Conrad Black

by A Matter of Principle

  We were told Breeden had gone judge-shopping in Wilmington, but I suspect that was quite unnecessary. Breeden and Strine were peas in a pod as far as views on corporate governance activism went, and this case would be one in which Strine would have special interest. Strine’s involvement came from a genuine belief in the need for more radical measures to protect shareholders. He was critical of Sarbannes-Oxley on grounds that it put the regulation of business into the hands of government agencies rather than the courts.

  Breeden appeared also to see corporate governance as a profit centre. He had a law firm to deal with miscreants, a governance consulting business to rake in preventative fees, and would soon start his own investment and hedge fund business that could provide financing to companies caught in, or potential targets of, governance demands – had they not been prudent enough to invest with him in the first place. I find it hard to believe that his funnelling such rich business to the New York law firms O’Melveny & Myers and Paul, Weiss went altogether unrewarded.

  Businessmen may be familiar with it, but to the larger society, Chancery Court is pretty much unknown. Most states abolished Chancery Courts long ago (New York, for example, in 1847) and whatever cases fell under their auspices were delegated to regular courts of law. A Chancery Court is not tied to rules of law, though naturally the law is considered. Its decisions are based on “equity” and the maxims of equity. This gives the judge, known as chancellor, if chief judge, or vice chancellor, very broad latitude. He is the trier of facts (there is no jury) and is not bound by law or precedent. Delaware, whose Chancery Court was established in its 1792 constitution, has evolved into the most important player in America’s corporate disputes. Early on, the state had a conservative business environment. But no institution can immunize itself against the fashions and fads of the times. Leo Strine would rather lead and extend a fad than resist it.

  The good, gentlemanly lawyers of Sullivan & Cromwell had, with the best and most honourable intentions, but seemingly no knowledge of the chancery bench, led me into an ambush. I was a bull in a china shop, a clumsy capitalist interloper in the regulatory minefield. Once Strine was the chosen judge, we were doomed.

  The depositions came in well. Kissinger revealed that Breeden had been loudly proclaiming the commission of criminal acts when he phoned around in November, though Kissinger himself did not believe his claims. Had Kissinger called me then and questioned me about these so-called criminal acts or “unauthorized” payments, he would actually have fulfilled his fiduciary duty to the shareholders. He was the sole person on that board who had the personal weight and stature to halt Breeden. But he was too fearful. This extraordinarily intelligent refugee of Nazi Germany seemed not to understand that the contemporary version of “I was only following orders” is “My lawyer advised me not to.” He kept quiet, followed his lawyer’s directions to a T, and left me and every public shareholder to be fleeced. Thompson and Burt, both Audit Committee members, were hopeless. They knew nothing, read nothing that they had signed, and had no knowledge of the nature of the poison pill. When Burt was asked about my offer to Breeden and Paris to give Hollinger International a right of first refusal on any bona fide offer received for Hollinger Inc., he snorted derisively and said that that was like “the letter Hitler sent the Czechs at Munich.” There was no such letter, but the comparison was scandalous.

  My deposition seemed to go smoothly. The only emerging issues that I could see were the interpretation of the clause about not tampering with the strategic process with Lazard and the question of how close Hollinger Inc. was to a default, relieving it of most of the obligations under the Restructuring Agreement. Following my deposition on February 13, I went to Kennedy Airport to await Barbara, who was returning from our home in England.

  She duly emerged, pushing one suitcase and pulling the other, flamboyant, indomitable, and glamorous as always, despite her long trip. I was inexpressibly pleased to see her; we hate being apart. She had found my studio in our London home, where for years I had directed our British operations and written much of my Roosevelt book, very sad, empty, and lifeless. There was, she said, a pathetic fallacy about the home: its limbs were in necrosis. Our brilliant and devoted driver, Tommy Buckley, a delightful Irishman, had just died of a brain tumour in his mid-thirties, leaving three small children, and my London assistant, Rosemary Millar, was fighting for her life in a battle she was about to lose. I was technically still the chairman of the Telegraph but with no practical ability to function. This phase of my life was ending, amid the ululations of triumph of my enemies and a conspicuous silence from many whom I had taken for friends.

  I went to Wilmington on the evening of February 16 with John Warden, one of Sullivan & Cromwell’s leading corporate litigators and a very congenial man. I was reading a newspaper in my hotel room the next morning when he telephoned after the judge’s pre-trial lawyers’ conference and told me that we stood no chance; Strine had bought Breeden’s case like a salmon leaping out of the water for the bait. Warden said we should consider abandoning any defence of the lawsuit and moving immediately to dismiss the directors, which we had the authority to do.

  I rejected Warden’s advice. If we were about to be trashed in our attempted sale, we would certainly receive the same treatment for a general sacking of the directors – with the added joy of Breeden as special monitor. I wasn’t even convinced, and still am not, that with such an ‘activist’ (i.e., unlimitedly aggressive and opinionatedly meddlesome) judge as Strine, turfing out the directors would have ended their case against us. I still think it would have just reinforced Strine in his prejudices, and that he would have reinstalled the directors in addition to any other severities it might please him to inflict on us. This was poor and late advice from Sullivan & Cromwell. There was nothing for it but to fight out the case, no matter how uphill. Still, we had something of an ace in the hole: Warden, our best lawyer, had been present at the “substantive discussions” with Breeden and was prepared to testify to the misleading and deceptive nature of Breeden’s statements about them, no small step for a lawyer of Warden’s stature. It meant he would not be able to lead me in direct examination or cross-examine, but we judged it worth that loss. In the end, Strine did not allow Warden to testify, so we had him as neither witness nor barrister. We had agreed to too constricted a timetable and did not use even that judiciously.

