Amid CBS Scandal, a Conference Call in an Alternative Universe

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The elephant in the room went unmentioned.

CBS
Corp.


CBS 0.32%

reported quarterly results Thursday amid a maelstrom of corporate drama. The media company’s board is investigating allegations that Chief Executive

Leslie Moonves

sexually harassed multiple women over his career. And its relationship with controlling shareholder National Amusements Inc. is the subject of a court battle.

But at the start of a conference call to discuss the earnings, a company official issued a Simon Says-like edict that such terrain would be off limits for questioning. And over the next 48 minutes, Wall Street analysts obliged.

There were two questions about legalized sports betting; one on Amazon.com Inc.’s potential as an ad-sales juggernaut; many about CBS’s growing streaming ambitions.

Although CBS stock has tumbled on news of the allegations Mr. Moonves faces, and the ensuing intrigue about how the company and its board is handling the situation, no analyst asked the questions on everyone’s mind: What was the reason for leaving Mr. Moonves in place pending the investigation? When was the board first made aware of allegations against him, and by whom? Has the company received or uncovered any additional complaints?

Instead, the analysts stuck to the script.

On Twitter, reporters and other observers mocked what they said was the cowardice of the analysts for failing to ask about the scandal.

One analyst,

Rich Greenfield

of BTIG Research, said on Twitter, “Shame on the CBS analysts who were allowed to ask questions and failed to use the opportunity.”

Mr. Moonves opened with lengthy remarks about the company’s results, speaking of his optimism about the company’s new streaming-video services. In the question-and-answer portion, he jumped at the chance to weigh in on sports gambling services as a source of ad revenue.

“We’re extremely excited,” Mr. Moonves said, adding the category has “an unbelievable upside.”

Several analysts didn’t immediately respond to requests for comment about the earnings call.

Analysts can come under pressure from the companies they cover as well as their own brokerage firms to issue positive research as a way to help secure access to top company executives, The Wall Street Journal has reported.

The allegations against Mr. Moonves stem from a New Yorker report last week that detailed claims from six women that he sexually harassed or sexually assaulted them. The story also portrayed a broader culture that was hostile to women at CBS News.

CBS’s board has hired two outside law firms to probe the matter and set up a subcommittee to oversee the investigation.

Separately, Mr. Moonves and CBS are fighting to strip National Amusements and its president,

Shari Redstone,

of voting control of CBS, after Mr. Moonves resisted her efforts to combine the company with sister firm

Viacom
Inc.

That legal dispute is headed to trial in a Delaware court this fall.

To be sure, CBS had a good story to tell about its business. The company reported better-than-expected revenue of $3.47 billion for the June quarter, up 6% from a year earlier.

Affiliate and subscription fee revenue grew 17%, pushed higher by a rise in carriage fees for its TV stations and growth in digital initiatives like its direct-to-consumer streaming services.

CBS said those services, CBS All Access and Showtime OTT, are ahead of schedule in adding subscribers and are expected to have 16 million subscribers by 2022, as they rapidly become a meaningful part of the broadcaster’s business.

Content licensing and distribution revenue grew 4% while advertising sales were up 2%.

Profit increased to $400 million, or $1.05 a share, from $58 million, or 14 cents a share, a year earlier.

Shares of CBS fell 1.5% in after-hours trading. For the year, the stock has fallen more than 10%, most of those losses coming since last week’s report of the harassment allegations.

New details are emerging that could make the situation even more complicated for CBS and its board. Earlier this week, KNBC-TV Los Angeles reported that a woman filed a report with the Los Angeles Police Department last November alleging that Mr. Moonves had sexually assaulted her in 1986 and 1988 when he was a production executive.

The report was made in November 2017 and the Los Angeles District Attorney’s Office declined to pursue a case because the statute of limitations for the complaints had expired, according to its Charge Evaluation Worksheet.

Mr. Moonves was never interviewed by police on this matter, an LAPD spokeswoman said.

On Thursday, the Los Angeles Times reported that Mr. Moonves had told a committee of the CBS board about the LAPD probe several months ago, and that committee had hired an outside law firm to investigate.

CBS spokespeople have previously indicated that they weren’t aware of any specific probes and declined to comment on the Los Angeles Times story.

National Amusements knew nothing about the probe until the KNBC report Tuesday about the woman’s allegations, according to people familiar with the matter.

CBS’s handling of the matter raises governance questions, including whether material information was withheld from investors, according to

Jeffrey Sonnenfeld,

professor of management and senior associate dean of leadership studies at the Yale School of Management.

Mark Spund,

chair of the employment law practice group at Davidoff Hutcher & Citron LLP said he didn’t believe CBS was under any obligation to disclose any previous investigations into Mr. Moonves’s behavior if no evidence of wrongdoing was found.

However, he said the whole board should have been made aware of any investigation like the one related to the LAPD, rather than certain members, as the Los Angeles Times reported.

Write to Joe Flint at [email protected] and Keach Hagey at [email protected]

Appeared in the August 3, 2018, print edition as ‘CBS Prohibits Questions On Probe.’



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