For longtime Pentagon adviser and boardroom insider Richard N. Perle, the bonus plan at newspaper publisher Hollinger International Inc. was a can't-lose proposition.
While Perle was overseeing Hollinger as a member of the board for the past several years, he also was co-chairman of a subsidiary that invested in dot-coms. He participated in a bonus plan that paid executives a share of the profits from successful Internet investments without taking into account losses on failures, the company said in a complaint against its former chief executive, Conrad M. Black, and others filed in federal court in Chicago this month.
Perle received $3.1 million in such bonuses from May 2000 to January 2001, the complaint said.
During that time, as a member of Hollinger's executive committee, Perle signed forms giving officers of the company license to negotiate deals that Hollinger now alleges improperly enriched the other two members of the executive committee, Black and F. David Radler, who was chief operating officer.
Hollinger said in court papers that one such executive committee authorization in September 2000 was "bogus" partly because Perle received the bonuses, "knew nothing about" the transaction and answered to Black and Radler, thus lacking independence.
Black and Radler have vigorously denied the company's charges. Perle was not named as a defendant in the recent Hollinger complaint. He was named as a defendant in an earlier suit filed in Delaware by a Hollinger institutional investor, which accused him of "standing idle" and failing to provide "any meaningful oversight" while Black and other executives looted the company. Proceedings in the Delaware suit have been held up, awaiting the results of an investigation by a Hollinger committee.
In an interview Saturday, Perle said the investor's lawsuit "is in many respects just out and out wrong and in other respects very misleading," and any suggestion "that actions or decisions taken by me involved a quid pro quo for compensation I received . . . is absolutely false."
"Did I take actions, inappropriate actions, because of actual or promised or anticipated rewards or compensation? The answer is flatly no," he said.
The Hollinger story opens a window on a less visible side of Perle's career since he left the Reagan administration, in which he was assistant secretary of defense. He has been a director on more than a dozen corporate boards, and has served with some of the same people on multiple boards.
On one level, Perle's business career is like those of many former Washington officials who used the expertise and contacts gained in government to carve niches in the corporate world. But more than most, Perle also has maintained an active public policy role. Perle, 62, is best known in recent years for his advocacy of war with Iraq and tough measures to fight terrorism. Over the weekend, Perle was trying to rally support for Ahmed Chalabi, the embattled head of the Iraqi National Congress, who for years Perle has backed.
Perle also is an author and lecturer, a resident fellow at the American Enterprise Institute and was a foreign policy adviser to George W. Bush's 2000 presidential campaign.
"There is no 'main gig,' " Perle said of his many roles. "It's all of these and it changes from one day to the next," he said.
"There are days when I am on the way to the airport and I say to myself, 'How am I managing to do this?' Sure there are days when I'm spread too thin and there are times when I've thought this isn't fair to my family."
Unlike many who pass through Washington's revolving door, Perle for 17 years managed to keep one foot in the government as a member of the Defense Policy Board, which offers advice on key issues to the secretary of defense.
That role created controversy last year after the New York Times and the New Yorker magazine reported on Perle's activities as a consultant to Loral Space and Communications Ltd. and Global Crossing Ltd., which had matters pending with the government, and as a partner in a venture capital firm pursuing investments in homeland security technology.
An investigation by the Pentagon's inspector general concluded last fall that Perle had not violated ethics rules, in part because certain restrictions did not apply to him as chairman of the Defense Policy Board and in part because he "did not mention or invoke" his unpaid position when he contacted the State Department on behalf of a company.
He gave up the chairmanship in March 2003, saying he did not want the controversy surrounding him to become a distraction for Defense Secretary Donald H. Rumsfeld. In February, he resigned from the board itself, saying that he did not want his strong views on key issue such as terrorism to become a factor in this year's presidential campaign.
"I think I've made a successful transition from public policy to the private sector, and the evidence of that is the readiness of a number of companies to invite me to join their board or assist them in other ways, and in many cases companies that have nothing to do with the government," Perle said. "I'm interested in interesting businesses, not in mundane ones, and of course in my business activity I'm driven by the necessity to provide for my family."
Tour at Defense
"It's well known that you can peddle your influence after you leave the government for a certain number of years," William Happer, a Princeton University physicist and former Energy Department official, who serves with Perle on the strategic advisory council of USEC Inc., a uranium-enrichment company, said in an interview. "It's an old American tradition, and Richard Perle I think is doing it in an honest way. He's one of hundreds and hundreds who do it."
