Conrad Black

by A Matter of Principle

  I spoke to Atkinson, Radler, and Kipnis. Again, Kipnis and Atkinson could give me no legal support at all. They had simply dropped the ball. Radler remembered nothing and blamed the whole situation on everyone else. He made no effort to remain in his position in the company and only regretted leaving “with my tail between my legs.” I suggested that, should he want to refuse, that would be fine with me, as long as he could defend his conduct. I was trying to find some resistance I could embrace and a line of defence we could hold.

  Paris had mentioned that, in his response to the Paris-Thompson letter, Radler’s lawyer had said that the payments to executives had been “initiated” by me. I asked Radler what he meant by this, and he said that this was based on my statement that, since he had done such a fine job selling the community newspapers in question, he should be rewarded for it. He confirmed that I certainly never mentioned anything about non-competition agreements and had a payment from Ravelston in mind (again, our private company). I taped this conversation, but trial counsel later said it would be of no evidentiary use to us. I didn’t really believe that, but I wasn’t able to argue the point. The wording raised a storm signal, however, that Radler’s counsel, a former U.S. attorney in Chicago and a protegé of Thompson, was putting down a marker from which Radler could rat out a plea bargain. For a long time, I considered it unlikely that Radler would plead himself to jail, but I was not under any illusions about his ethics.

  Atkinson had simply capitulated. He meekly accepted any concessions demanded of him. He did not inform me that he had already undercut my bargaining position by replying to Paris and Thompson that he agreed entirely with the tenor of their letter, nor that he had already started to repay his share of the contested non-competition payments. He had been temperamental for some time, and it was obvious that he was not going to have the psychological or moral stamina to be of much use to me in the very difficult times now upon us.

  I finally reached Boultbee. He was made of sterner stuff than the others. He was not prepared to agree to any of it without talking to lawyers. He would be unable to do so, as it turned out, for several days.

  We met again the next morning. McDonough had rendered our agreement to paper, in a bowdlerized deformation. We started again. No, I repeated, they could not dictate to Hollinger Inc. This time Seitz and Burt were on the phone and Savage was present in person. I was now negotiating with seven of them. By the end of the day, we had got pretty well back to where we had been the evening before, and we adjourned. I consulted with my ill-assured colleagues. Atkinson was in favour of total capitulation; Radler was of the same view and was trying to negotiate his share options; Boultbee was almost unreachable but indicated he would not agree to anything. Kipnis threw in the towel. I was still without a lawyer in New York. The only legal counsel I had was Finkelstein telling me from Los Angeles that if I were satisfied that this was a sincere settlement on the part of the other side and not just a sighting shot on an endless demand for concessions, “it could be justified.” On looking back, I think that my naïveté in attending these meetings without aid of thoroughly qualified counsel was a serious mistake. What I negotiated was defensible, but I allowed too many ambiguities to survive in the signed agreement, which a competent counsel would have flagged; it was not until criminal counsel was brought on board a month later that I started to get adequately aggressive advice. By then, some of America’s leading barristers had counselled and seconded moderation. My intuition was to go to war at once, but I would have forfeited all goodwill from the directors from whom I still expected some support, would have been plunged into completely unknown waters, and would have been prosecuted, and probably removed, by the SEC, and I had absolutely no one to help pilot me through this instantly dangerous crisis. Sinister though it all was from the start, it took everyone some time to realize the proportions of Breeden’s assault, since he was now strenuously uttering placatory noises. Even three months later, eminent counsel thought my construction of the Restructuring Agreement was legally unassailable. That being the case, it is not clear that absence of counsel in November made much difference. Why would they have thought otherwise in November, when such counsel as I had did not?

  I believe I could have shaken loose some support from the directors, and weakened Breeden’s hold on them, but he had complete control of the Special Committee, dominated them professionally and suborned them financially, and had thoroughly intimidated the Audit Committee with his threats to accuse them of negligence or involvement with unauthorized payments. Both committees would be taken seriously by the SEC and the courts, as they were until we got to a relatively serious trial.

