BUSINESS

THE INQUISITOR

HOW RICHARD BREEDEN BECAME THE WORLD’S FIRST CORPORATE GOVERNANCE BILLIONAIRE

MARK STEYN March 12 2007
BUSINESS

THE INQUISITOR

HOW RICHARD BREEDEN BECAME THE WORLD’S FIRST CORPORATE GOVERNANCE BILLIONAIRE

MARK STEYN March 12 2007

THE INQUISITOR

BUSINESS

HOW RICHARD BREEDEN BECAME THE WORLD’S FIRST CORPORATE GOVERNANCE BILLIONAIRE • BY MARK STEYN

A few years ago I used to know a fellow who produced all-star charity galas in New York and London for all the usual causes—AIDS, breast cancer, poverty in Africa, and so forth. All very worthy, I’m sure. Yet I used to feel a little queasy in his company: this man spent his working week on nothing but charity shows yet had apparently become a multi-millionaire, with homes around the world, expensive tastes, first class all the way.

I had a similar sensation the other day on discovering—via Books In Canada, of all unlikely places—that Richard C. Breeden, the court-appointed “corporate monitor” at the collapsed WorldCom and an “adviser” to the special committee of Hollinger International, is on course to become the first corporate governance billionaire. This guy has a 52-foot custom-built racing sloop with running costs of 30 grand a month in a class restricted to the likes of King Harald of Norway and King Juan Carlos of Spain. And he earned it through “corporate governance.” Who knew there was so much money in complaining about the excessive salaries of American executives? As Olga and Adrian Stein note dryly in Books In Canada, it is “a remarkable achievement to have turned the knotty subject of ethics... into a financial fortune.”

Mr. Breeden was formerly and famously the chairman of the U.S. Securities and Exchange Commission. Today he presides over the half-billion-dollar corporate governance hedge fund at Breeden Capital Management of Greenwich, Conn., which is registered as an investment adviser to Breeden Partners Ltd. of the Cayman Islands. Breeden Partners has approximately $1 billion in assets. The Cayman Islands is in the British West Indies and thus beyond the jurisdiction of Mr. Breeden’s successor at the SEC.

I hasten to add I have nothing against Richard Breeden. And I certainly have no desire to attract his attention in any way whatsoever. But it is striking that all the phrases that set off alarm bells in relation to Conrad Black— “excessive compensation,” “Cayman Islands,” “lavish personal tastes”—apply to Mr. Breeden

equally and then some. And Mr. Breeden doesn’t create any goods, doesn’t publish any daily newspapers, doesn’t produce anything except internal memos. It’s four years since Hollinger put him on the payroll at 800 bucks an hour. That seems an awful lot to pay for a few sharp lines about Barbara Amiel expensing her tips to the doorman at Bergdorf Goodman. The tip was $20. Mr. Breeden earned that in the first minute-and-a-half of his labours for Hollinger.

WHY ARE THE CANADIANS THE ONLY ONES CHARGED CRIMINALLY?

To take another expense the Blacks ran up, the tab for Barbara’s birthday party at La Grenouille in Manhattan was $42,870. Wow! That’s a lot of money. Well, for most of us. Not Richard Breeden, of course. He earned that back in little more than his first working week at Hollinger. As Steve Maich reported in these pages, in fees to Mr. Breeden and other expenses, the cost of investigating Conrad Black’s management of Hollinger International was up over $136 million—by the middle of last year. By now it’s topped the $200 million the Black team is alleged to have “ransacked” from the company. Or to put it another way: Conrad could throw Barbara a party at La Grenouille every night of the week for 12 years and nine months and it wouldn’t add up to what Hollinger International have spent investigating them. Think of Conrad Black as a psycho teen holding his Grade 10

class hostage in the school gym. Richard Breeden, Patrick Fitzgerald, Judge Strine of Delaware and the rest of the SWAT team storm in, gun down Conrad, plus his hostages, plus grades one through nine, and then pronounce the operation a great success.

And that’s before you factor in the attendant meltdowns at the Toronto end of the business: in response to the post-Black Hollinger (U.S.) suing Hollinger (Canada) for its alleged milking of the company, the postBlack Hollinger (Canada) launched a countersuit against Hollinger (U.S.) seeking compensation for transferring ownership of Britain’s Telegraph and other valuable properties from Hollinger (north) to Hollinger (south) and thus reducing the former to a mere holding company. Which when you think about it has an insane kind of logic,

albeit of the final shootout of a particularly bloody spaghetti western.

So the question before us is a simple one: if Conrad Black is the disease, is “corporate governance” the cure?

The market doesn’t seem to think so: any moment now—perhaps by the time you read this—the “Sun-Times Media Group” (as the rump of Hollinger International has been renamed) will slip below $4 a share—or a quarter of what it was when Conrad was defenestrated in November 2003.

The aggrieved minority shareholders who started this thing don’t think so, either: in its

most recent results, STMG reported a quarterly loss of $34-9 million, and its quarterly dividend of five cents per share has been suspended.

Those journalists laid off by the Telegraph Group in London presumably no longer think so: they have learned, as their colleagues in Canada’s Southam papers did before them, that Black was the most benign of press barons and that it’s the guys who come after who

are the big ruthless cost-cutting downsizers they all mistook Conrad for.

