Conrad Black

by A Matter of Principle

  There would be some difficulty completing the Southeastern deal, because the stock price started to rise. Not the least irony in these matters was that I had cracked the capital strike. The stock moved up to about $13 over the next couple of months, and it became steadily more difficult to consider asking the Hollinger International independent directors to approve a $40 million payoff to Hollinger Inc. for dispensing with the super-voting rights of the B Shares. Our argument was that by giving up the super-voting shares (over the next five years as the agreement was to stipulate), we would increase the value of the single-vote shares. With the price of single shares going up in anticipation that there would be a bid for the company, this argument was harder to sell to the independent directors. Southeastern would vote for it, but a majority was not assured, and we were chasing a moving target on the price.

  As had been predicted by everyone except the Audit Committee members themselves, the notion that they could sustain themselves as the Special Committee soon had to give way to legal advice that this was out of the question. Because everyone else was somehow conflicted out, we were left with a Special Committee of one, Gordon Paris. We recruited two new members for him, Graham Savage, an experienced Canadian financial officer, and Raymond Seitz, former U.S. ambassador in London and chairman of Lehman Brothers International, who I mistakenly thought would be a sensible and fair occupant of that position.

  The day after the shareholders meeting, I called upon Christopher Browne to see whether anything could be done to accelerate the good momentum of the previous day. He was in leisure attire, about to go to the Hamptons for the weekend. Our exchange was cordial. He joked that if Donald Trump and Lee Cooperman were the people I saw in Palm Beach, he didn’t know why I went there. (Donald and Melania had attended the meeting, and Donald graciously commended management. He would remain a faithful friend through all that was to come.) I replied that I had seen some lounge lizards in the Hamptons who made even Cooperman seem couth, suave, and self-effacing. He conceded the point. It would be downhill after this. We would never speak again.

  For the briefest period, all seemed to be calm. The Audit Committee was now composed, apart from Jim Thompson and Richard Burt, of company director Marie-Josée Kravis, the glamorous and clever wife of leveraged buyout king Henry Kravis, and Gordon Paris.

  While their forlorn efforts to reconstitute themselves as the Special Committee were under discussion, Burt prevailed upon the others to agree to the appointment of Richard Breeden, former chairman of the U.S. Securities and Exchange Commission and the special monitor in the spectacular WorldCom-MCI reorganization, as counsel to the Special Committee. Breeden was emerging as America’s Mr. Corporate Governance. The enabling by-laws of the Special Committee gave it practically unlimited powers of inquiry and insistence on process and procedure, and the committee counsel had an almost unlimited ability and mandate to direct the committee, advise, and require best practice, and bring anything he wished to the attention of the Securities and Exchange Commission (which, again, Breeden had chaired, and clearly could influence, no matter how unaffectionately almost everyone at the SEC volunteered their recollection of him to be). This was enough to drive Marie-Josée off the board. She had already told Barbara, on the day of the annual meeting, that the “appointment of a special committee is the end.” She warned me that Breeden “will stay forever, tear the company apart, and cost a fortune.”

  She told me in late September 2003 that she was retiring because she might find herself in a conflict due to her husband’s far-flung activities (Kohlberg Kravis Roberts). It was obvious that this was not the real reason. It was a grievous loss; she was the most commercially intelligent of the outside directors. Her departure incited in me a profound unease about the impending course of events.

  Marie-Josée had a reputation for being among the first off the ship when corporate waters became rough. I was not so much interested in dissuading her as I was in finding out what was afoot. She had warned me about Breeden, but she must have been hearing murmurs of substantial problems to make such a hasty exit on such a slim pretext. She could not have been more agreeable on the telephone, combining her withdrawal with an invitation to dinner. But my attempt to probe her real motives was unsettlingly unsuccessful. She told Henry Kissinger, I subsequently learned, that Breeden was “out to destroy” me. I would have enjoyed a little advance notice of this myself. Instead, there was an ominous silence as the undeclared enemy approached. But for the fact that Marie-Josée was such an elegant woman, images of rodents descending the hawser would have commended themselves.

