What Role did Investors play in Black's Downfall?
Ted Allen has an interesting but flawed story over at Institutional Shareholder Services -- Corporate Governance Blog, Analysis: The Role of Investors in Black's DownfallSubmitted by: Ted Allen, Director of Publications
After the conviction of media tycoon Conrad Black, it is worth recalling that it was investors who first questioned 'non-compete' payments received by Black and other Hollinger International executives. His case can also be seen as a cautionary tale about what can happen to CEOs who fail to respond to shareholder concerns.
On July 13, a federal court jury in Chicago found Black guilty of obstruction of justice and three fraud charges. Prosecutors accused Black and three other officers of using non-compete agreements to illegally pocket millions of dollars from buyers of Hollinger newspapers from 1998 to 2001. Prosecutors claimed the payments were a 'money grab' and said the funds should have gone to Hollinger shareholders.
The former Hollinger CEO and chairman faces up to 20 years when he is sentenced in November, but his lawyers plan to file an appeal. Black, who bought his first newspaper in 1969, rose to become one of Canada's most prominent businessmen and was named a British lord. At its peak, Hollinger was the world's third-largest publisher of English-language newspapers; its holdings included the Chicago Sun-Times, Canada's National Post, and the Jerusalem Post. The company is now known as the Sun-Times Media Group...
'He treated his master company, Hollinger, a publicly-owned business, as if it were a private bauble,' Randall wrote. 'And, perhaps the biggest error of all, he failed to spot a tide of shareholder activism, turning powerfully against tycoons who enriched themselves with other people's resources
(my emphasis)
This story is flawed because it presents Black as someone who simply made an incorrect calculation about the prevailing sentiments.
Black looted a publicly owned company; he didn't make a mistake in rational calculation. He is a noted bully, filing libel suits when he didn't like how the press portrayed his business dealings -when they correctly identified him as a dubious sort.
But Black is just an example of a long line of individuals who may have risen to the top of their corporate ladder because of their ability to both bully and cajole.
Galbraith, and now Taleb, used to warn us about anointing the winners of economic lotteries with wisdom: but fraud criminals demonstrate a more sinister truth, they triumph the social proof about their "business wisdom" with the intent of bankrupting their company, just because they can.
We cannot continue to treat them as individuals who have made flawed rational calculations; they are animals in human form who must be expelled from social society.
