The 22-year tenure of media baron Conrad Black at the helm of Hollinger International, which will officially end Friday, was marked by naked contempt for common shareholders. The company—and its shareholders—lent money to an entity controlled by Black, paid massive management fees to entities controlled by Black, sold assets to companies controlled by Black, and maintained a condominium for Black in New York. The board of directors approved every step of the way. It wasn't until this Monday—when a special committee of outsiders, formed at the urging of shareholder activist Tweedy Browne, disclosed $32 million in unreported or improperly reported compensation to Black and other executives—that he was forced to step down.
Over his career, Black, aka Lord Black of Crossharbour, brilliantly cobbled together an empire of newspapers that included London's Daily Telegraph, the Chicago Sun-Times, and the Jerusalem Post. But his greatest feat may have been putting together a board of directors singularly unequipped to oversee a newspaper operation, to deliver justice to shareholders, and to grasp the concept of conflicts of interest. For the past several years, in fact, Hollinger International's board has been the corporate governance equivalent of the Star Wars cantina scene.
Virtually every corporate board includes some individuals who don't bring much business expertise to the table. They're in the room because they're friends or relatives of top executives, or they're well-connected former government officials, or they're celebrities. Others may be chosen because they bring needed racial or gender diversity, or because they represent a worthy cause. (Enron's board of directors included a cancer researcher, for example.) But there are few cases in which the board of directors of a publicly held company is almost entirely stocked with insiders, cronies, and clunkers, with the odd convict thrown in for good measure.
As of the spring, Hollinger International's board included five individuals who met the Securities and Exchange Commission's definition of corporate insiders: Black; his wife, columnist Barbara Amiel Black; and three other Hollinger International executives. The list of so-called independent directors—the people who are supposed to ride herd on the insiders and stop them from screwing shareholders—was composed almost entirely of a different type of insider.
Indeed, the roster of independent directors reads like the politically plugged-in guest list at an American Enterprise Institute dinner—not the managerial crowd you'd find at a Business Roundtable function. There's former Secretary of State Henry Kissinger (a director since 1996), who would seem to have little insight into the business challenges facing a newspaper company—think newsprint prices, union contracts, the impact of the digital era on newspapers. (Strategic bombing of media competitors, after all, is typically not an option.) He evidently agreed: While the Board met four times in 2002, the proxy notes that "Mr. Kissinger did not attend 75% or more of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings of the committees on which such director served." In other words, in exchange for his $35,000 director's fee, Kissinger attended at most one meeting—and possibly none.
The slate of directors standing for re-election last May included: the Honorable Richard Burt, the former arms negotiator and Reagan-era ambassador to Germany; the Honorable James Thompson, the former Republican governor of Illinois; and the Honorable Richard Perle. The Honorable Robert Strauss, the ambi-partisan fixer and former ambassador to the Soviet Union, served on the board for six years but left in 2002. Marie Josee Kravis, a respected conservative economist and the wife of financier Henry Kravis, was also a board member as of this spring. With the exception of Kravis, these directors were far more equipped to discuss regime change in Iraq than they were to discuss regime management in Conrad Black's empire. And they probably spent far more time discussing the former than the latter.
Most of these more or less honorable folks were basically idle directors. They showed up at meetings, ate lunch, rubber-stamped corporate plans, and cashed their checks. Except for Richard Perle. Perle, according to the most recent proxy statement, is co-chairman of Hollinger Digital Inc., which makes venture investments on behalf of the company, and a member of the board's powerful three-person executive committee. On Nov.13, the Financial Times reported that Hollinger is now investigating a $2.5 million investment that Hollinger Digital made in Trireme Partners, where Perle is a managing partner. According to the FT,Perle also directed a $14 million investment into Hillman Capital, a fund controlled by Gerald Hillman. Gerald Hillman, a fellow member of the Defense Policy Board, is also a member of Trireme Partners. Who would have imagined that Richard Perle would use a quasi-public office as a platform for his personal interests?
Over the years there have been a few real businesspeople on Hollinger International's board, such as Shmuel Meitar, the head of an Israeli media company, and Leslie Wexner, the highly regarded founder of the Limited, whose six-year board tenure ended in 2002. But Black seemed to have a genius for recruiting CEOs with legal issues, as Steven Pearlstein noted in Wednesday's Washington Post. A. Alfred Taubman, the former CEO of Sotheby's, remained on Hollinger's board even after he had been convicted of violating antitrust laws. Dwayne Andreas, the paterfamilias of Archer Daniels Midland, the agri-business giant that in 1996 pleaded guilty to price-fixing, was also a longtime board director.
Given this cast of characters, it should come as no surprise that over the years the stock of Hollinger International has failed to keep pace with the broad market indexes and many of its peer media companies. After all, putting a bunch of right-wingers with occasionally dubious foreign policy credentials in the position of directing a profit-making business seems almost as illogical as putting a bunch of right-wingers with occasionally dubious business credentials in charge of foreign policy.