War at the Wall Street Journal

by Sarah Ellison

  Kann's first wife died in July 1983. House and her first husband were divorced in August. Word of their relationship officially emerged when Kann joined House, then the Journal's assistant foreign editor, on a trip to the Middle East in 1984, where she was following Jordan's King Hussein. She had just filed a series of stories on him to Page One and called then–Page One editor Glynn Mapes to complain about his editing. The conversation became heated, and soon House and Mapes were shouting at each other.

  "Your stuff reads like a book jacket," Mapes yelled as his editors listened, engrossed. (The lead-in to her first piece was a series of quotes strung together without transition.) And then, after a pause, "Oh, hi, Peter," Mapes said.

  Always the conciliator, Kann had picked up the phone. He told Mapes, "You two should cool on this for a while and you can get back together when tempers have mellowed." The series ran days later on the front page of the paper as the gossip surged.

  Thanks to the call, what had been insider knowledge among those in New York quickly spread through the newsroom and out to the bureaus. Kann and House married shortly after she won the Pulitzer for her series in the spring of 1984. That same year, House became the Journal's foreign editor. But by the time Kann was named publisher in 1989, House's temper and forthrightness had created enemies throughout Dow Jones's empire. Kann's promotion to CEO of Dow Jones in 1991 left many House haters cringing.

  As Kann and House soared, the company declined. While competitors such as Bloomberg, Reuters, and Time Inc. kept growing, Dow Jones struggled to expand beyond its core businesses, the Journal and Dow Jones Newswires. A piecemeal purchase of financial data provider Telerate—totaling $1.6 billion—was beginning to fall apart. That same year, just after Kann took the helm, Dow Jones bungled an opportunity to acquire Financial News Network, a business cable channel later picked up by General Electric Company and merged with its existing business channel, CNBC.

  Gun-shy from such failures, Dow Jones's management and board of directors became increasingly risk averse. As the company's profits diminished, an increasing proportion of them went to dividend payments largely destined for the Bancrofts.

  2. Cousins

  FISSURES IN THE Bancrofts' normally united front of the Dow Jones family may have first appeared after Jessie Bancroft Cox dropped dead at the '21' Club in 1982. But the world had no notion of the rifts until another of the family's grandes dames met her demise. When Elisabeth Goth's mother—Bettina Bancroft—died of cancer in 1996, Elisabeth (an only child after the tragic death of her younger brother, Michael) became the woman to please. Thanks to the structure of the family's trusts, the thirty-two-year-old heiress was the only member of the family who received the trust's income and, because she had no children, remained a beneficiary.

  Elisabeth grew up in the most removed of the Bancrofts' three branches. Of Clarence Barron's three grandchildren, Jessie Cox's restive contingent spent summers at her lush Cohasset estate; Jane Cook's children and grandchildren also gathered in New England. But Hugh Bancroft Jr.'s descendants—among them Bettina Bancroft and her daughter, Elisabeth—traded the East for more pioneering locales out West. Adding to their isolation, Hugh Jr. had divorced Bettina's mother, then remarried and had three more children. Bettina became a stepchild in her own family.

  Elisabeth's parents—Bettina and her first husband, Michael Goth Sr.—married young and wandered free. "We moved constantly," Elisabeth later remembered. By the time she was ten, she had been uprooted eight times, moving between bucolic Dutchess County in New York State to Corona del Mar, California; Greenwich, Connecticut; Riverside, California; Palm Beach, Florida; Amherst, Massachusetts; and finally Los Angeles, where the family settled. All the while, her young parents fought and occasionally lived apart. At one point, Bettina moved back to California to finish her studies; Michael moved away to race cars in England. As a result, Elisabeth and her brother shuttled between coasts to follow their parents and kept up as best they could with the fast pace. As a child, Elisabeth developed a love for horses, where she found a welcome consistency in her otherwise tumultuous world. "The whole environment that my brother and I grew up in wasn't really like, oh, happy family time."

  Before L.A., the only sign of her family's wealth and power was that she lived in the biggest house on the block—Elisabeth didn't know her family owned the most powerful business paper in the country. But by the time she was an adolescent and spending much of her time in Bel Air, she was surrounded by the likes of Billy Wilder, Merv Griffin, and the Disney family. When Mel Brooks and Anne Bancroft were playing tennis in her friend's backyard, Elisabeth realized that the Goth residence wasn't any ordinary household.