  The collapse of Radler, Atkinson, and Kipnis meant that at the board table only Barbara, Dan Colson, and up to a point Perle could be counted on. Breeden had what he needed and I don’t think I could have shaken that. Even Boultbee, though a doughty resister, was not interested in collective security. He had a Canadian hedgehog strategy, based on wrongful dismissal by Canadian standards, which he had a right to have applied, and on brokering his unique knowledge of the many tax issues. Going to war, given the cash-flow difficulties I experienced on a more leisurely timetable, would have created intolerable financial strain on my defence strategy, which, by necessity, had to be one of attrition, until the correlation of forces moved into closer balance, a long way back from my opening front lines.

  The facts, only dimly recognizable at first, were that a coup d’etat had been skilfully executed. I had been decisively beaten before it started. (It reminded me of hockey fights I had in primary school. I lost more than I won, but most were determined by a flurry of punches at the beginning. In this case, Breeden had despatched me face down to the ice before I had even gotten my gloves off.) I made the best deal I could with Breeden and his minions. If they had honoured it, I could have stayed as non-executive chairman until it was clear that I had done nothing wrong and that they had no idea how to run the company, and could have reasserted myself. If they didn’t honour it, I would have three options: I could join Radler in his already contemplated course of acknowledging crimes, though I had committed none; I could collapse on all points except admission of crimes, like Atkinson; or I could fight, and never stop fighting, until I won or died.

  Morally, there was only one choice. It would be terribly difficult and would require endurance of many more humiliating defeats until I could start to disassemble the pre-cooked Special Committee case against me, echoed by the media. Perle and Kissinger would waffle for a while until recognition of the balance of power would require, with finite regret, that I be abandoned and betrayed. Breeden had the hammer over Perle of claiming he had been over-compensated and had made self-serving investment recommendations, and indeed, investments (as he had, though I don’t think the company lost thereby, because we only acted on the ones that worked for us). Kissinger just followed the correlation of forces, as he did in all things, great and small. The life I had worked thirty years to build had been taken from me in an irresistible stroke, so swift and overwhelming it was hard to grasp at first.

  All this is to say that if Breeden double-crossed me on the Restructuring Agreement, I would fight to the end, until success or a collapse of my ability to fight on; I have never considered giving up for a second. Nor will I.

  The directors meeting scheduled for the appointment of Lazard occurred Friday morning, November 14. The meeting took place in our Manhattan offices on Fifth Avenue. I took the chair at the head of the boardroom table as if nothing had changed, surrounded by the directors I had appointed, with Breeden halfway down the table, his chair set slightly away from the table as if in a semi-observer position, rather than the man pulling the string. He spent most of the meeting sending and receiving messages, with his chubby thumbs and fingers on a childish-looking yellow plastic messaging device. I had no idea how much the independent directors really knew of the negotiations going on between Breeden’s group and me, but there was no reference to them. We were there to discu
ss the “Strategic Process,” as it was now known, which was essentially how we were going to sell the company – in part or in whole. Bruce Wasserstein and Louis Zachary (whom I had known in the same media mergers and acquisitions role at several previous employers) arrived and gave their statement of what might be attainable, including their preliminary estimate of $18 to $24 for the Hollinger International stock, if the decision was to seek a buyer for the whole company. I correctly judged that this would finally gelignite the stock price upward, though I also (correctly, as it turns out) saw no chance of achieving such a price and said so. Nor did I want to sell the company at all unless a tremendous price could be had. Breeden was throwing in with the Browne faction, but at this point claimed only to be addressing discontent and taking advantage of Wasserstein’s wonder price. At $24, the stock would go at three times its value at the start of the year. At that price, I would have been delighted, and a huge beneficiary of a sale. No one except me was telling the truth, but it wasn’t clear who was lying and who was merely mistaken.

