CBS go through its extraordinary gyrations could agree.
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With reporting by Bonnie Angelo and Thomas McCarroll/ New York and Strobe Talbott/Washington