  Soon after the move to Los Angeles, following near-constant arguments and occasional infidelities, Elisabeth's parents divorced. Elisabeth, who was beautiful and blond, with tightly drawn features and quick, almost birdlike movements, started drinking and smoking pot. She was drawn in by the glamour that surrounded her. It was around this time that her mother told her of the family connection to Dow Jones. She occasionally joined Bettina for pilgrimages to New York and the Carlyle Hotel for meetings at the '21' Club, where Jessie Cox presided on the eve of the company's annual meeting each spring. It was the first time Elisabeth had met many of her cousins.

  Elisabeth started experimenting with cocaine and heroin as a teenager, and her habit put her in and out of rehabilitation clinics, a source of great pain for her mother, who couldn't quite manage to get her daughter under control. (A friend of her mother's lived with the family in Hollywood for a time and provided Elisabeth with cocaine, which she sometimes sold.) When Elisabeth was twenty-one and relapsing from yet another attempt to get sober, she called both her father and her mother, who were by then long divorced, and begged them to pick her up from the Pasadena psych ward where she was being held after her latest exploit. Convinced, rightly, that she was not mentally ill but an addict, she wanted the right kind of help. But she couldn't avoid a bit of drama. Elisabeth's mother had been dating a good-looking art collector named Andrew Klink. The relationship was serious, and Bettina had hinted at marriage. But Elisabeth saw a problem: Klink's bisexuality.

  Bettina willingly overlooked this trait in Klink, but it troubled Elisabeth. And in the car that day on the way to the clinic, she took a stand. She blurted out to her mother that Klink was gay. Her mother flew into a rage. But her protest had little effect; Bettina and Klink were married the following year.

  Klink returned Elisabeth's ill will. He remembers her in the least flattering terms. "Heroin, coke, speedballs—she was fucked up all the time," he recalls. "I had to go to the hospital to pick her up after an overdose one night. I got a call from one of her girlfriends saying they thought her heart had stopped.

  "She was a problem child from day one—she's a bitch on wheels; spoiled, bright, self-centered, beautiful, but so conniving. She played her mother for everything she had."

  At home, Bettina and Klink led typical Hollywood lives: their parties were lavish, they graced only the finest restaurants, and wherever they went, Bettina's fortune guaranteed fawning and the best table in the house. Bettina was a champion rider and "looked like $35 million when she was dressed up," Klink remembers, recalling a particular dress of ostrich plumes. The couple attended cattle barons' balls in Texas for the local ranchers and landowners. In the south of France, they went to parties with Bettina's half brothers, Christopher and Hugh Bancroft III, known as "Wink," who split his time between Switzerland and Monaco with his first wife, a Dutch-Brazilian model, working on a prototype for a racecar. Elisabeth saw the darker side of her mother and Klink's life together: "I knew she was unhappy with him. I have all her diaries."

  The Bancrofts' ownership in Dow Jones was funneled through an overlapping web of trusts. Many of the trusts were generation-skipping, which meant that the trustees (Bettina's generation) received income from the shares in the trusts, typically through Dow Jones's quarterly dividends, and their offspring (Elisabeth) were the b
eneficiaries, dependent on the value of Dow Jones's stock. With Bettina's death, Elisabeth had become, for the purposes of family wealth, a member of two successive Bancroft generations. She inherited most of the roughly seven hundred thousand shares her mother owned in Dow Jones—worth about $23 million at the time. But most of her fortune and influence stemmed from her position as one of four beneficiaries of the family's largest trust—Article III, worth about $350 million. The problem with that wealth was that it was invested in Dow Jones, and the proceeds wouldn't be distributed to the beneficiaries of the trust until the last member of Bettina's generation died. With some in their fifties, they had a long way to go. Elisabeth met with family friend and financial adviser Brian McNally, who painted her a grim picture of the company and its prospects. Thanks to the performance of the Telerate business, Dow Jones had become the worst-performing stock in the S&P 500 publishing index the year of Bettina's death.

