JUST LIKE A ROBBER BARON

Conrad Black shares the style of unbridled American capitalists

Peter C. Newman December 15 2003

JUST LIKE A ROBBER BARON

Conrad Black shares the style of unbridled American capitalists

Peter C. Newman December 15 2003

JUST LIKE A ROBBER BARON

Conrad Black shares the style of unbridled American capitalists

Peter C. Newman

THE NEAR daily avalanche of juicy revelations about Conrad Black’s corporate shenanigans makes it increasingly likely that he will emerge from the many investigations in process as a latter-day Canadian Robber Baron. This is no mean accomplishment.

Unbridled capitalism has produced few more compelling figures than those robber barons, whose origins date back to medieval Europe when feudal noblemen robbed anyone crossing their estates. In modern dress, they emerged as the 19th-century multi-millionaires who dominated the exploitation of oil, steel and banking in the United States. Their poster boys were John D. Rockefeller, Andrew Carnegie, J.R Morgan, and Cornelius

Vanderbilt, who spoke for his peers when he allegedly declared: “What do I care about the law? Ain’t I got the power?” While these tycoons and their circle became extraordinarily wealthy by manipulating the economic system, they were all guilty of various misdemeanours in their climb to glory. Their other trademark was to build themselves castles as houses, such as The Breakers, the 70-room “cottage” erected by the Vanderbilts in Newport, R.I.

None of this means that Conrad Black is guilty of a crime or even criminal intent, but in two ways at least he does share the robber barons’ style. The first is that he has built for himself and his wife, Barbara Amid Black, four palatial homes that equal the conspicuous extravagance of his predecessors’ mansions. Their London 11-bedroom pad, for one, near Kensington Palace, is valued at more than $30 million. At the same time, his behaviour reflects the robber barons’ “public be damned” attitude, the public in this case being his companies’ minority shareholders.

During the past three years (at least that part of it not spent on researching and writing his biography of Franklin D. Roosevelt), Black has benefited significantly from multimillion dollar non-compete payments flowing into his own, as opposed to his company’s, pocket, or into Ravelston Corp. Ltd., the holding company whose stock is two-thirds owned by him. Ravelston was founded in 1969 by a group including mega-investor J.A. “Bud” McDougald, who named it after a Scottish region where his great-grandfather was born in 1814. After McDougald died in 1978, Black parlayed a $7-million inheritance to acquire control of Ravelston which, through Argus Corp., controlled corporate assets worth $4 billion, including

Massey-Ferguson and Dominion Stores. Four years later, in a confidential memo to his Ravelston partners, Black outlined how Ravelston earned its cachet as a corporate controlling device: “For 3 72 years now, we have pursued the policy of maximizing Ravelston’s underlying equity while upgrading

and fine-tuning assets to improve our ultimate return on that equity. This policy led over that time to what was probably the greatest compression of corporate dealing in Canadian history.”

Nothing that has happened since Black’s corporate world fell apart must have hurt him more profoundly than the resignation of Hollinger Inc.’s outside directors who made up its crucial audit committee. They were in-

vestigating the US$32 million non-compete payments that were not authorized or approved by the board of Hollinger International Inc., the operating subsidiary. Eight of Hollinger Inc.’s directors were part of Black’s corporate family, but the audit committee members were billed as “independ-

ent.” In fact, all but one were close personal friends: Doug Bassett toasted his first bride, Shirley Hishon, at their wedding reception, and was a partner in Ravelston, shortly after he acquired it. Of his relationship with Black, Bassett told me at the time: ’’We’re great believers in friendly hands, great believers in working together as a unit. There’s great strength in that.”

Fred Eaton, another director, has known

Black as long and as intimately as Bassett. Eaton was also a Ravelston partner and named Black to his department store’s key operations committee. When Black was plotting his Argus takeover, Eaton told him: “I don’t really understand all this, but you’ve got my vote.”

Allan Gotlieb, Canada’s former ambassador to the U.S., was a more recent recruit to Black’s inner circle, having been appointed a Hollinger director in 1989 after he left diplomatic life. He quickly became one of Black’s most influential legal advisers. Maureen Sabia, the fourth audit committee member who quit, had no known personal links to Black. A corporate governance authority, Sabia had earlier addressed the underlying Hollinger problem. “Selection criteria [for directors] are not about friendship with the CEO,” she once wrote in another context, “but about how the knowledge and experience of a candidate can contribute to the proper functioning of a board.”

The fact that the trio of close friends unanimously recommended Black’s immediate ouster as Hollinger Inc.’s chairman speaks volumes. The move has left Hollinger without an audit committee and gutted its corporate governance committee where two of the three served.

Black’s most dangerous exposure remains the US$32 million he and his senior executives received without the Hollinger board’s approval. The fact that he immediately declared he is willing to pay back his US$7.2million share of the funds is hard to interpret except as a clear admission of impropriety, although Black claims he did nothing wrong. The key verdict will be made by the U.S. Securities and Exchange Commission, which in the past has taken a dim view of such non-authorized payments. It’s a nasty pickle for Black because if Hollinger directors rally round him and say, “Oh, we knew about it, we just didn’t get around to voting it through,” they risk being implicated in a corporate governance crime. Hence, there isn’t much chance of the directors hurrying to be at his side.

It is impossible to guess the final destination of Black’s journey. He has certainly run afoul of the spirit of corporate governance— and gone a long way to earning not only a British lordship but a Robber Baronetcy. ITO

Peter C. Newman appears monthly. pnewman@macleans.ca