  In June, Breeden had attended a directors meeting conducted by telephone. He had said that we should be prepared to hand over our emails and that he hoped to finish by Christmas. As early as August, it was clear that my authority as chairman was shrinking. Prior to the filing of the quarterly statement, there was a demand that my proposed wording of a paragraph describing the state of discussions with Southeastern Asset Manage ment be checked with executives of that company. I offered the Audit Committee’s lawyer my emails with Mason Hawkins of Southeastern that confirmed the contents of the paragraph. This wasn’t adequate, however, and he insisted on calling Hawkins himself, who confirmed the accuracy of my summary.

  Breeden’s agents arrived unannounced in our office in Toronto, demanding the right to take everything off my computer’s hard drive. They were sent packing, and it was eventually agreed that a lawyer from each side would go through all ten thousand of my emails and if there was any disagreement over what was relevant this would be referred to Ray Seitz and me to settle.

  AS THIS CRISIS RUSHED TOWARD ME, I was just finishing the most ambitious intellectual undertaking of my life, a comprehensive biography of Franklin Delano Roosevelt. My friend George (Lord) Weidenfeld, the remarkable and inexhaustible Viennese-British publisher, had invited me to contribute a brief biography of Roosevelt to the series he conceived on a great range of famous people. It was not to exceed forty thousand words. Roosevelt had fascinated me since I was very young and looking at picturebooks of the Second World War a few years after its end. Like his contemporaries, I was struck by the panache and natural charm and flamboyance of his appearance and demeanour, the aristocratic timbre of his voice and inflection, his unequalled political success, and his triumph over a merciless infirmity. This triumph was not only over polio’s physical consequences, but also over any public awareness of the extent of its effect on him and, posthumously, over polio itself, as Roosevelt’s March of Dimes and Warm Springs Institute financed the discovery of the Salk vaccine.

  By the end of 2000, the project welled up within, and I knew that writing must begin. Words surged out of my thoughts and fingertips, and I began to pour forth on my computer a mighty torrent of what topped out as a draft of 650,000 words in fifty-three weeks. I wrote the first three paragraphs of the book on New Year’s Eve 2000, before the arrival of our New Year’s celebrants. I had promised my brother, Monte, when he found out he was terminally ill that I would dedicate the book to him. I was able to tell him that I had finished all but the editing a few days before he died, January 10, 2002. They were among the last intelligible words we exchanged.

  MY BROTHER, MONTE, WAS SIXTY-ONE when he died. This was really slamming the nursery door. Our parents had died only ten days apart in 1976 and were buried from the same church as my brother and, in my father’s case, with the same clergyman presiding. His first wife had predeceased him by two days, two doors down in the same hospital. Their funerals were on consecutive days. Standing next to the family graveyard on a wretched day of bone-chilling wind and rain, I watched my brother’s coffin lowered, leaving me the sole member of our original family alive. I concluded my eulogy at his very heavily attended funeral with a citation from Housman’s “To an Athlete Dying Young” and with the heartfelt comment: “It was, and will always remain, an honour to be his brother.”

  Cardinal Carter’s passing in 2003 was another terrible loss, though at the age o
f ninety-one, he could not be described as dying prematurely. He was an irreplaceable source of wise counsel. At my last meeting with him in hospital a couple of weeks before he died, he greeted me with the words “You lost your brother and you are about to lose another brother.” We conversed easily for half an hour, as we had more than a thousand times before over the last twenty-five years. He was, as always, well-informed, and we ranged over many subjects, from Iraq to our company. (He had become a director of Argus Corporation when he retired as archbishop of Toronto and remained so to the end of his life.)

  Finally, there came the moment I had dreaded for years, but which I could not dodge or defer, to say goodbye. I managed the hope that I could call on him again when next in Toronto, as I always did. I asked him the state of his morale. “Excellent,” he said. He felt no fear and had no significant regrets, was thankful for the great life he had had, but was already somewhat detached from it. I asked if he was curious about what lay before him. “Yes, I am very curious. Given my occupation, it would be astonishing if it were otherwise.”