Perle said he did not like Happer's characterization. "I don't believe that anybody has hired me for connections," he said. "Nothing is about connections," he said. "I do not ask the people I know to do things for me."
Later in the interview, however, he confirmed that he had contacted ambassadors from Saudi Arabia and Kuwait in the 1990s on behalf of a company for which he was both a director and a sales consultant, seeking to sell security systems in the Middle East. "Was that a result of my influence? Yeah, it was. It was a result of the fact that they, the people I went to, knew me so they took my phone call," Perle said.
Perle, who started his career in Washington as an aide to Sen. Henry M. "Scoop" Jackson (D-Wash.), began applying his government experience to business soon after he left full-time employment at the Pentagon in 1987.
As assistant secretary of Defense for international security policy, Perle advocated increased U.S. assistance to Turkey. He chaired a U.S.-Turkey high-level defense group.
FMC Corp., a U.S. defense contractor, was working on a deal to sell armored personnel carriers to the Turkish government and enlisted Perle's help, former executives said. Perle's "main asset to us was his relationship with the Turkish government," Robert H. Malott, former chairman and chief executive of FMC, said in an interview. He said a U.S. ambassador to Turkey told him that the Turks regarded Perle "as a demigod."
A $1.1 billion deal, finalized in 1989, called for FMC and a Turkish partner to sell Turkey about 1,700 armored vehicles. Perle became a member of the board of directors of FNSS Defense Systems Inc. , the joint venture FMC set up to manufacture the vehicles in Turkey.
Perle said FMC's contract to sell Turkey the armored vehicles "was essentially done" when he got involved. He said he thought there were "occasions" when he talked about the venture with Turkish Prime Minister Turgut Ozal, whom he described as a "good friend."
Around the same time, Perle urged Turkish officials to establish a lobbying shop to advance the country's interests in Washington, he told the Wall Street Journal in a letter in 1989. Though he did not personally register as a lobbyist for Turkey, he became a paid consultant to the lobbying firm, International Advisers Inc., which was led by Douglas J. Feith, who worked under Perle in the Reagan administration and is now an undersecretary of defense. Perle received $255,000 from the firm from early 1989 through early 1994, according to lobbying records.
It was during that early period in the private world that Perle began a longtime relationship with Morgan Crucible Co. PLC, an English maker of industrial ceramics. He met company officials after speaking at a London conference hosted by an investment bank, he recalled, and they asked him to join the board. He served for 15 years before leaving last June, a period in which the company found itself in legal trouble.
In 2002, Morganite Inc., a U.S. subsidiary of the company, admitted to price fixing and agreed to pay a $10 million criminal fine. Morgan Crucible pleaded guilty to witness tampering and paid $1 million. Its former chief executive, Ian Norris, was indicted last year for allegedly conspiring to fix prices for more than a decade and then obstructing the criminal investigation. The government charged that he prepared a false script for employees to follow in the investigation and instructed employees to hide or destroy records.
Perle said the Morgan Crucible board cooperated with the authorities, appointed a special committee, retained legal counsel to advise it on how to proceed, "and I believe conducted itself in an exemplary fashion." Regarding the alleged crimes at the company, he said, "I don't believe they reflect on me or any of the other non-executive directors at all, and I don't know of any suggestion to the contrary by anyone."
He joined another board in 1990, that of Vikonics Inc., a New Jersey company that marketed security systems to the armed forces. He also had a consulting arrangement that entitled him to receive a 7 percent commission on contracts that he helped the company obtain, according to a regulatory filing.
John L. Kaufman, who was Vikonics' president at the time, recalled in an interview that "what he really had done was help us with introductions to people who he knew," including "high-ranking people in the areas of government there and in the military." He recalled traveling with Perle to Kuwait, where the former Defense Department official received a grateful and enthusiastic welcome shortly after the Persian Gulf War.
"The minister of this or the secretary of that -- no matter who it was, everyone wanted to meet him," Kaufman said. "I do believe that he did help us to gain contracts just by being there to help us."
In 1994, the company announced a contract to install a security system at Kuwait's Ministry of Information, and the kingdom was soon one of Vikonics' largest customers.
Perle recalled phoning the Saudi Arabian ambassador to the United States, Prince Bandar bin Sultan, about Vikonics. "I talked to Bandar and said I'm on the board of this company, and we make some very high quality security devices, and if there's a market for thesein Saudi Arabia, we'd like to go talk to people who make those decisions. Same thing in Kuwait."
In 1995, Perle resigned from the Vikonics board. The company reported that he had been awarded no commissions and the company was de-emphasizing its efforts in the Middle East in part "due to the limited success to date."
