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Black and his closest Canadian associates. On the one hand, the report noted �our success is largely dependent on the abilities and experience of Lord Black, our Chief Executive Officer, F. David Radler, our Chief Operating Officer, and Daniel W. Colson, The Telegraph�s Chief Executive Officer, and our senior management team. The loss of the services of Lord Black, F.David Radler and Daniel W. Colson or one or more of these senior executives could adversely affect our ability to effectively manage our overall operations or successfully execute current or future business strategies.� But, on the other hand, the 10-K went on to explain to Hollinger International shareholders that �Lord Black is our controlling shareholder and there may be a conflict between his interests and your interests� Entities affiliated with Lord Black and other officers and directors of the Company engage in significant transactions with the Company, which transactions may not necessarily be consummated on an arm�s length basis� Certain subsidiaries of the Company also have separate service agreements directly with certain Ravelston executives, as well as Black-Amiel Management Inc. and Moffat Management Inc., both affiliates of Ravelston. All of the Service Agreements were negotiated in the context of a parent-subsidiary relationship and, therefore, were not the result of arm�s length negotiations between independent parties. The terms of the Service Agreements may therefore not be as favorable to the company and its subsidiaries as the terms that might be reached through negotiations with non-affiliated third parties.� In other words,Hollinger International acknowledged the prestige and authority of its controlling shareholder, Lord Black, while simultaneously warning in its annual report, duly filed with the SEC, that Black and several close associates could be in serious conflicts of interest, using their controlling shareholder position to derive undue benefits from the company. Hollinger International�s 10-K filing in 2002 � its annual report � makes gripping reading. It presents in broad brushstrokes the complex relationship that Black and his main Canadian partners had with the U.S.-based company.
Fortune magazine reported that at the annual shareholders meeting of
Hollinger International at the Metropolitan Club in New York, on May 22, 2003,
�Black and his wife, Barbara Amiel�a right-wing columnist whose looks have been
compared to Gina Lollabrigida�s and whose opinions would curl Rush Limbaugh�s
toes�waved to friends. They exchanged air kisses with Donald Trump and his
girlfriend, model Melania Knauss. Black scanned the room and his lip curled. He
what was coming�shareholders rising, one after another, to chastise him. Finally he erupted. Yes, he admitted, there was room for improvement in Hollinger�s stock price. But Black was squeezing more and more cash out of his newspapers.Why, he asked, hadn�t anybody commended him for that. �You have a right to say whatever it is that is on your mind, all of you,� he informed his investors. �You don�t know what you are talking about, but you are still welcome as shareholders�.� Under increasing pressure Black, on June 17, 2003, created a special committee to conduct an independent review and investigation of allegations raised by Tweedy, Browne. The committee, advised by former SEC chairman Richard Breeden, began sifting through several years of
Hollinger International corporate documents, in search of irregularities.
A week before the committee was formally set up,Tweedy, Browne sent another letter to Hollinger International�s board of directors, revealing that some Hollinger International assets had been sold in 2000 to Bradford Publishing, a company owned and controlled by some Hollinger board members and senior management. Tweedy, Browne thought this was self-dealing and demanded more information. Tweedy, Browne had uncovered something important. As a result of its prodding,Hollinger International later accused Black and Radler of self-dealing, alleging for example that Black and Radler set up Horizon Publications Inc. in 1998 in order to acquire newspaper assets from Hollinger International. Each held 24 per cent of Horizon�s shares and had beneficial control (through people they had rewarded with shares and allegedly still influenced) of at least 73 per cent of the company�s shares. This beneficial control was not made clear to the SEC, Hollinger International alleged, nor were Board and audit committee members properly informed about the nature of Horizon�s transactions.
In 2000, Bradford Publishing Co. was set up,�as an additional vehicle for
them [Black and Radler] to own other community newspapers they purchased from
the Company [Hollinger International] at a price substantially below market
value.� The amended filing alleged that in a March 1999 transaction,Horizon
picked up sixteen community newspapers from Hollinger International�for $43.7
million (U.S.). This was $18 million less than fair valuation for the
newspapers. In addition,
Horizon�a company effectively controlled by Black and Radler�did not pay cash for the assets. Instead, Horizon obtained financing from Hollinger International itself. In a May 2000 transaction, Hollinger International paid Horizon to take a few newspapers off its hands. In a July 2000 transaction, Hollinger International sold four newspapers to Bradford for $37.6 million: Hollinger International provided Bradford with a $6 million interest-free loan over ten years�described as a noncompete consideration�which reduced the overall sale price.Hollinger International estimated this was $9.8 million below the objective market value of the newspapers. In an August 2001 transaction, Horizon California picked up a newspaper worth over a million dollars for just one dollar�even when a competitor had offered $1.25 million for the same property. The allegations about these controversial transactions give the bewildering impression that Black and Radler, senior officers of a publicly traded corporation,were not content with their already handsome compensation through Hollinger International. They had set up
businesses on the side, which allegedly obtained additional benefits from Hollinger International.