  Emmett, Cardinal Carter was my friend and guide, the one man I could turn to in the darkest hour and who lightened my burdens through his friendship and our shared faith. He must have had faults, but I never detected any. He was a great man, yet the salt of the earth. He said so much to me that was so sensible and intelligent, a good deal of it personal and uniquely insightful about himself and about me, that the benefit of our friendship is imperishable. Even in the gloomy times in which I now write, he is a guide and an inspiration.

  THOUGH I HAD SOMETIMES suffered business disappointments and personal setbacks, including the premature death of my immediate family, I felt that my life until now had been on an upward trajectory. I had no experience of real misfortune. In almost every way, I was completely unprepared for the impending challenge. What sustained me were my faith and my marriage.

  My faith had been arrived at after a journey of extensive consideration and reading over many years, and comprehensive discussions with my friends Cardinal Léger and Cardinal Carter. I have described this process at some length elsewhere. For my purposes here, it is enough to say that I concluded that spiritual forces do exist, that Christ was spiritually inspired, a divine, that he had told St. Peter to found a church, that as miracles do sometimes occur, any miracle could occur, and that for all its failings, the continuation of what Christ told St. Peter to build is the Roman Catholic Church. Therefore, if one wished to communicate with the spiritual forces of the cosmos, the most legitimate, the surest way, though not a sure way and not the only way, was within the Roman Catholic Church. I gradually lost my former faith in the non-existence of God, and it became, both intellectually and psychologically, less difficult to believe than not.

  I am not a pious or fervent person. My faith inspires me when I most need inspiration and consoles me when I am most in need of reassurance that my life has a value and a meaning, especially when public comment and even harsh introspection lead me to consider the opposite conclusion.

  But the strongest fortification I have, one that has been helpful beyond estimation in the recent crisis, is my marriage. No man could ask for a braver and more supportive spouse than Barbara. The crisis in my career culminated in her unimaginably unjust firing as a Telegraph columnist and widespread denigration in the competing British media, and in some places in Canada. But her loyalty did not waver. I have seen a few relationships in which the partners are romantically faithful, best friends, intellectual soul-mates, co-workers, and virtually therapists to each other, but none so completely successful as my present marriage. When I was temporarily defeated by my enemies, Barbara was widely assumed to be looking for her fifth husband. I would not have blamed her if she had, and I told her so. This was never a prospect.

  To be oppressed by the militant charlatans of corporate governance and to be victimized by the misguided justice systems of two of the world’s most advanced countries is something of an honour. But to have this fate shared voluntarily and philosophically, even proudly, by an inspiring wife, is as great an honour as a man can have in the adversity of his personal life.

  * Again, the swap was a borrowing from four banks (Bank of America, Bank One, Bank of Nova Scotia [BNS], and Toronto Dominion Bank [TD]), into whose hands we had consigned shares that resulted from the exercise of warrants we had bought for nothing just as they expired, applying the proceeds of the exercise price to cancellation of other shares at lower prices. The stock dividend largely covered the interest on the borrowing that constituted the other side of the swap (it was a swap between a holding of shares and a cash borrowing, unwindable by either party with the carrying imbalance to the account of our company). A decline in the market price, produced in this instance by the antics of Jereski and the other choristers agitating for the break-up and sale of the company, could produce a disorderly sale of shares and heavy cash-calls on the company if the shares were sold at a large discount to their original collateral value. We did well to eliminate the shares at a good price, paying off the four-bank group with some of the Wachovia loan proceeds. We had again outwitted Browne, Cooperman, et al.

  [CHAPTER FOUR]

  I SPENT MUCH OF THE SUMMER of 2003, the last that would have any semblance of normalcy for a long time, visiting private equity firms and seeking financing to buy out the public shareholders of our companies. Almost everyone (Madison Dearborn, Quadrangle, Warburg Pincus, and four or five others) expressed enthusiasm at first but flaked off later. There was an eerie similarity to the sequence: first, confident assurances that the hostile climate was no obstacle to a private firm, followed by apparently successful due diligence procedures and negotiations. Then silence. I would telephone, once, twice, only to be put off and finally to have someone tell me – regretfully or distantly – that unfortunately it couldn’t be done. Steve Schwartzman of Blackstone told me that he would like to buy, but he had to await the Special Committee process. Finally, Bain & Company of Boston were positive, and we negotiated an acceptable term sheet that would privatize both Hollinger companies and leave us as equal shareholders and managing partners.

