washingtonpost.com  > Business > Columnists > Steven Pearlstein

Quick Quotes

Steven Pearlstein

Hollinger Paid For Lord Black's Costly Hubris

By Steven Pearlstein
Friday, September 3, 2004; Page E01

He wanted to be known as Lord Black of Crossharbour -- press baron, financier, philanthropist, member of the global elite. But as we learned this week from a Hollinger International investigative committee's exhaustive report, it was mostly a lie.

In fact, Conrad Black was Canadian, not British. The private jet and the Rolls-Royce, the homes in London, New York and Palm Beach, the FDR memorabilia, the donations to hospitals and arts institutions -- almost all were paid for by the shareholders of the company that, by the accounting of former SEC chairman Richard Breeden, who prepared the report, Black created and looted. Beneath the ermine robe and the blowhard exterior was a common flimflam man.

_____Hollinger International Inc_____
(HLR) Stock Quote and News
Historical Chart
Company Description
Analyst Ratings
_____Past Columns_____
Urban Markets Challenge the Wal-Mart Way (The Washington Post, Sep 1, 2004)
A Gaggle Of Google Critics (The Washington Post, Aug 20, 2004)
Developer's Tenacity Saves National Harbor (The Washington Post, Aug 18, 2004)
Column Archive
_____Free E-mail Newsletters_____
• TechNews Daily Report
See a Sample  |  Sign Up Now
• Personal Finance
See a Sample  |  Sign Up Now
• Personal Tech
See a Sample  |  Sign Up Now
• Tech Policy & Security
See a Sample  |  Sign Up Now

The parallels to Dennis Kozlowski are uncanny, down to the lavish party thrown for his wife at company expense. But at least Kozlowski managed to make some money for his shareholders. Hollinger investors weren't so lucky. With the acquiescence of lawyers, accountants and directors who refused to challenge them, Black and a few cronies allegedly skimmed off 95 percent of the company's profit in the past six years.

Among the directors singled out was Washington superhawk Richard Perle. For all his worldly sophistication, Perle apparently didn't realize that as a member of the three-member executive committee, he was supposed to read and understand all those documents he signed approving service contracts with, and loans and asset sales to, the two other members of the committee, Black and sidekick F. David Radler. But then again, Hollinger would prove very, very good to Perle, paying him $5.4 million over the past six years, including an undisclosed $3.1 million "performance bonus" for running an in-house venture fund with an annualized return of negative 24 percent.

After the fund fizzled, Perle tried to persuade Black to invest in another investment group, which he proposed to start up with his pal, Gerald Hillman, a fellow traveler in defense policy circles. As he outlined the deal, Trireme Partners would pay Perle an annual salary of $500,000, while Black and Henry Kissinger, another Hollinger director, would be entitled to a small share of the fund's profits in return for lending their names and stature to the venture. It was the sort of hustle an admiring Black could spot a mile away:

"My instinct told me that [Perle and Hillman] were trying to smoke one past us," Black wrote in an e-mail to a skeptical Hollinger exec. "They should treat us as insiders with our hands cupped as the money flows down, and not as outsiders pouring the money in."

In the end, Hollinger agreed to put in the first $2.5 million of what was advertised to other investors as a $25 million commitment, ignoring the legal requirement that such insider dealings be approved by the outside directors on Hollinger's audit committee.

Not that the audit committee would have objected. This was the same committee, after all, that approved an extraordinary arrangement by which Hollinger outsourced the management of the company to a firm owned by Black, Radler and a handful of other executives without asking for an explanation of how annual fees running to $40 million were calculated. The same committee that approved $60 million in "non-compete" payments that Black and his cronies skimmed from the proceeds of asset sales. The same committee that paid Mrs. Black up to $300,000 a year "for nothing more than reading the newspaper, having lunch and chatting with her husband about current events." All that according to Breeden.

While Breeden chastised the audit committee -- former Illinois governor James Thompson; Richard Burt, a former U.S. ambassador to Germany; and Marie-Josee Kravis, the economist wife of financier Henry Kravis -- for an "inexplicable and nearly complete lack of initiative, diligence and independent thought," in the end he concluded that they probably could not be held financially liable for their nonfeasance. But that may be of little comfort to the shareholders of Ford Motor, where Kravis still serves on the compensation committee, or FMC and Maximus, where Hollinger director Thompson serves on the corporate governance and compensation committees.

Steven Pearlstein can be reached at pearlsteins@washpost.com.


© 2004 The Washington Post Company