In the early 1990s, Raytheon Co. retained the American Enterprise Institute to advise it on business opportunities in Turkey, and Perle "was one of the associates involved in that process," Raytheon said in a statement.
At times, Perle joined longtime associates in the boardroom. Former Army Chief of Staff Edward C. Meyer, for example, was a director with Perle in FMC's venture in Turkey, and has served with him on three other boards. An investment firm Meyer helped manage granted Perle stock options to run for a board seat. The options produced a profit of about $250,000 for Perle. At Perle's recommendation, Meyer was appointed to join him on another board.
The retired general praised Perle's performance. "I would say he's always been in the top one-third of all of the directors I've seen because he always goes out of his way to understand all the details of what the company is doing and how he can contribute to its success, and a lot of directors do not do that -- they just sit there and nod sagely," Meyer said.
"His contacts are particularly useful to companies that have businesses overseas," Meyer said. The contacts he's seen Perle use "did not have as much to do with the U.S. government as they did . . . foreign governments and foreign personages," he said.
Perle joined Hollinger's board in 1994, having met Black at an annual Bilderberg Conference, where members of the international business and foreign policy elite meet to network and discuss issues.
Friends Helping Friends
Through serving together at Hollinger, Perle became friends with Leonard P. Shaykinwho recruited Perle to serve on the board of a biotech company he headed, NaPro BioTherapeutics Inc., now known as Tapestry Pharmaceuticals Inc. As chairman of that firm's compensation committee, Perle now oversees Shaykin's pay. "Personally, I consider him a friend," Shaykin said in an interview. "I gained a great respect for both his judgment and his negotiating capabilities, which are legendary," he said. "I can tell you Richard hasn't rubber-stamped anything on my board."
Perle has served on the boards of two Washington area technology companies headed by Ken Bajaj, including a stint on an audit committee that did not meet one year. Bajaj has served on an advisory board of a venture capital firm that Perle co-founded.
Familiarity is the norm when boards recruit directors, and it can be a good thing if "you have learned that this director was an aggressive, careful, monitoring director who asked probing questions on some other board and you want him to do the same on your board," said John C. Coffee Jr., a professor at Columbia Law School. But familiarity can be bad if it involves mutual back-scratching or if the director in question "is simply never going to find fault with someone who is one of his close friends," Coffee said.
"It is an all too common practice to find the same directors popping up on boards with each other over and over again," said Gregory P. Taxin, chief executive of Glass, Lewis & Co., which advises institutional shareholders on how to vote in board elections. "The world of directors is a very incestuous one."
"If you are good friends with other people on the board and you all go to board meetings together, it's far less likely that you will start an acrimonious and strong debate in the boardroom about issues large or small," Taxin said.
Perle said Taxin's concerns do not apply to the boards on which he has served. "I have never hesitated to debate" when it was warranted, he said. "I don't think that people would say I am a wallflower."
On the board of Hollinger, which publishes the Chicago Sun-Times and London's Daily Telegraph, among other newspapers, Perle joined a gathering of luminaries. Directors have included former secretary of state Henry A. Kissinger, former U.S. ambassador to Russia Robert S. Strauss, former Illinois governor James R. Thompson and former Sotheby's chairman A. Alfred Taubman, who remained on the board after he was convicted of antitrust violations.
For Black, Hollinger supported a lifestyle that included the use of corporate jets to fly to the Tahitian island Bora Bora and shuttle between houses around the world, the Hollinger lawsuit said. Black billed Hollinger for household staff such as chefs, butlers, chauffeurs, footmen and security personnel, the lawsuit said. Through an unusual system of annual management fees to a company owned by Black and Radler, Hollinger paid its top executives five to six times what competing companies paid for similar services, the suit said.
Black resigned as Hollinger chief executive in November and was removed as chairman in January. His holding company said in a recent statement that Hollinger's board members "were all extremely sophisticated professionals" and that the "vast majority" of matters the firm is challenging "were reviewed and approved by its independent directors." Black has sued several directors, alleging defamation.
During several hours of interviews for this article, Perle declined to answer most questions about Hollinger, citing pending litigation and the advice of counsel. Perle would not describe his relationship with Black, but confirmed that he once flew with Black on a company jet to the Middle East to attend a meeting with the crown prince of Jordan and to visit Perle's friend, Israeli Prime Minister Binyamin Netanyahu, in the mid-1990s.
By 1998 Perle was listed as chairman and chief executive of Hollinger Digital. He was one of three members of Hollinger International's executive committee, with Black and Radler.
