A Contract is a Contract (but not for Howard Stern). Where’s the loyalty?

By: Roger L. Brooks

Over the past ten days, the ruling by Judge Barbara Kapnick regarding Howard Stern’s $300 Million dollar lawsuit against his employer, Sirius XM Radio, has caused quite a stir.  It seems everyone from news anchors to talk show hosts have voiced their opinion on the matter.  In some cases, comments on the suit went as far as casting personal attacks against Stern in sidebar commentary—bringing media ethics, etiquette, and industry best practices into question.

In the lawsuit, Stern says he is entitled to stock awards (four in total, valued at $75 million each) for assisting the company in reaching key milestones.  The language outlined in his personal services agreement is in question.  The filing came in early 2011, shortly after Stern signed a new five-year agreement with the company.  The suit is targeting subscribers added after the February 2007 merger of Sirius Satellite Radio and XM Satellite Radio.  Stern affirms he is entitled to awards of the new entity, not only the legacy Sirius subscribers.  Stern’s argument states the measured increase should come from any new subscriber — Sirius, XM, or the combined entity.  The company is claiming it does not owe Stern any stock awards on subscribers coming from XM Satellite Radio.  Kapnick’s ruling sides with the company.

On the surface, you would think Sirius would want to resolve any dispute with their single largest asset.  Stern took risk agreeing to join Sirius in January 2006, at a time when Sirius was vulnerable to potential market failure, or a takeover by its competitor XM Radio.  Because of this, Stern and his agent, Don Buckwald, added a separate clause in Stern’s agreement in the event of such a takeover.  The agreement called for Sirius to pay Stern's company (One Twelve, Inc.) $25 million and Buchwald $2.5 million if Sirius and XM merged.  Sirius made payments to both following the merger. 

Sirius, it seems, would rather reap the benefits of Stern’s success for the duration of his agreement, rather than resolve any misunderstanding or misinterpretation.  Stern told listeners of his talk show (The Howard Stern Show: Sirius XM Channel 100) in recent weeks that he wouldn’t challenge his company unless he felt he was entitled to the awards as per the agreement.  The fact that the lawsuit is for hundreds of millions of dollars is irrelevant to the point of why Stern brought the claim against his employer to begin with—a contract is a contract.

Stern has not talked to any media outlets about the ruling; however, he has openly discussed his position on his show.  Stern questioned whether Kapnick has a personal vendetta against him, or more-less mere envy regarding the amount.  He also questioned if Kapnick took the necessary time to thoroughly perform due diligence on the contract, and if she has a thorough understanding of the dynamics of the merger, and the business itself (hence Stern’s direct impact on the total increase in subscriptions).

Kapnick went the opposite direction with her decision.  She stated the language in the personal services agreement is clear and concise.  She wrote, "While it may be true that Stern and Buchwald hoped and expected to reap the benefits from any significant growth that Sirius experienced after they entered into the agreement, that subjective expectation cannot suffice to override the clear, unambiguous language of the agreement".

Stern made a point to say he read the Judge’s ruling over and over, and could not understand her interpretation of the ruling.  Stern will likely appeal if the court allows him to do so.  Seth Rothman, Stern’s attorney, did not make any comment after the hearing.

For those who feel Stern “already has enough money”, or “doesn’t deserve the bonus”, are clearly missing the point.  Stern has earned whatever bonus he negotiated, and whatever he is legally entitled to.  The reason Stern is able to command the dollars he does is because there is only one Howard Stern, period.  If the executives at Sirius truly understand Stern’s value, they will resolve the dispute. 

Stern’s Success

A big reason behind Stern’s success is the fact that he has been loyal to his staff over the years, and vice-versa.  For example, Robin Quivers, the show’s news anchor, has been with Stern since 1981, and has become a celebrity in her own right.  She is in the top earning level for women in radio, and takes on the same schedule as Stern (working on-air three days per week). 

Stern made a conscious decision to take his team with him for the ride, and that decision has paid off for the entire Stern staff.  Stern displays servant-leadership (serving others first, then leading by example) to its finest.  Unfortunately for Stern, the dynamic and concept of his team approach is not practiced, nor understood on the executive level within Sirius.

For the Record

Mel Karmazin is the CEO of Sirius XM Satelitte Radio.  His annual salary is $10.71M, and in 2012 alone, he exercised and sold stock options worth a total of $30,240,372.  Karmazin along with other large shareholders should realize their personal financial success at Sirius wouldn’t be as lucrative without Stern.  The number of subscribers, partner agreements, and the stock price itself wouldn’t be nearly as strong.  What’s one suggestion for Karmazin?  Resolve the rift with Stern.  If he needs help, I’m certain anyone on Stern’s team can assist… they are loyal, and they are team players.  Now that’s something Karmazin should take Sirius.

Roger L. Brooks is a trusted authority, and helps his clients build successful customer loyalty strategies.  He is the author of The Power of Loyalty: 10 Essential Steps to Build a Successful Customer Loyalty Strategy, and creator of Dose of Loyalty, a free monthly e-Zine.  Roger can be reached at rogerbrooks@doseofloyalty.com.

 

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