  Elisabeth, less sentimental than her forebears, faced a choice about how to deal with the legacy—and fortune—she had inherited. Would she continue to politely ignore the performance of her family's company? Or would she, in an unprecedented manner, challenge the status quo that her mother had accepted? Even though she knew about the company's lagging performance, when she looked at the effect of it on her inheritance, she was shocked. Dow Jones was in a deep slide and her fortune was in peril. Her horses, the leisurely life in California, all of a sudden seemed more precarious. Since her mother's death, she had battled for what was rightfully hers. She fought Klink over Bettina's will. (A particularly memorable battle broke out over who would walk away with the Hermès beach towels. Klink, desperate for money, held a garage sale at Bettina's home.) Then she took on the family's lawyers, who had been omnipresent since the funeral. Accustomed to acquiescence, the attorneys seemed to be attempting to use her lack of experience to exert even more control over how she dealt with her Dow Jones stock.

  Roy Hammer had been the Bancrofts' most powerful representative at Hemenway & Barnes since he took over the lead trustee role for the family in the 1970s, a quarter of a century before Bettina's death. Tall and slim, with expressive white eyebrows, Hammer was careful with his words—the pauses between his sentences could seem interminable. He guarded the relationship with the family fiercely in his laconic, high-handed way. Years before, Hammer had feuded with the elder Bancrofts—Jessie Cox and Jane Cook, "the old ladies," as they were known at Dow Jones—after he sold shares in the company in the 1980s. It was an act of disloyalty they wouldn't abide. The relationship healed, but the younger Bancrofts often felt dismissed by him.

  "Roy Hammer was like the don and all the rest were really the henchmen that were sort of carrying out his orders," complained Elisabeth's third cousin Billy Cox III, who, when he wasn't voicing displeasure with Hemenway & Barnes, was often heard deriding the company's management—Peter Kann in particular—and his father's loyalty to both. By the time Elisabeth's mother died, he was itching for a fight.

  Hammer and his younger partners, Michael Puzo and Michael Elefante, knew of Elisabeth's reputation within the family: she was a dilettante, and then there were the well-known drug problems. (Hammer had personally helped her out of a few jams.) She wasn't what anyone in Boston envisioned as the most reliable of stewards. Elisabeth, who detected their unarticulated disapproval, put her foot down. She was sick of Hemenway's attitude. She saw them in cahoots with Peter Kann in diminishing her fortune through neglect.

  Billy Cox III was one of the few family members ever to have actually worked for the company, most recently as managing director of Dow Jones Global Indexes. He shared Elisabeth's lack of sentimentality, her disdain for the frosty lawyers, and her aversion to losing money. He was more than willing to help Elisabeth exert her newfound influence. He looked up to his grandmother Jessie Cox, and felt that his father, Bill Cox Jr., who also worked for the company in a middle-management role, hadn't stepped into the role of patriarch that Billy wished for him. Billy had met Elisabeth as a child, on her occasional trips to join his family in Nantucket for summer vacation. The two had always been friendly. Now, with Bettina's death and Elisabeth's new inheritance, he found his opportunity. He approached her at the Hotel Bel-Air reception Elisabeth was hosting after the funeral. He wanted to commiserate over mismanagement at the company.

  Billy, who considered himself more of a businessman than anyone else in his clan, had weeks before been reading through Warren Buffett's 1993 letter to shareholders, when he came upon a paragraph that mentioned Dow Jones. Buffett, the legendarily wise Omaha investor who regularly doled out advice to worthy listeners, had mentioned the firm and its uninvolved owners. Billy was intrigued. He asked a friend if he could help set up a meeting. Then came Bettina's funeral, and Elisabeth. Billy thought his cousin, with her newfound power over the family fortune, might be just the right person to come with him to see Buffett.

  Bancrofts—proper, unemotional, reticent in all ways—rarely discussed money or business. ("My mother would rather discuss pornography," one said.) Amid all the drama of the funeral and the inheritance, Elisabeth wasn't quite prepared for Billy's approach—but she wasn't surprised. She knew him well enough to expect some rabble-rousing from this like-minded soul. When Billy asked the young heiress if she would come to Omaha, Elisabeth looked past her grief and agreed to accompany Billy to the meeting. The times, quite suddenly, were changing.

