The Wall Street Journal’s Alan Murray posed the question in his column last week:
What lessons do you draw from the story of Lord Black of Crossharbour?
Like many, I have been following Conrad Black’s career with great interest —probably longer than most. I grew up not far from Mr. Black’s home in Toronto (not far in distance but a somewhat wider gap in property values). Occasionally, when not exploring the social significance of the local shopping mall or what we solidly convinced ourselves to be Indian burial grounds on the outlying ravine, my friends and I would cycle over to young Conrad’s mansion. Even then, he used words nobody else understood and seemed to live in a world that was very different from everyone else’s. I don’t believe he knew where the local shopping mall was located. Such people can be intriguing, especially in Canada, where there seems to be a paucity of larger than life figures.
One of the many things that is so troubling about the Conrad Black saga is the terrible squandering of opportunity and resources that is associated with his legacy. It has been a kind of Midas touch in reverse. There is not much left of the great Argus empire he virtually inherited which was founded by E.P. Taylor (also of horse breeding and racing fame, whose Windfields Farms produced the celebrated Northern Dancer). Ravelston, the private holding company built by Mr. Taylor and his partners (including Mr. Black’s father, George) and carried on by Conrad Black, is now an admitted corporate felon and is in bankruptcy proceedings. Many of his prize newspapers have been sold off.
Even the Hollinger International name has been eradicated in order to distance the company from the dark cloud of Conrad Black. It is now called Sun-Times Media Group and is struggling to survive. His lifelong friend and business partner, David Radler, is also an admitted felon for what he did at Hollinger. Torys, the major Toronto law firm that advised the Hollinger empire for many years, settled a shareholder lawsuit for $30 million —the largest settlement of its kind by a Canadian law firm.
It might be just a cruel coincidence but even companies on whose board Mr. Black served are studies in calamity. Confederation Life collapsed in the early 1990s and holds the record as Canada’s largest-ever financial failure. Livent also collapsed, and its founder, Garth Drabinsky faces fraud charges in Canada and is a fugitive from justice in the United States. Even his birthright as a Canadian citizen was misspent. He renounced it to become a British lord, and had a lot to say about Canadian “mediocrity” in the process. Now, as he faces the trial and tribulations of his life, he has suddenly acquired a patriot’s fervor for his native land and seeks to have his Canadian citizenship back. It is, in my view, a rather sad record for one so gifted in intellect and so favored by early fortune. Much in life seems to come down to something my father often said: “Judgment, son. It’s all about judgment.”
I don’t know whether Mr. Black is innocent or guilty of the charges brought against him. But I do know something about the failings of Hollinger’s corporate governance and have been commenting on those shortcomings for many years —long before the current scandal or the entry of Tweedy, Browne into the arena. I think Mr. Black has a lot to answer for in terms of Hollinger’s board practices. But so do the independent directors who were apparently delighted to bask in the glow of his celebrity and frequent largess. I will have more to say about this part of the Hollinger scandal in a later piece.
My reply to Alan Murray’s column, posted at the Wall Street Journal on-line, follows below:
Conrad Black’s fall comes as no surprise to many observers, given his sneering contempt for the role of shareholders and disdain for modern corporate governance practices. But the real scandal here is not what was held back from the board; it is the utterly lackadaisical approach independent directors took to their duties. As the Breeden Report notes:
“…the Audit Committee didn’t perform any serious or meaningful independent review of the annual management fee requests other than to hold a perfunctory meeting each year between Thompson and Radler, sometimes with Kipnis in attendance. In the time needed to consume a tuna sandwich, Radler would win as much as $40 million in Hollinger revenues for Ravelston, and Hollinger would be locked into this patently unfair and exploitative relationship for another year”.
On the Hollinger stage, there was but one speaking part, and that was played to the hilt by Conrad Black. Outside directors —who formed a minority in the company’s boardroom— were little more than corporate governance props.
I attempted to raise —rather single-handedly I should add — the issue of Hollinger’s dubious corporate governance practices, and the conflicts involving Hollinger payments to Black-controlled Ravelston Corp. (which just this month pleaded guilty in U.S. federal court to criminal fraud) with the press and analysts on a number of occasions in the 1990s. For the most part, there was not a ripple of interest. The only practical result of this effort was that my op-ed columns in the Financial Post, where I had been writing occasionally for three decades, never appeared again after Mr. Black became its proprietor. It took many years before it was widely recognized, as the Breeden report confirmed, that “Hollinger does not appear ever to have been run in accordance with accepted governance principles in the world of public corporations.”
All through the 70s, 80s, and 90s, major stories in the Wall Street Journal and elsewhere trumpeted the arrival of the more active board. Each time prominent business leaders assured the investing public that the cozy boardroom club no longer existed. And each time, those statements were followed by major boardroom scandals, from Penn Central and Equity Funding right up to Enron and today’s Hollinger. Now there is the current wave of improprieties involving stock option backdating and revelations that suggest in many cases directors seemed to think internal controls were something down in the boiler room. At Research In Motion, Nortel and GM lax accounting controls were recently discovered as the cause of major problems in their financial reporting.
At a time when some in the Bush administration and a long procession of corporate leaders are seeking to roll back the gains of Sarbanes-Oxley, and the titans of private equity are poised for their own surge of power and control over significant business interests, the Shakespearean-like tragedy of Conrad Black and Hollinger serves as a textbook lesson —not just of what went wrong in 20th century business, but what can happen anytime— when hubris tempts a CEO to fly too close to the sun and directors allow themselves to serve as little more than mirrors to the CEO’s vanity.