Answer: Lord Black and Hollinger International

Lord Black and Hollinger International

Conrad Black, a Canadian who took British citizenship to enter the British House of Lords, was an international media mogul, famed for his business strategies, his arrogance, and for bringing legal actions against any one who challenged him. But he eventually appeared in a Chicago court accused of money laundering, racketeering, and obstructing justice

Black controlled an empire of publications through a chain of companies:

Chicago Sun-Times and local newspapers

UK national newspapers

Canadian regional publications

Notice two classic corporate governance devices used to leverage Black`s control: an ownership chain with outside investors in two listed companies, and dual-class shares with voting rights greater than their equity value. In other words, Black was able to control Hollinger International, which owned Canadian, British, and US publications, even though he held less than 16% of the chain`s equity.

 

Black was also known for his ostentatious life style, with corporate jets, a fleet of vintage cars, apartments, and domestic staff paid for by the company. His wife memorably commented to Vogue magazine that ‘I have an extravagance that knows no bounds’, which prompted some institutional investors and the chairman of the audit committee to look more closely at the Black empire.

 

Like Robert Maxwell, his predecessor in the international media business and other corporate governance case studies, Black filled his boardroom with prestigious names, including Henry Kissinger, the former US Secretary of State, and Richard Pele, a former Pentagon adviser, as well as friends—mainly chairmen of other companies.

 

Black and some colleagues were charged with diverting over $80 million from Hollinger International from the sale of newspapers in the US and Canada. It was also alleged that Black`s company Ravelston had charged Hollinger International multi-million-dollar fees for management and for agreeing not to compete with regional newspapers that had been sold.

 

Allegedly the directors had approved these payments without question or independent advice. Nor had they queried the personal use of company assets. They allowed Black to treat the company as his private empire. As Black said: ‘this is my company and I decide what the board knows, and when they know it.’

 

Judge Amy St Eve told Black that she believed he had not accepted his guilt, had abused the trust of shareholders, and had engaged in sophisticated schemes that required more than minimal planning. He was sentenced to 6 1/2 years in prison and fined $125,000. Protesting his innocence to the end, Black claimed that he was the victim of ‘corporate governance zealots’.

 

In June 2011, after a year on bail mounting a partially successful appeal, Black was told that he must serve a further year in jail. ‘It’s not that I don’t have remorse,’ he said, ‘but I regret my scepticism about corporate governance zealotry which made my shareholders suffer.’

1. Black was able to control Hollinger International through an ownership chain with outside investors in two listed companies, and dual-class shares with voting rights greater than their equity value, although he held less than 16% of the chain’s equity. What is your opinion of that situation? Remember that no one forced the outside shareholders to buy into his companies and the ownership structure was in the public domain.

2. Black filled his boardroom with prestigious names,. What are the pros and cons of such a situation?

3. How can a successful entrepreneurial character, like Lord Black, be controlled in order to protect outside investors, whilst still allowing reasonable profit-generating risk?