But beyond the losses to investors in two countries and readers on three continents are more basic questions. What has been done to Hollinger International is astonishing, and has very worrying implications for anyone with a public company in the United States: Hollinger International was not an Enron or WorldCom—a failing business of worthless properties fleecing its employees’ retirement plans. The most that can be said against it was that it had a sluggish stock price. Yet, on that basis, courts and regulators have removed a company from its lawful controlling shareholders and delivered it into the hands of a small group of usurpers with no equity in the business, who sidelined the owners and proceeded to gut the enterprise, sell off the assets and even change the corporate name, all the while compensating themselves on as lavish a scale as the allegedly profligate regime the courts and regulators used to justify the usurpation. If this is “corporate governance,” let’s cut to the chase and adopt relatively straightforward Afro-Marxist confiscation.

American financial reporters seem relatively relaxed by all this—Hollinger was always an oddity south of the border, a U.S. company controlled by largely absentee Can-

ucks—but you’d think the touchy nationalist nellies of the CBC, Globe and Mail and other outposts of lame-o maple boosterism might have spotted the most curious feature of the case: the only guys going on trial in Chicago are the Canadians, while the American A-listers who made up the company’s “independent” directors have in effect been given a pass. They were apparently all naive unwitting American dupes who were as putty in the

rapacious hands of the devious Canadians. Of all the many characterizations of Henry Kissinger and Richard Perle proffered over the years, this is surely the most fantastic. Yet it has been endorsed by regulators, judges, prosecutors and the usurper regime, and, if the Wall Street reporters can’t be bothered raising a skeptical eyebrow, you’d think some of the CanCon crowd might.

IF CONRAD BLACK IS THE DISEASE, IS CORPORATE GOVERNANCE THE CURE?

Even if it worked, the hijacking of Hollinger would have been wrong. But it didn’t work. With hindsight, Conrad Black’s sale of the National Post and the other Canadian dailies to Izzy Asper was the last really boffo North American newspaper deal. Nobody’s ever going to unload the flailing Los Angeles Times or Boston Globe half as profitably. It’s a measure of the dull-witted vindictiveness of Black’s destroyers that the Last Great Deal is now cause for interminable investigation. Take the “non-compete fees”—that’s what the Aspers paid to Conrad and others to prevent him launching a rival newspaper in Calgary or Vancouver. Gordon Paris, Black’s successor at Hollinger, feels these fees should have gone to the company rather than to the individuals. But why? Whoever eventually buys the Chicago Sun-Times is never going to pay a non-compete fee to the present owners: there’s nobody on the board who knows a thing about newspapers. Mr. Paris earned a

$9,000-a-day windfall for dismantling Hollinger and running it into the ground, and if he ever wanted to try launching a newspaper in London, Jerusalem or Toronto, the new owners of the former Hollinger titles would be laughing their socks off. In that sense, the new management’s case against the old management is self-refuting.

By this stage, some readers may be scoffing: come off it, Steyn, you’re those lunatics’ big buddy. Not exactly. I wasn’t at that birthday bash at La Gren-

ouille, for example. I would have liked to have been. And, insofar as one can tell, Barbara and Conrad have always found me sparkling and amusing company. But I didn’t make the cut. Why not? Because the room was stuffed with powerful and influential figures from the business world. In the words of one who was there, “It was a classic New York evening: a business event masquerading as a social occasion.” They go on up and down

town every night of the week. In the overheated prose of his report, Mr. Breeden does his best to make the party sound scandalous: why, there were celebrities present! Peter Jennings! And Barbara Walters! And... and... Charlie Rose, the ponderous PBS anchor. Are these really such surprising figures to find at a media company’s dinner? For that party, Hollinger paid 40 grand, Conrad chipped in 20. Isn’t that a reasonable reflection of the event’s corporate-personal ratio?

And, if it isn’t, do you really want to pay Richard Breeden $800 an hour to investigate it? While writing this, for example, I asked my assistant to postpone my hairdressing appointment. Is that a legitimate business use of her corporate time? Well, I’m getting my locks trimmed for a public appearance. My hair will be seen on a TV show. On the other hand, it will also be accompanying me to dinner and thence hanging upside down in my favourite bondage dungeon afterwards. Is the proportion of my hair engaged in business activity enough to justify my asking my assistant to use the corporate telephone to switch the appointment? In any regulated business environment, there is no correct answer to that question, only a judgment. The judgment should maintain a sense of proportion: the 2:1 business:personal ratio at Barbara’s party seems to me proportionate.

By comparison, take one of the minor disputes arising from the Hollinger

implosion: the 2005 case brought in Ontario against Hollinger Inc.’s first slate of squeakyclean post-Black directors by the second slate of squeaky-clean post-Black directors to get the bonuses of the first slate reversed. For attending a few meetings over the course of five months, these chaps paid themselves $600,000 each plus a $600,000 termination bonus—or, in other words, what Tweedy Browne complained Barbara Amiel had earned in five years. That seems a wee bit disproportionate. Even if you concede that every charge against Black is true, it’s also somewhat disproportionate for the company to blow through a $200-million cost to the company of investigating it, for U.S. prosecutors to threaten him with a 95-year jail term, and for pusillanimous Canadian regulators to facilitate the collapse of Canadian companies.

Conrad and Barbara Black are easy targets—an orotund peer of the realm and his sinister Zionist trophy clothes horse. But they were good for readers, good for newspapers, and better for capitalism than a regime of arbitrary regulatory usurpation. What has happened to Hollinger is a disgrace. I hope Conrad Black is acquitted in Chicago. But there is much more at stake here than the fate of one man. M