Saturday, July 24, 2010

Conrad Black - Free at last?

This past week, the mainstream media has been salivating over the Conrad Black story. I have nothing to add; I find the whole story totally irrelevant to my existence on Planet Earth but it has been interesting to read the comments after the online editions of the Globe and Mail, CBC News, The National Post and Maclean's. For some reason, the whole Conrad Black thing has polarized Canadians in the same manner that politics polarizes us; some commenters want to leave him to rot in an American prison and keep him south of the 49th parallel and others are behind him getting his freedom because they feel that he was erroneously found guilty. I could care less either way.

What I did want to add to the discussion was this paper from the Canadian Library of Parliament that was prepared by Tara Gry back in August 2005. For those of you that don't know what a dual class share structure is, here's the definition from the paper:

"Many company founders wish to avoid the dilution of control that normally accompanies the public issuance of shares. One mechanism at their disposal is to issue different classes of shares that confer different voting rights on the holder. These are known as dual-class share structures, or, alternatively, as restricted- or subordinate-voting share structures."

In Canada, there are several examples including Shaw, Bombardier, Onex, Magna, Power Corporation and of course, Hollinger International. The Magna/Frank Stronach story is in the media right now because he has just been paid nearly a billion dollars for his multiple voting shares by the company he founded. As it stood before the deal was struck, Frank Stronach held 0.6% of the total shares outstanding but had 66% of the voting rights.

Back to Conrad Black. Here's a quote from the section of the paper entitled "Disadvantages":

"Hollinger International Inc. presents an extreme example of the detrimental effects of dual-class share structures. Former Chief Executive Officer Conrad Black controlled all of the company’s Class B shares, which gave him 30% of the equity and 73% of the voting power. Holders of publicly traded shares of Hollinger had limited rights to make decisions in terms of executive compensation, board appointments, and mergers and acquisitions. According to a report made public by the Securities and Exchange Commission, Mr. Black appointed the majority of board members, who, in turn, were unlikely or unwilling to oppose his authority. The same report found that Mr. Black exacted excessive management fees, consulting payments, and personal dividends from the company. In all, the aggregate funds taken by Mr. Black and Hollinger’s other chief executives were estimated at 95.2% of Hollinger’s entire adjusted net income during 1997-2003, sums in excess of $400 million."

In my opinion, the actions of Mr. Black over his career as a business leader tell me everything that I need to know about him.

End of story.

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