Hollinger: Black Days No More?

As Conrad Black steps down at the media company amid reporting inaccuracies, stronger corporate governance should follow

By Diane Brady

Canadian-born media baron Conrad Black clearly is an intelligent guy and a clever writer. His new biography on Franklin D. Roosevelt was recently hailed by one reviewer as a "masterfully evoked" and "sombre yet heartening venture." Yet his pared-down Hollinger International (HLR ) newspaper empire is in acute financial distress. It has delayed its third-quarter results until later this week because of "inaccuracies." And on Nov. 17, Black, 59, announced that he'll retire as chairman and CEO in a few days, following company admissions of unauthorized payments. Black and three senior executives say they will repay the money, with interest.

It's a dramatic turn of fortunes for a celebrity CEO who gave up his Canadian citizenship to join Britain's House of Lords two years ago. Hollinger could not be reached for comment beyond the official announcement. Black will stay on as nonexecutive chairman, the Hollinger statement said. But to those watching Corporate America these days, this latest shakeup on the top floor has some all-too-familiar elements: allegations of poor governance, a lack of financial transparency, and shareholder grumbling over excessive pay.

Even with the delay in third-quarter results, investors were feeling optimistic on the news of Black's departure as CEO. The share price shot up almost 18%, to $15.90, soon after the news broke (it closed at $15.73 on Nov. 17).


  While the once-mighty Hollinger has sold off many of its holdings in recent years, it's still the owner of such venerable media names as The Chicago Sun-Times, London's The Daily Telegraph, The Jerusalem Post, and a number of smaller papers throughout the U.S. and Canada. Those are valuable media assets.

The problem: Black has continued to be heavily rewarded in both salary and millions of dollars in management fees, yet Hollinger has posted net losses stretching back to 2001. Add to that the company's admission that Black and President David Radler, who also resigned, each received $7.2 million in payments that weren't authorized by Hollinger's audit committee or the board of directors. In total, more than $32 million in unauthorized payments were made to the company or its executives.

These were so-called "noncompetition payments" related to sales of U.S. community newspapers -- payments that normally accrue to a company, not to individual executives. In a filing with the Securities & Exchange Commission, Hollinger also said it had to delay its third-quarter results until the week beginning Nov. 17 in order to make "corrective disclosures."


  Black's role at Hollinger will likely continue to diminish, especially if outside investors come in to buy the 30% stake of parent and Black-controlled Hollinger Inc. The parent has brought in Lazard Freres & Co to evaluate its strategic alternatives, including a possible sale of Hollinger International. Among those rumored to be interested are Nelson Peltz of Triarc (TRY ), which owns Arby's, and Richard Desmond, publisher of Express Newspapers. Few will want to deal with a shareholder who has majority voting control of Hollinger International.

There's also little doubt that investors can expect stronger governance and a clearer view of Hollinger's financial picture from now on. Because of shareholder pressure in May, the company set up a special committee, with former SEC Chairman Richard Breeden as an adviser, to investigate such issues as pay. That committee, among other things, unearthed the lack of authorization over the controversial payments.

More transparency and better governance should continue to buoy investors. As for Black, who has openly criticized the push for improved corporate governance as a fad, he has learned that running a public company means being accountable to all the other owners as well.

Brady covers corporate trends for BusinessWeek in New York

Edited by Douglas Harbrecht

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