The massive report on how newspaper baron Conrad Black and his cronies destroyed Hollinger International is unusually rich and entertaining. Too bad summer is over—it's practically beach reading! Who knew that Richard Breeden, the former Securities and Exchange Commission head who headed a special investigation of Black's activities, was such an acid prose stylist? (Sample section heading: "A Corporate Kleptocracy.")
Some of the most intriguing passages in the report deal with Black's relationship to Richard Perle, the former Reagan defense official and neocon icon. In a fine Washington Post article last May, David Hilzenrath described Perle's many misadventures in the private sector, most of which were confined to lobbying. But Perle didn't want to be a mere influence peddler. He wanted to be a businessman, a venture capitalist, a Big Swinging Dick. He saw his opportunity at Hollinger. That's because Conrad Black imagined himself to be not merely a peddler of newspapers, but a Metternich in the boardroom. For Lord Black, owning a media company was an excuse to muse over the Treaty of Vienna with board members like Henry Kissinger. Black and Perle were made for each other. Perle got Black's capital. Black added another trophy to his collection of prize conservative geopolitical thinkers.
As Hilzenrath noted, the two met at (natch!) the Bilderberg Conference. Perle joined the Hollinger board in 1994 and quickly became part of Black's inner circle, serving on the company's executive committee. In the late 1990s, as the section of the report beginning on Page 339 shows, Perle got it into his head that Hollinger should form a unit to invest in Internet companies. And who better to run it than a former assistant secretary of defense? Never mind that Perle knew as much about the prospects of Trip.com as Amazon.com CEO Jeffrey Bezos knew about throw weights. Perle was named chairman and chief executive officer of the new unit, Hollinger Digital. Still it was clear who was boss. "According to Perle, Black was the ultimate decision maker on investments," the report notes. What's more, Perle "lacked the authority to commit Digital's capital without Black's approval."
But alas, the Black-Perle marriage soured. Hollinger Digital, which got started in the late 1990s, was a disaster. "Of the forty-five investments the Digital executives made, only five have resulted in gains," according to the report. By the end of 2003, the fund had lost $68 million on investments of $203 million, "yielding a total return of -33%."
Unchastened by the losses, Perle started his own private equity firm, Trireme Partners, which he founded in 2001 along with Gerald Hillman, a fellow member of the Pentagon's Defense Policy Board. Perle tried to hit up Hollinger for a $25 million commitment, with $2.5 million up front. Black resisted, in part because Black, a world-class chiseler himself, felt he was getting chiseled by Perle. On Feb. 1, 2002, Black wrote a memo questioning Perle's habit of submitting personal bills for reimbursement: "I have been consulted about your American Express account which has been sent to us for settlement. It varies from $1,000 to $6,000 per month and there is no substantiation of any of the items which include a great many restaurants, groceries and other matters."
In late 2002 and early 2003, negotiations between Black and Perle grew heated.Ultimately, Black seems to have concluded that $2.5 million was a small price to pay to get rid of Perle. In a Dec. 28, 2002, e-mail, he told colleagues the Trireme investment was, in the report's words,"a means to remove Perle from Digital's payroll."
And while the report documents how Black spent company cash on himself, he resented it when Perle did the same. The report, again: Black "told [Hollinger executive Peter] Atkinson in an e-mail dated [Dec. 29, 2002] that he was 'well aware of what a trimmer and a sharper Richard is at times.' " Black wrote about Trireme."As I suspected, there is a good deal of nest-feathering being conducted by Richard which I don't object to other than that there was some attempt to disguise it behind a good deal of dissembling and obfuscation." (In Black's book, it was OK to feather your nest but not OK to lie about it.)
Black admired—in a grudging way—how Perle worked on him. Black explained in a Jan. 7, 2003, e-mail to a colleague: "I have been exposed to Richard's full repertoire of histrionics, cajolery, and utilization of fine print. He hasn't been disingenuous exactly, but I understand how he finessed the Russians out of deployed missiles in exchange for non-eventual-deployment of half the number of missiles of unproven design." After discussing compensation with Perle, he wrote: "My feeling is that we are finally dealing with Richard Perle of Reykjavik and the Zero Option, who realizes that mental agility must be applied to bringing us into the coalition and not straight-arming us like a bunch of NATO-ninny psuedo-allies."
In the end, Hollinger did invest $2.5 million in February 2003 in Trireme Partners. True to its name, Perle's venture firm has set about to try to ream its partners. According to the Breeden report, Hollinger's $2.5 million investment in the fund is worth only $1.5 million—a loss of 40 percent in one year.
The report will no doubt prove embarrassing for Perle.
The section from Pages 482-492 is devoted to his exceptional shortcomings as a director. "It is, of course, possible for a conflicted board member to act at least somewhat responsibly," Breeden writes. "As a conflicted Executive Committee member, however, Perle did not. Rather, his Executive Committee performance falls squarely into the 'head-in-the-sand' behavior that breaches a director's duty of good faith and renders him liable for damages under Delaware law." (The investigative committee was stunned when Perle admitted that he frequently didn't bother to read documents that he signed.) And because Perle routinely placed his own interests ahead of those of Hollinger's public shareholders, the committee concluded, he shouldn't be allowed "to retain any of his Hollinger compensation, including his Digital Incentive Plan bonuses, salary and directors' fees. The Special Committee intends to pursue a recovery from Perle, either consensually or through litigation."
Back when he was threatening to sue Seymour Hersh for libel, Perle must have come into contact with some good lawyers. He may need them.
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