Joke of the day: Times Co... said it created the structure to keep its flagship Times newspaper "entirely fearless, free of ulterior influence, and unselfishly devoted to the public welfare." BWAHAHAHA!
Major shareholder challenges Times corporate structure
Controlling share of Sulzberger family under fire
By Robert Gavin, Globe Staff | November 5, 2006
A major shareholder of The New York Times Co. has stepped up efforts to weaken the control of the company by the Sulzberger family, arguing that the corporate structure doesn't fairly represent the interests of other investors.
Such family control is common at several other major media companies and was established in part to shield news organizations from financial pressures. But Times Co., which owns The Boston Globe, and its peers are struggling because of the Internet. The inability to meet Wall Street expectations has led to several sales and breakups within the industry.
In a report commissioned by Morgan Stanley Investment Management and recently delivered to Times Co. directors, Stephen Davis , a financial columnist and principal of Davis Global Advisors Inc., sharply criticizes the structure that gives control to the Sulzberger family trust. This structure has led to ineffective governance, poor financial performance, and a lack of accountability by Times Co. management, the report said.
"The firm has underperformed in an industry of mounting financial challenges, giving rise to scrutiny as to whether the company is best configured to prosper," the report said. "The New York Times Co. stands increasingly vulnerable to criticism that it has eschewed excellence in favor of antiquated frameworks that retard corporate accountability."
Times Co., however, said its directors are attuned to the interests of all investors and its corporate practices meet or exceed the highest standards. In a letter to the Morgan Stanley fund manager, Hassan Elmasry, Times Co. governance officer Rhonda L. Brauer added that only the trustees of the Sulzberger trust can revamp the structure, and "they have given no indication of any willingness or desire to do so."
The exchange of letters, first reported in yesterday's New York Times, is the latest development in Elmasry's campaign to eliminate the special class of shares that maintain the Sulzberger family's control. It comes at a time when the newspaper industry struggles with shrinking revenues and profits as readership moves online, and faces new competitors, such as Google Inc.
The value of Times Co. stock has fallen by more than half from its 2002 peak, and the company's difficulties have helped lead a local group to consider making a bid to buy the Globe, which has underperformed other units of the Times Co. The group is led by Jack Welch, former General Electric Co. chairman, and Jack Connors, cofounder of the advertising firm Hill Holliday. They couldn't be reached yesterday.
The financial pressures of newspaper companies and the failure to meet Wall Street expectations recently led the now-defunct Knight Ridder Co. to sell itself and Tribune Co. of Chicago to try the same thing. Times Co., however, has been insulated a bit from such pressures because of its system of two classes of shares.
One class of shares, of which the Sulzberger family holds nearly 90 percent, has the power to name 70 percent of the board of directors. The other class is held by other investors, who elect 30 percent of the board.
Times Co., in a Securities and Exchange Commission filing, said it created the structure to keep its flagship Times newspaper "entirely fearless, free of ulterior influence, and unselfishly devoted to the public welfare."
Catherine Mathis, a Times Co. spokeswoman, added that the system was established before the stock began trading publicly in 1969. "We've always made it apparent to investors that we have a dual class structure," she said.
But Elmasry has criticized the dual-class system and said it has largely served to protect top management, including company chairman and Times newspaper publisher Arthur O. Sulzberger Jr., despite the company's recent woeful financial performance. In the election of directors earlier this year, Elmasry withheld the votes of Morgan Stanley, which now holds about 7.6 percent of shares, as a sign of dissatisfaction.
Elmasry and Morgan Stanley officials couldn't be reached yesterday.
Eliminating the dual-class structure won't be easy, since only the Sulzberger family trust can do that. Les Satlow, portfolio manager at Cabot Money Management in Salem, said Elmasry and other dissidents could pressure the family to make the change by waging a proxy fight to place hostile directors in the board minority, or rally support of shareholders through resolutions endorsing the change.
"It could become a major distraction for the company, particularly at a time when it needs to have laser-focus on its business," Satlow said.
Stephen Burgard, director of the Northeastern University School of Journalism, said the brewing battle is another example of "a fundamental conflict between expectations of shareholders and news values that drive quality journalism."
That conflict, in remission during flush times, is intensifying in face of the uncertain times for the industry.
"Even experts are unsure how to come up with an economic model that makes things work," Burgard said. "We're not really sure where the bottom is on this, and that's making investors nervous."
Robert Gavin can be reached at rgavin@globe.com. Steve Bailey of the Globe staff contributed to this report. |