  The following year provided a whirlwind education for Elisabeth and her cousin in the subtleties of family control. A few weeks after her mother's funeral, Elisabeth was on a plane to meet Buffett. Awed by the prospect of meeting such an esteemed investment mind, Elisabeth dressed up in her favorite white Chloé suit. She prepared herself to hear what kind of advice the mentor to the Washington Post Company's Kay Graham might have. Elisabeth was a newspaper heiress of a new generation and of a different ilk from Mrs. Graham. She didn't want to run the company; she just wanted it to make money for her. With Billy at her side, she approached Buffett's legendarily modest Berkshire Hathaway headquarters and explained their situation to him. They were frustrated with Dow Jones's management and their inability to break through with Hemenway & Barnes. Billy's frustration showed, and he appeared petulant in front of Buffett. Elisabeth, the more savvy and self-aware of the two, made a better impression.

  They thought Dow Jones's management was doing a poor job of running the company, but they couldn't find anyone in a position of power to give them a serious hearing. At the time, Billy's father, William Cox Jr., and Elisabeth's uncle Chris Bancroft, who had taken over Bettina's seat at her request, both served on the board. But even their relatives, or rather, especially their relatives on the board, wouldn't hear of any complaints about the company. Chris Bancroft lived in suburban Dallas with his wife, an accomplished bassoonist and arts philanthropist whom George W. Bush named to the Texas Commission on the Arts while he was governor. Tall and athletic and an avid sportsman, Chris ran a small investment company where he mainly managed his own fortune. He was a disappointment to many in the family, who had expected him to take a more active leadership role, perhaps even as a patriarch. He felt more comfortable on the sidelines. Yes, the performance was disappointing, but the "professionals" were taking care of it. Certainly neither Billy nor Elisabeth had the expertise to judge the company's management, they were told time and again. Elisabeth met Buffett alone several times after that first meeting and spoke with him regularly.

  Buffett told them something different: they had standing at the company, especially Elisabeth in her new role as an income beneficiary of the huge Article III trust. They should use it to prod management, Buffett advised. "Act like owners," he said. He suggested they contact Tom Murphy, who ran Capital Cities/ABC with Buffett as his largest shareholder, to sound him out about taking on a role at Dow Jones.

  Elisabeth went about hiring a team of advisers better equipped to mount a company takeover than to advise a young thirty-two-year-old woman on her inheritance. Her financial adviser
McNally was a friend of Nancy Peretsman of the boutique media investment bank Allen & Company, whose yearly summer Sun Valley conference was a breeding ground for stratospheric media networking that sometimes led to very lucrative deals. (The seeds of Disney's acquisition of Capital Cities/ABC began there when Michael Eisner sat down with Buffett and Murphy and proposed buying the firm.) Elisabeth and Billy went to see Peretsman, who listened carefully to their complaints. She then laid out the dismal prospects of Dow Jones. The stock was trading at around $36 a share in 1996, down from its then high of $56.25 in 1987 (missing one of the great bull markets in history). Profits had been roughly flat for the past ten years, at about $185 million. When Peretsman compared the company to its peers, she offered a stark picture: ten years before, Dow Jones and Reuters had the same market capitalization of $3.5 billion. In 1996, Reuters's market capitalization was more than $20 billion, while Dow Jones's stayed stuck at $3.5 billion. The only number that had continued to rise consistently over the past decade, Peretsman noted, was the amount the company had paid out in dividends, much of which went to the Bancroft family elders. In 1986, dividends totaled $53.6 million and were the primary source of income to the trusts. Ten years later, the number had climbed to more than $90 million, about 50 percent of Dow Jones's net income. To the untrained eye, it looked as if Dow Jones was paying off the Bancroft elders to keep them out of company affairs.

  Nancy Peretsman became Elisabeth's close confidante in the ensuing months. (Stan Shuman, Allen & Company's managing director, was Rupert Murdoch's banker, a connection that was, at the time, unspoken and unnoticed, at least by Elisabeth.) Peretsman introduced Elisabeth to Ira Millstein, the influential corporate governance sage of Weil, Gotshal & Manges, who quickly took on the cousins' case. Elisabeth soon had some of the most powerful names in Corporate America on her side battling the entrenched lawyers at Hemenway & Barnes.