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Morningstar | CBS CEO Moonves Faces Allegations of Sexual Misconduct; Board Could Replace Longtime Leader

CBS announced on July 27 that the firm has launched an investigation into allegations of sexual assault and misconduct by CEO Les Moonves. The investigation is in response to an article published on the same day in The New Yorker that included accounts of sexual harassment by Moonves from six women which spanned over 30 years. The board at CBS will meet on July 30 to discuss the allegations and could remove Moonves from his long-tenured role as the leader of CBS. Given the seriousness and the number of the allegations, we believe it is more likely than not that the board will at least suspend Moonves and could even look to replace him as soon as the meeting on July 30. We are maintaining our narrow moat rating and fair value estimate of $71. Given the uncertainty around the leadership at CBS and a potential Viacom merger, we recommend that investors wait for some additional clarity even with shares trading in 4-star territory.

The New Yorker article was written by Ronan Farrow, the same reporter who won a Pulitzer Prize in 2018 for his stories about movie producer Harvey Weinstein. We note that those stories about Weinstein's sexual assaults helped to end the movie mogul's career and to spark the #metoo movement. In the Moonves article, Farrow details six separate accounts in which the CBS CEO allegedly used his position to sexually assault women and to derail or limit their careers in the aftermath. While the last account occurred prior to 2010, we believe that since the alleged assaults reach back into the 1980s, the board will have to investigate a pattern of behavior that could uncover more potential victims. We note that in the case of Weinstein, more women accused the producer of sexual assault after the publication of the article. Beyond the Moonves accusations, the article also contends that the broader work environment at CBS fostered and allowed sexual harassment in other divisions including 60 Minutes, the firm's flagship news program.

While the timing of the allegations could be seen as suspicious due to the public spat between CBS and the Redstone family, we largely believe the statements of independence by both Farrow and Shari Redstone. However, if Moonves loses his position as CEO at CBS, the independent board members at the firm may not have the strength or willpower to fight the Redstone family who are after all, the controlling shareholders. As a result, we expect a recombination of CBS and Viacom to be more likely to occur if the board at CBS is forced to push out Moonves.