As a member of the executive committee, Perle signed "unanimous written consent" forms authorizing management to negotiate terms of certain Hollinger newspaper sales, the documents show. For example, the Sept. 15, 2000, document authorized "the proper officers" of the company -- without naming them -- to "take all such actions" and negotiate "all terms . . . which in their sole judgment are necessary, proper or advisable" to carry out a $90 million transaction. The form expressly authorized the officers to negotiate a "noncompete agreement" without specifying all the details.
That noncompete agreement and others like it became devices for Black and Radler to divert millions of dollars to themselves, Hollinger alleged. Meanwhile, Black and Radler used such deals to acquire Hollinger newspapers at cut-rate prices, Hollinger alleged.
Perle was paid about $300,000 a year as head of Hollinger Digital, according to a Delaware suit by Hollinger shareholder Cardinal Value Equity Partners LP. That pay was in addition to his $3.1 million in bonuses, said a Hollinger source who would not agree to be identified because lawyers told company insiders not to speak to the press.
Hollinger Digital's "upside only" bonus arrangement was "virtually unheard of," the complaint said. The company paid $15.5 million in such bonuses, though the subsidiary's investments lost more than $65 million overall, it said. Perle said that, on balance, the investments for which he was responsible for were profitable. He said he urged the board to create Hollinger Digital because he envisioned the Internet transforming the newspaper business.
The Hollinger executive committee also approved the company's January 2001 $8 million purchase of papers of Franklin Delano Roosevelt so Black would have "exclusive and private access" to them while writing a book about FDR, the Cardinal lawsuit alleged. The Hollinger lawsuit put the price closer to $9 million and said most of the documents were stored in Black's homes. A spokesman for Black, James Badenhausen, said Black believed the papers were an attractive investment, and added that the contents of the papers were widely available to the public.
After Hollinger Digital invested money with New York financier Gerald Paul Hillman, Perle pursued a more entrepreneurial opportunity. He joined Hillman in setting up their own venture capital investment fund. Soon after the Sept. 11, 2001, terrorist attacks , they formed Trireme Partners L.P., which stated that its focus was investing in technologies for homeland security. And the way they solicited capital for the fund would draw scrutiny.
Hillman also joined the Defense Policy Board after Perle recommended him to Rumsfeld, Perle said. The board's charter said its membership "will consist primarily of private sector individuals with distinguished backgrounds in national security affairs." Perle said he recommended Hillman because he was a brilliant analyst with a business background and "a lot of experience dealing with complex situations."
Trireme solicited Boeing Corp., with Hillman noting in a letter in early 2002 that he and Perle were members of the Defense Policy Board, according to a Boeing spokesman. Boeing committed to invest $20 million with Trireme. Ethics rules prohibit invoking government titles for private gain.
Perle said, "If we had not related that information we would have been withholding information." He added that the status as Pentagon adviser can be a drawback in business because "it means there are . . . things you can't say and can't do."
Last year Hollinger invested $2.5 million in a Trireme entity, the company said in an SEC filing. That was part of a $25 million commitment by Black, Bloomberg News reported in January. "I think that's right," Perle said when asked about the amount.
Black made the commitment to invest Hollinger money in Trireme without the board's approval, the Hollinger source said. When the audit committee learned about those actions last year, it canceled the commitment for the balance, the source said.
And when other directors discovered that Hollinger was paying for Perle's secretary, the company ended the arrangement, the Hollinger source said. Perle said the woman, based at a long-time Hollinger office at his Chevy Chase home, was not his personal secretary, but the sole secretary for Hollinger Digital. He declined to say if she handled all of his professional activities, saying the matter could become a subject of litigation.
Hollinger's complaint "is without merit and will be defended vigorously," said Josh Pekarsky, a spokesman for Radler. The company suit "repeatedly acknowledges that many of the things Mr. Radler is being accused of were presented to the Board, considered by the Board, and approved by the Board, yet it somehow fails to implicate the board in any of the alleged misconduct," he said in a statement.
A special committee at Hollinger is still examining the performance of the board of directors. Perle, who remains a Hollinger director, is no longer at Hollinger Digital or on the executive committee.
The perpetually busy Perle knows there may be more demands on his time.
"I've said to myself more than once and my wife has said even more often than that 'you've really got to scale back.' And then something really interesting comes along and I say yes and sometimes regret having said yes, like anyone else. I've got a piece due on June 1st that I'd forgotten I'd agreed to write. It's a chapter in a book."
He said he will squeeze it in.
Staff researcher Richard Drezen contributed to this report.