  In response to a question of Barbara’s, Wasserstein acknowledged that Hollinger Inc. had its own requirements and could be seeking recapitalization at the same time that Hollinger International was examining its alternatives. This strengthened my hand in the continuing tug-of-war as Breeden and his fig leaves, Paris and Thompson, tried to ensure that Hollinger Inc. would be paralyzed while Breeden pursued his leisurely and well-paid course. Lazard was engaged. Discussions with the other side had reached the point by this time where Paris and I were envisioned as being the co-directors of the Strategic Process.

  The lawyer David Boies and two of his associates from Boies, Schiller & Flexner arrived for the now almost stale-dated 2 p.m. meeting with me. Breeden and his cohorts, in person and by telephone, continued their sit-in occupation of the boardroom. Boies and Breeden met in the corridor as Breeden was on his way to the washroom. They had known each other at Cravath, Swaine & Moore, a firm Breeden had quit because he was not going to be offered a partnership and Boies had eventually left, as a partner, to found his own firm.

  In a later court judgment, the fact that I had been bushwhacked by events and had no opportunity to get proper counsel in time for these meetings was dismissed in the judgment of Vice Chancellor Leo Strine of the Delaware Chancery Court. He even claimed that I had choreographed Boies’s visit to the washroom so he could encounter Breeden there. I never quite understood why I would do this, but in the event, I had no ambition to control nor, as far as I knew, any influence on the bladders of opposing counsel. Boies told me, as Finkelstein had, that the concessions I was making were generous, but that if this was a comprehensive settlement, it could be justified. I had a feeling that more safeguards should be built into the agreement, but if Boies saw no need, I was satisfied. Barbara, who thought that Boies was not going to be the answer to anything, later said I was in shell-shock. I was stunned, but I was doing the best I could after being ambushed in very unfamiliar territory.

  Atkinson was an excellent lawyer and colleague in relatively serene times, a cheerful workhorse with a good sense of humour. He covered himself in benefits he had earned by his diligence but, as chief legal officer, he was not blameless in leaving us all vulnerable to the inferno that followed. In those dreadful times, many people from whom I had expected better snapped. And some from whom I expected little held. It was constantly erupting human drama, its full implications visible to no one except Breeden and myself, both of us working for radically different endings.

  On Saturday, I telephoned Paul Saunders. As Paul was an old friend who was advising Kissinger, I asked him about Henry’s attitude, which he assured me was very positive and reliable. I asked him about Breeden, as Paul, too, had been at Cravaths when Breeden and Boies were there. He did not have a high opinion of Breeden’s talents or personality, but he did feel that Breeden’s word could be relied upon when given.

  This was the key to the present question. Boies, Saunders, and Finkelstein (and later lawyers from Sullivan & Cromwell) all had told me Breeden’s word was reliable. Breeden was pledging to do what he could to assuage the concerns of the SEC and assure it that the company was curing itself. These were experienced and sophisticated lawyers who knew the man and had no reason to mislead me as far as I knew. This was also Kissinger’s advice. Their assurances carried the day. Breeden, Burt, Paris, and Seitz all said that they admired the forthrightness with which I had accepted the principle that if money had been improperly paid and received, it should be repaid – instead of taking refuge in technical defences. They pledged to put the best possible public relations face on developments, although this was obviously going to be difficult.

  They offered to show me the press release before it went out. All accepted the principle of assisting Hollinger Inc. in a phased transition away from its income that flowed through the management fee to Ravelston and on into Hollinger Inc. If their word was good, something manageable might just be possible. I had grave reservations, but peace was worth a try; if it did not work, war would be upon us soon enough.

  On the information I had, I made the correct decision. Unfortunately, as would recurringly be the case in this horrible sequence of events, I was misinformed. The directors meeting resumed on Saturday evening, to rubber-stamp the Restructuring Agreement terms. I was to resign as CEO and remain on as a non-executive chairman. The allegedly unauthorized payments would be repaid according to a specified timetable commencing in December. Gordon Paris and I would be co-chairmen of the Strategic Process, which was to be conducted by Lazard and would explore the most profitable way to sell the whole company. There were a clutch of other provisions, including an insulting one restricting my use of the company plane to “business purposes.” I had rarely used it otherwise and had on such occasions repaid the company fully – and more than fully, as later events showed. Richard Perle was brought into the deliberations for the first time and strenuously objected to the whole line of reasoning leading to the Restructuring Agreement. He said that people were being judged on insufficient evidence and that reputations would be damaged unjustly. Barbara and I agreed with him.

