Friday, August 17, 2007

Conrad Black Deserved to Fall

A Greek Tragedy Based on Arrogance

by StFerdIII

Media baron and British Lord, Conrad Black deserved his judgement. Capitalism in any variety can only succeed when shareholder interests are protected and due processes are followed. This is especially true of public companies. Black’s looting of his media empire was corporate theft on a massive scale. Irregardless of legal technicality, Black defrauded shareholders, was too arrogant to exit gracefully in 2003; and only confirmed what ancient Greeks rote about – excessive pride leads to a fall.

The best analysis of Black’s rise and crash comes from the Globe and Mail. The Globe makes three points which underline Black’s guilt. First, white – collar crime is often complex and arcane – but nonetheless malevolent. Second, the U.S. legal system moves far more rapidly to prosecute executives than Canadian or European systems. Third, like Martha Stewart Black was too arrogant to accept a 2003 deal and walk away from his business – still rich and untainted. In the end black destroyed himself.

Mark Steyn and Black apologists seem to think that a public firm is nothing more than a personal vessel for management self – aggrandizement. This is the anti – thesis of how capital markets and corporations need to function. Over 10 years, Black and his cronies stole about $21 – 60 Million. U.S. prosecutors were correct in linking the ‘rape’ of Black’s public publishing empire, to a decline in stock price and company value.

This is the root and core of Black’s guilt. Donald Trump smartly suggested that Black should have kept Hollinger private. Once you are a manager of public corporation different rules and conditions constrain management actions. Black knew this. But given his over – sized ego, Black decided that security regulations and quaint ideas about protecting shareholder value did not apply to his robed lord – ship.

Black’s saga of corporate theft began in 2001, when he was accused of theft by activist shareholders and some board members. His Black – Ship was offered a face saving deal to walk away in 2002 and 2003 – which he at first (apparently) accepted, and then reneged on. Shareholders had no choice but to prosecute Black for executive criminal behavior.

Black’s criminality and wanton expropriation of Hollinger’s wealth obviously affected the value of the firm; its stock price; and its ability to execute strategies to create shareholder wealth. Shareholder’s afflicted with a flat or declining stock price, have every right to demand management changes and the arrestation of ungodly and excessive management compensation. Black enriched himself – with other people’s money – and that behavior cannot be justified. When Black refused to leave in 2003 as part of a management shuffle, the U.S. legal system had every right to ‘prosecute’ and stop the fraudulent practices of Black and Friends.

As Margaret Wente described in the Globe and Mail, Black refuses to admit that eviscerating a public company is immoral; “ Martha Stewart…understands that times have changed, and corporate practices are under a different kind of security now…(the rich are accepted)…so long as they aren’t unduly greedy and don’t cheat…” A little contrition; acceptance of wrong – doing; an ability to understand that post – world com and Enron, business has changed; all of these would have prevented Black from exchanging pin – stripes for a jump suit. But perspective is not a strength Black possesses.

A manager with shareholder interests as his first concern would not have behaved like his Black – Ship. Non – compete clauses with himself; pay – offs form the same to friends and advisors; extraordinary ‘bonus’ payments for a languishing stock price; the buying of mansions and toys with company capital; and the paucity of returns in any form to shareholders, is Black’s corporate legally. Complex schemes of fraud supported Black’s lordly life – style. Black’s activities were criminal, immoral and ultimately wasteful.

Black’s conviction is a positive for markets and capitalism. Custodians of public firms and shareholder capital have to be held to higher expectations and tougher regulations. Otherwise the system breaks down. Market capitalism is concerned with market creation; dynamism; returns, and innovation. It is not tolerant of greed, waste and excessive posturing. As a historian Black should have known this.

Perhaps instead of wasting his time devising complex schemes of corruption; and writing bricks defending the failed welfare policies of F.D.R; Black could have devoted his considerable talent and intelligence to improving shareholder value. If he had expended his resources in developing his firm’s value he would be richer; free and respected. But he chose to do the opposite. Mr. Black is a modern version of an ancient Greek tragedy. A Daedulus who flew too close to the sun. It is a grand pity. Such a waste.