The trial of Mr. Conrad Black — Lord Black of Crossharbour — began last week in Chicago. While the proceedings will offer considerable insight into the lives of the rich and famous, it will also provide a vivid reminder of the need for effective corporate oversight and the vital role played by boards of directors.
Mr. Black is a legendary newspaper businessman. He turned a $500 investment in a weekly Toronto newspaper into an empire of 600 papers with annual revenues of nearly $2 billion, making Hollinger International (his holding company) the third-largest newspaper company in the world. Its holdings included the Chicago Sun-Times, the Daily Telegraph of London, the Jerusalem Post and Canada’s National Post, in addition to hundreds of small community newspapers in North America. The company has been known as the Sun-Times Media Group since divesting itself of all the big papers except Chicago.
Mr. Black and three associates are charged with two sets of crimes. The first concerns his readiness to treat Hollinger as a piggy bank and use it to bankroll an extraordinary lifestyle. He charged the company, among other things, $600,000 for a vacation on a Pacific Island and $40,000 for his wife’s birthday party. The total amount of money diverted between 1997 and 2003 is reported to have been $400 million, about 95 percent of Hollinger’s entire adjusted net income during that time.
The second concerns the “noncompetition agreements” Hollinger signed when it sold its newspapers. This agreement is a usual component of business deals: Payments prohibit sellers from opening new, similar businesses that would undermine the value of the assets just purchased.
In this case, however, Mr. Black and his associates are charged with diverting the payments to his own companies from Hollinger International — essentially, diverting money owed to shareholders. These sums total about $60 million. Mr. Black denies both sets of charges.
Mr. Black is easy to caricature. He is a man of Rabelasian appetites. He has written biographies of U.S. Presidents Richard Nixon and Franklin Roosevelt — apparently using Hollinger funds to pay for his research — and styled himself a “great man” like them. He gave up his Canadian citizenship so that he could take a British peerage, and his board was peopled with such eminences as Mr. Henry Kissinger; Mr. Richard Burt, a former U.S. ambassador; and Mr. Richard Thompson, a former U.S. governor. Their mere presence on the board is a key part of Mr. Black’s defense: They are too smart to have been swindled by him.
Mr. Black’s lifestyle has made him an object of envy and ensures that the trial gets high visibility. It is not illegal to be rich or to be arrogant; the issue is whether Mr. Black looted his companies. As the prosecutor argued in his opening statement: “Bank robbers wear masks and use guns. These four men used lawyers and accountants and wore ties and a suit.”
Mr. Black’s ego is not the issue at this trial, but rather his attitude toward shareholders. In one e-mail shown during opening arguments, Mr. Black dismissed questions about his pay as an “epidemic of shareholder idiocy.” After auditors challenged his use of a private jet, he countered that “I am not prepared to re-enact the French Revolutionary renunciation of the rights of nobility,” adding, “We are proprietors after all, beleaguered though we may be.”
Unfortunately, Hollinger was not just his company. The purpose of the board of directors is not to rubber-stamp management decisions but to protect the interests of all shareholders. Mr. Black asserts that his board did just that, and any decisions he made were evaluated and agreed. Yet prosecutors also quoted Mr. Black telling a colleague, “It’s my company, and I’ll tell the board what I want and when I want.”
The scale of the crimes alleged against Mr. Black pale in comparison to other corporate misdeeds in recent years, such as the theft and loss of billions of dollars by executives at Enron, WorldCom and Tyco. But the fundamental concern is the same: the responsibility of management to operate a company in the interest of all shareholders and the duty of the board of directors to ensure that happens.
While that is a basic tenet of corporate law, the string of scandals that have unfolded in recent years is proof that rigorous checks and balances are needed. There have been calls, in the United States in particular, to revoke some of the more onerous oversight laws passed in the wake of these scandals. Mr. Black’s case is a reminder that such action is premature and would be a mistake.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.