Aging media mogul Sumner Redstone stepped down as executive chairman of Viacom on Thursday and was replaced by CEO Philippe Dauman, a move that immediately disappointed investors.
Although the decision mimicked one at sister company CBS, Thursday's action has the potential to set off a future board fight since Redstone's daughter Shari said Wednesday she was against Dauman's promotion to the role because of his involvement in family affairs.
Investment adviser SpringOwl had also opposed Dauman's taking the chairman's job, calling instead for an independent director.
Dauman is one of seven trustees that will control nearly 80 percent of the voting stakes at both CBS and Viacom after 92-year-old Redstone dies, a fortune worth around $4 billion. Shari Redstone and her son Tyler Korff are also trustees along with several other lawyers close to the family.
Viacom shares, which had been trading as much as 6 percent higher earlier Thursday, immediately dropped to a level about 1 percent higher after the news was announced at around 11 a.m. Eastern time.
Shari Redstone, who had opposed Dauman's promotion, said in a statement Thursday she "is going to continue to advocate for what she believes to be in the best interests of Viacom shareholders."
Viacom director William Schwartz said the board considered the "need for seasoned leadership" in appointing Dauman.
Redstone is embroiled in a legal battle with his ex-girlfriend and former caregiver Manuela Herzer over his health and mental capacity. The board move comes just before a court-ordered medical examination of Redstone is to be submitted to the court Friday.
Lucian Bebchuk, a Harvard law professor and director of its program on corporate governance, said the conflict highlights the problems of companies with two classes of stock—one set that holds voting power, and another that does not. He said in an email that Viacom's corporate structure is now "highly problematic and fraught with risks for public investors."
"The company's CEO is unaccountable to public investors and accountable only to a person whose health prevents him from actively monitoring the affairs of the company," Bebchuk said.
Explore further: Viacom slashes exec pay amid lawsuit over Redstone's health