Privacy Shield and Viacom succession: reasons for caution

Feb 18, 2016
<p>EU-US tentative replacement for Safe Harbor likely to be costly to multinationals, while Redstone successor faces uphill battle</p>

There are lots of moving pieces in the corporate governance arena lately to keep companies and their boards on high alert.

Arguably, some tentative sighs of relief are in order as US firms react to last week’s bulletin about a new EU-US Privacy Shield agreement to replace the Safe Harbor protocol for data transfers that was invalidated by the European Court of Justice (ECJ) in October. Responding to an inquiry by Corporate Secretary contributor Abigail Caplovitz Field, Mary Hildebrand, founder and chair of Lowenstein Sandler’s privacy practice, highlights some key points to keep in mind, starting with: ‘While welcome news, the Privacy Shield is, at the moment, a political agreement that faces numerous hurdles before final approval, including development of a comprehensive, written statement of its terms.’

Hildebrand also notes that the ‘adequacy determination’ that commissioners are now working on ‘will presumably reflect additional details to support their position that the Privacy Shield will withstand judicial challenge under the standards established by the ECJ in the Schrems decision’, referring to the lawsuit against Facebook that eventually led to the undoing of Safe Harbor.

‘Of particular interest to multinationals that routinely transfer employee data from the EU, the [commissioners’ press] release states that any company handling human resource data from the EU must also commit to comply with decisions by the European [Data Protection Act],’ she continues. ‘This suggests that unlike the transfer of other personal data, which appears to be slated for monitoring and enforcement by the Department of Commerce and the [Federal Trade Commission], the transfer of HR data may also be subject to the jurisdiction of EU regulators.’

There is further reason for companies to be concerned that EU citizens claiming to have been wronged will have access to an escalating process for seeking redress for misuse of their personal data, including a time-sensitive process for companies to respond to complaints. That, plus an alternative dispute resolution process that is ‘free of charge’ to the data subject but presumably not to the company involved, will ‘require multinationals to allocate significant resources to ensure compliance.’

Meanwhile, joining the list of examples of succession planning cautionary tales is Viacom, whose ailing long-time chairman, Sumner Redstone, has finally agreed to step down at the age of 92. Viacom CEO Philppe Dauman, who the board appointed executive chairman on February 3, faces an uphill battle in the months ahead, first from Redstone’s daughter Shari ‒ the only director who voted against his appointment ‒ and second from influential investors distressed by the company’s floundering financial performance and skeptical that Dauman can steer the company in an increasingly digital industry, as reported by the New York Times.

Redstone, who is now chairman emeritus, still controls roughly 80 percent of the voting shares of Viacom and sister company CBS. These shares are slated to be held by a trust created to benefit Redstone’s grandchildren once he dies.

This ‘ongoing incident – because it’s not going to end quickly with what’s happening over the last week or so – is a good reminder to corporations and to boards that they really need to consider succession planning, not only for top management and the leadership team, but also the board of directors,’ says Mark Rogers, founder and CEO of BoardProspects, an online boardroom community with 10,000 members from 70 countries. He sees the situation as ‘nothing short of a disaster in terms of how this can all play out.’

Redstone’s absence from board meetings over the past year or more, even as Viacom’s profits plunged by about 20 percent in fiscal year 2015 and the stock lost almost 45 percent of its value, open the board to criticism for not acting sooner, Rogers says: ‘Directors subject themselves to liability when you let this go with an absent executive chairman.’ He acknowledges, however, that had the other directors tried to act more quickly, it’s likely they would have been fired. When it comes to succession, Rogers urges companies to have a very clear plan of how things will proceed and to make that plan clear to senior management and the board.

Lastly, the long-elusive quantitative evidence showing that gender diversity in the C-suite and boardroom translate to higher profits may finally be here. A new working paper has been published by the Peterson Institute for International Economics, presenting the results of a global survey of nearly 22,000 firms. It finds that profitable firms in the sample (with a 6.4 percent average net margin) that go from having no women in C-suite or board positions to 30 percent corporate female representation benefit from a 1 percentage-point uptick in net margin, translating to a 15 percent rise in profitability for a typical firm, as reported by Harvard Business Review on February 8.

The research identifies ‘at least two channels through which more female senior leaders could contribute to superior firm performance: increased skill diversity within top management, which increases effectiveness in monitoring staff performance, and less gender discrimination throughout the management ranks, which helps to recruit, promote and retain talent. Because gender-biased firms do not reward employees with responsibilities commensurate with their talent, they lose out to rivals that do not discriminate. Their lack of gender diversity affects the bottom line.’

That’s something to chew on as you review your company’s succession plans.

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