  It was the most difficult meeting I have ever chaired, and it was conducted entirely by telephone. Unfortunately, Dan Colson was unable to call in. Atkinson voted for the entire agreement. Radler was so inarticulate in his own defence that I had to improvise a defence for him, emphasizing all the profit he had earned the company in his acquisition, management, and disposition of the community newspapers; the part he had played in creating the huge gain in the Canadian assets; and the great improvement he had effected in the fortunes of the Chicago group.

  I expressed, and felt, remorse that any ambiguity could arise over the payment of fees to the management where I had been the chief executive and expressed reservations about aspects of the proposal. But I said I could live with it if it was the directors’ wish and provided it was understood in all its elements, including the freedom of Hollinger Inc. to refinance, the need to maintain a steady upward flow of income to June 2004, and a shared effort to present a positive public face to the way these events had been addressed. My mistake was not to have insisted that all these matters be in the agreement, since I had now lost control of the writing of board minutes, which, when McDonough finally produced them, were severely spliced. Boies’ partner was on the call and took minutes reflecting what was actually said, but the opportunity to cite them never arose.

  Henry Kissinger, after I acquainted him for the first time with something other than Breeden’s party line, wobbled until Breeden and Thompson spoke sharply about what the directors had agreed in their caucuses without management participation. Henry meekly retreated, and said no more. Richard Perle and Barbara continued to disagree and voted against the Restructuring Agreement, after Barbara had elicited from Breeden an admission that there was no evidence of wrongdoing by me. I and the other interested parties withdrew from the meeting, but not before I made it clear that my signing was provisio
nal on confirmation of the facts as they alleged them. I could have refused to sign the agreement, but it seemed irresponsible. Breeden was promising to keep the SEC from turning this into a public relations fiasco for the company (as well as for me), and I thought that Breeden’s acknowledgement at the meeting that there was no evidence of wrongdoing by me and my retention as non-executive chairman were reassurance that they were living up to their word. Had I refused, it was clear that Breeden would go to his former employers, the SEC, and have them bring charges against me immediately and probably remove the management. I knew enough about the litigious climate in America to know that civil charges could be commenced at the drop of a hint and criminal proceedings could be quickly launched also. At least locking into the Special Committee process would drag things out while Breeden cranked out his invoices, before the U.S. government became a plaintiff, if it was going to, through the SEC or the Justice Department.

  On the following day, Sunday, November 16, there was an executive committee meeting by teleconference. I was no longer the chairman of this committee (Seitz was), but I was still a member. The issue was whether to fire Jack Boultbee as an officer since he had refused to resign. Jack, it turned out, had some fears about what Radler might have done, but true to his characteristic terseness and reserve, he didn’t share them with me. Boultbee’s refusal was the correct move and he would successfully sue Hollinger International for wrongful dismissal (in an Ontario court). I warned the other people on the call, Burt, Paris, Savage, and Thompson, that dispensing with Jack would make the company unnecessarily vulnerable to a tax hit on a capital gains assessment by the Canada Revenue Agency of several hundred million dollars, which only Boultbee, as the chief tax strategist, had a clear idea of how legally to avoid. They paid no attention at all and fired him. I said I could not possibly support the dismissal of a valued officer without hearing his side of the case. I was the only dissenting voice, but they were soon asking for his advice and made a side deal with him to pay all his legal fees in all these proceedings. In the end, their cavalier treatment of Boultbee was a major factor in the bankruptcies of both Inc. and International. Without Boultbee’s know-how, hundreds of millions of tax liabilities would remain unnecessarily.