  As summer gave way to autumn I was still hopeful, despite the storm signals, that if the Special Committee did not find any technical problems with the company’s accounts – and Peter Atkinson, Jack Boultbee, Mark Kipnis, the Audit Committee, and the auditors repeatedly assured me that all was in order – then we could see off the corporate governance zealots. The only complaint of Browne and the others was that we had been too generously compensated. They glossed over the accretion in the company’s value, claiming that the self-indulgent mores of the management, with the supine acquiescence of the directors, had disguised underlying value. This was nonsense, as subsequent events were to prove.

  If the independent directors held firm and the Special Committee found nothing to stampede the independent directors away from the management, we could weather the tempest Jereski, Browne, and a few others had created.

  The insistence of the Audit Committee in August on checking my wording of the 10Q quarterly statement about the status of our negotiations with Southeastern illustrated the extent to which my authority as chairman had diminished. Next the Audit Committee simply refused to honour a demand note due to Hollinger Inc. when payment was demanded. The note was connected to a lingering obligation to CanWest that Hollinger Inc. would assume. Normally, there would be no balkiness at any of this, but normalcy was already fleeing.

  I toiled in the footnotes and corrections to my Roosevelt book and then went to London for a couple of weeks. Shortly after I returned to New York in late October, Bain & Company abruptly pulled out right at the point of closing. I was informed by several sources that the Special Committee staff were warning off potential investors. The hostile press, especially News Corporation, and the officious Special Committee investigators were all closing in on our point of maximum vulnerability. We needed to refinance the Canadian company, and they were making any recapitaliz
ation impossible.

  With the defection of Bain, it was time to bring Bruce Wasserstein and Lazard (the investment bank of which he was chairman) forward. I intensified discussions with possible investors: Teddy Forstman, with whom I had had a connection at Gulfstream, and even Wasserstein himself, in his own private company Wasserco, while he was leading a discussion on behalf of Lazard on the same general subject. I found Wasserstein’s conflict startling, but he was so brazen about it, I assumed that this was how the ethics of the New York financial community had evolved. All my instincts were that we were tumbling toward a very difficult climax, carefully authored by invisible, but not unidentifiable, enemies. I braced myself as best I could for unbidden events.

  These began to reveal themselves on the morning of October 30. I was about to leave the office in New York to promote my book on a local authors television program when a call came in from Jack Boultbee, Fred Creasey (the controller of both Hollingers), and Peter Atkinson. It seemed that two lots of non-competition payments totalling a little more than US$30 million, from the sale of American community newspapers in 2000, had not been formally approved by the Hollinger International Audit Committee. My heart sank. Our enemies not only had a smoking gun, but all but one of its chambers were still loaded, and we had conveniently handed it to them pre-targeted to our foreheads. How could this have happened? As usual when disaster due to human error occurs, the humans who committed the error had no recollection of it.

  David Radler had bought, managed, and sold these newspapers. He had performed every one of these phases very capably and generated a huge capital gain for the company. He knew nothing of any of it and immediately began the kind of fingerpointing that is the joy and staple of the life of prosecutors looking for cooperating witnesses. He said Mark Kipnis had told him he had Audit Committee approval. Then he said that Jack Boultbee must have made the arrangements, because only Boultbee knew the tax and other complexities involved. Kipnis acknowledged that Radler must have thought that he had Audit Committee approval but said that he had never been asked to obtain it and apparently, therefore, had not. (It wasn’t up to the company secretary to request approval from the Audit Committee for $30 million of payments.) Boultbee said he had never had anything to do with any part of these transactions. They were entirely Radler’s doing; he knew nothing. Peter Atkinson was paid the formidable sum of $1.2 million per year to ensure that all legal matters were handled properly. He had been told, as I had, back in 2000 by Radler, that these were non-competition payments that had been approved by the Audit Committee. Kipnis had assured Atkinson that they were in order.