Brian Mulroney, Canada�s prime minister from 1984 to 1993, describes Conrad
Black as a negotiator par excellence whose strategies, personal
charm and native cunning led to a series of brilliant corporate takeovers in the 1970s, �80s and �90s.
In 1985, Black had acquired effective control of the Daily Telegraph for just
�30 million. Increasing Hollinger�s shareholding over time, he eventually took
the Telegraph private, before taking it public again. The fact that Hollinger
International arranged to sell the Telegraph to the Barclay brothers in the
summer of 2004, for �665 million, or $1.21 billion (U.S.), shows, at the very
least, what a phenomenal coup Black scored in 1985, and how much value he had
succeeded in building in the years since then. In 1993, he picked up the Chicago
Sun-Times for $180 million (U.S.). By July 2004, the Sun-Times was valued at
billion (U.S.). Black substantially increased the value of these assets through cost-cutting and new investments in presses and improved editorial quality.
�Conrad is fundamentally an editor-in-chief,� said Izzy Asper. �He has
achieved where he wants to go.He wants to engage in the contest of ideas, and
challenge and joust�Having done several start-ups myself, I admire people who do
start-ups.The National Post (which Black founded in 1998) was a start-up. The
jury is still out on whether it will survive or not. It is not profitable, and
we, being a public company, have to take a hard-nosed look at things.� Charles
Moore, a �young fogey� and former editor-in-chief of The Daily Telegraph, says
the paper survived an advertising recession in Britain and won a long war with
its arch-competitor, Rupert Murdoch�s Times of London. He said the Telegraph
sought market leadership through quality journalism.�Conrad wanted the paper to
be more intellectual
than The Times and, as a result, the Daily Telegraph has stolen a lot of the elite from The Times. The quality of argument and writing is better, and the paper is funnier now.� Brian MacArthur, Times associate editor concedes that achievement but says the Telegraph paid a hefty financial cost for its victory and The Times meanwhile doubled its circulation.
Lord (Kenneth) Thomson of Fleet, the frugal press baron whose $16 billion
(U.S.) family fortune is among the largest in the world, explained [to the
author] in June 2003 prior to Hollinger�s troubles that Black �is remarkable for
the depth and breadth of his intellect, matched by a monumental ambition to play
a major political and historical role on the world scene. His ownership of the
Daily Telegraph and the Sunday Telegraph provides him with a premium media
him a well-known business and political figure in Britain and Europe.
�His ownership of the Chicago Sun-Times gives him an American base on which to build, while his strategic holding in the Middle East, the Jerusalem Post, provides him with a small but important window on that part of the world. If he were a passive owner, Conrad Black�s position would not be overly remarkable. It is his ambition, little disguised by himself, to become a prominent figure on the world stage, which elevates him to international focus. Whether he is destined to leave his mark as a chapter or as a footnote in the history of newspapers and their proprietors is not, for the moment, the point.�
Black saw his role as a builder of working capital�negotiating takeovers; starting up new properties; and developing strategies to improve the editorial quality of Hollinger�s media holdings. For this, he was richly rewarded with dollars and prestige. And he protected his gains by controlling votes within his companies
and developing value for what he calls �continuing shareholders.� In his mind there was a clear distinction between those shareholders and independent public shareholders. �These companies have always been run in the Argus32 tradition of proprietary businesses where the controlling shareholders take reasonable steps to ensure their comfortable enjoyment of the position they (we, in fact), have created for themselves,� he wrote in a memorandum he sent on September 6, 2002 to
Ravelston shareholders.�Care must be taken not to allow this to degenerate into decadence, as it did in the old Argus.� But he said complaints from disgruntled shareholders over poor stock performance should not �force us into a hair shirt, the corporate equivalent of sackcloth and ashes.�
Black seemed well aware of the inherent danger of press barons abusing their
power and influence.�If you look at it historically, various newspaper
proprietors have clearly suffered megalomania,� he says. �So it is something
that you want to always be scanning the radar screen to be sure that you stay
clear of it�You want to get some sort of balance between a healthy ego on the
one hand, and the sense of your own limitations and the propriety of your
actions on the other, and there is an element of public trust in the newspaper.
If you abuse that, you will not only disserve yourself, you will pay for it.
Because the franchise will be
But Black seems to have misjudged the new culture of corporate governance and misread or ignored the signals coming from the investor community.Was there an element of miscalculation in his reaction to Tweedy, Browne? �Nothing in business excites so much interest in the wider world as the pay of top executives,� reported The Economist in October 2003. �And this is more than ever true when, as now, a few prominent cases prompt indignant headlines and rouse normally somnolent shareholders into action. The phenomenon is global.� But Black says �it is astonishing that the incidence of objectively bad things�felonious conduct or even invidious conduct�is as infrequent as it is,� given the amount of money that changes hands in the corporate sector of countries like the U.S., Canada and the United Kingdom. �Here in the United States, you have GDP of essentially twelve trillion dollars. The private sector is almost two-thirds of that�almost eight
trillion dollars. The incidence of apparent serious misbehavior is really quite slight, and quite rare.�....