Dispatches From the Conrad Black Trial
At 70, his hairline is receding, and the sides of his mouth hang a bit, like an old bulldog. But Big Jim Thompson, as he's known in Chicago, is proving that he still has his mojo in testifying this week at the Conrad Black trial.
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StumbleUponThompson got his start here as a U.S. attorney in the early 1970s and served four terms as Illinois governor. He took the stand starting Tuesday as the chairman of the audit committee of Hollinger International, Black's former company. He is the third board member the prosecution has called to testify that Black and his partner David Radler never revealed they were skimming millions from Hollinger's sale of hundreds of small community newspapers. The first two—former American Ambassador Richard Burt and Wall Street economist Marie-Josie Kravis—testified that Black and Radler didn't tell the audit committee about the personal noncompete agreements the prosecution says he used to bilk Hollinger. Thompson told the same story. It's not a clear winner, since it makes the audit committee look inattentive at best. Still, unlike Burt and Kravis, who came off as big shots, Thompson earned smiles from the decidedly blue-collar jury because he seemed like a regular guy who'd tried to do a decent job.
Thompson said he understood his fiduciary responsibilities to be "the duty of loyalty, the duty of care, and the duty of good faith," then admitted that he "skimmed" through Hollinger's financial statements and corporate proxies. In some of these documents, footnotes disclosed some of Black's noncompete transactions. "I missed them," Thompson admitted. Asked why, he responded, "Well, first of all [the documents] are very long. Some of them are 100 pages."
The audit committee did know about the noncompete agreements attached to Hollinger's sale of the National Post and other large Canadian dailies to CanWest Global Communications. When he learned that Black, Radler, and two other defendants, Peter Atkinson and Jack Boultbee, were to receive $53 million in personal noncompete payments for agreeing not to start a newspaper in the same region, Thompson said he asked for the first time to see comparable noncompete agreements used by other companies in other deals. But all he got from Hollinger's auditor, KPMG, was an academic discussion of valuation. At one point, he said, Kravis suggested to Radler that the senior executives sign the agreement but forego the money. "I won't do that," Thompson quoted Radler as saying. "I want to be paid."
When Hollinger sold newspapers to Prime Media, Community Newspaper Holdings, and Horizon Publications in 1998 and 1999, and the deals involved noncompete agreements, Thompson said he assumed Hollinger International was the party agreeing not to compete. He did not know, he testified, that $15 million of those sales was being diverted to Hollinger Inc., the Canadian holding company Black and Radler used to control their voting shares in Hollinger International. Prosecutor Eric Sussman walked him through other sales involving more personal noncompete agreements. These culminated in February 2001, when the four men allegedly shared $5.5 million in noncompete payments from American Publishing Company—itself a Hollinger subsidiary—even though no newspapers changed hands. None of these deals was presented to the audit committee, Thompson said.
On cross-examination, Black's Canadian lawyer, Eddie Greenspan, lit into Thompson and his know-nothing account. Greenspan led off the counterattack by pointing out that Thompson and his wife benefited from Hollinger's largesse. One year, Greenspan noted, the couple flew by Concorde to London for a dinner hosted by Hollinger International's advisory committee and featuring British Prime Minister Tony Blair. The tab for the trip came to around $25,000, Greenspan said, and the company picked it up. Thompson didn't dispute the figure. "It was a nice event," he said. "But you didn't bring that up before the audit committee, did you?" Greenspan shot back.
Next, Greenspan showed Thompson a Sept. 1, 2000, memo about the CanWest deal that referenced noncompete agreements in four other sales (without details or names). Thompson said he did not recall reading it. Greenspan continued: What about the minutes of a Feb. 25, 2002, audit committee meeting at which KPMG auditors insisted the audit committee affirm that it had approved previous noncompete agreements? What about a December 2002 teleconference with 12 people on the line, including three from the audit committee, during which lawyers again asked if the noncompete agreements had been approved?
"I have no recollection of that," Thompson said.
In concluding, Greenspan showed Thompson drafts and final versions of SEC reports he signed. On 11 occasions, noncompete clauses were included in the footnotes Thompson said he missed when he was "skimming."
In five different public filings, Thompson, Burt, and Kravis say, they missed these disclosures. "It's a remarkable coincidence," Greenspan said. "May I suggest to you, Gov. Thompson, that you read all these things. You approved all these things. You thought they were right. And when there was some criticism, all of you conveniently forgot."
It wasn't a good moment for Thompson. But he pulled out of it by keeping his answers curt and succinct, and reiterating that he relied on management to bring important issues to the committee. When Greenspan tried to cast Thompson as the financial gatekeeper for Hollinger, as leader of the audit committee, the former governor got the best of him.
"We operated more as a democracy," Thompson replied.
"But every democracy has a governor," Greenspan said. "You were the governor."
"I've been a governor, sir," Thompson said, "and I can tell you as governor, you have a lot of people who disagree with you." He smiled, and the jury did, too.
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