  The night before I testified I had a drink with Paul Saunders, there representing Kissinger. Paul and I agreed that this matter should be settled, and he said he would see what he could do. Henry was upset at the deterioration in our relations and might be ready to have another try at getting some sort of agreement going. Henry, whose ability to resist flattery is not one of his most noteworthy characteristics, had apparently been duped by Breeden into co-authoring a “statement of principles” that, when it was eventually produced on a documentary subpoena, was one of the most platitudinous compositions I have read. Even Gordon Paris declined to endorse it.

  I testified most of the day on February 20. Jesse Finkelstein touchingly gave me a piece of the rock of Masada, which I held throughout my time on the stand. The BBC credited me with a “magnificent performance.” The New York Post, faithful to its master’s orders, declared that my “well-known charisma was not evident.” The truth probably lay somewhere in between. Warden and Paul Saunders both congratulated me on the strength of my testimony, and Skadden Arps advised the Barclays that we would win the case. I was too confident in the power and truth of my testimony, and elemental advice about the merit of brevity in responses to questions had not been emphasized to me. I had the passion of a man wronged. Much of my testimony, which could have been corroborated by witnesses and documents, went in unsupported. Strine was courteous. Though his sense of humour escaped me, there was no doubt of his intelligence and assiduity.

  His reception of me and my counsel’s satisfaction with my performance were such that there was some hope in some circles that we had retrieved the situatio
n. Certainly that was the view of the Barclays, whose Skadden Arps lawyer in Wilmington assured them that we would win. David Barclay called to congratulate me on my testimony. We all thought that Strine’s judgment, if adverse, would at least have to be polite. We were mistaken.

  Strine’s judgment came out by email on Thursday, February 26. The first two sentences pulled down the curtain. “As former Chancellor Allen has said, the most interesting corporate law cases,” wrote Strine, “involve the color gray, with contending parties dueling over close questions of law, in circumstances when it is possible for each of the contestants to claim she was acting in good faith. Regrettably, this case is not one of that variety.” I half noted the use of the pronoun “she” in the very first sentence, presumably one of Strine’s little teases with novelty.

  Strine resisted using my surname as a synonym for my actions that were in his mind satanic. That is all he resisted. I was “cunning” and “calculated” in my conduct, which “threatens grave injury to International and its stockholders by depriving them of the benefits that might flow from the Strategic Process’s search for a value-maximizing transaction.” My malfeasance rendered the normal corporate rights of a controlling shareholder and parent company inoperable due to these “extraordinary scenarios.” He was issuing an injunction against the Barclay’s deal to “rectify the irreparable harm Black’s wrongdoing obviously threatens.”

  Not only had Strine found my character flawed and my behaviour improper; he also described the unauthorized payments as, at the very least, “constructive fraud.” I had only signed the Restructuring Agreement to avoid being charged, he wrote. All this would be refuted by the jury at a proper trial and was outrageously biased and wrong-headed, but Strine had bought a line. He did, however, confirm the Breeden-Paris blackmail, mouthed at the November 12 meeting, that without an agreement, I would have been charged at once. (In fact, the SEC required another six months from this case to charge, and the Justice Department another fifteen months after that. So to some extent, Breeden’s threat may have been hollow, though the government might have moved more quickly if Breeden were not already in control of the company.)

  “I am in a good position,” wrote Strine confidently, “to make certain credibility determinations and have done so. Generally, I found the key International witnesses – Paris, Seitz, and Breeden – entirely credible. I can discern no improper motive they may have had at any time to testify other than truthfully.”

  This would prove to be an unintended confession of monumental naïveté. He must have had some notion of the millions the three pharisees stood to gain from their putsch, and even of the fact that they could not so enrich themselves by any other method, unlesss they took to armed robbery, for which activity they might have had the ethics but probably not the energy. Strine, like Christopher Browne, would realize too late that Breeden was a false prophet. In neither case was there even the least recognition of the role they had played in fixing these insatiable bloodsuckers on the necks of the unconsulted shareholders, in whose name all iniquities were inflicted. On my side were, with one exception, decent, gentlemanly lawyers and businessmen, sitting ducks, all of us, for the delectation of our enemies. This was the equity of the jungle.

  My sophistical answers, wrote Strine, were all of piece with my taking the Fifth Amendment at the SEC hearing, though he knew perfectly well why I had to take it and it had nothing to do with credibility or evasiveness. (Strine had small faith in the Barclays’ credibility either, which so angered them that they issued a rebuttal press release.) He had one cautionary footnote after his factual findings: “This is not to say that there is not evidence from which another reasonable mind might draw different conclusions on some of the factual points.” Bingo; unfortunately, he wasn’t reasonable. He was gullible and cocksure. A not particularly brilliant or fair-minded, but more exacting jury later eviscerated his findings, but too late to help the shareholders, victims on whose behalf he waxed so righteous.

  The Strategic Process, which the judgment said “had great promise for the shareholders” so long as the court prevented my deal with the Barclays, with its anticipated stock values in the $20 to $24 range, did not materialize. Breeden and Paris quickly decided to sell only the Telegraph to the Barclays, without making them pay for the entire company, which they most certainly would have were it their only means of getting International’s crown jewel (as they had asserted in their 13D). Shareholders saw a total of $6 per share in special dividends after the Telegraph sale, before the stock descended into bankruptcy. No other offers for the entire company materialized. The Special Committee that Strine wrote would wrap up its work in June 2004 would continue to pay itself through 2008, with Richard Breeden staying on as monitor (a well-paid, completely redundant post to which he prevailed upon the docile, terrorized directors to elevate him in 2006) until January 2009. Gordon Paris would lose $70 million of shareholders money investing in sub-prime mortgages – an unusual venture for a media company – but he would leave with $13 million for himself. Chairman Ray Seitz (annual salary $600,000, board earnings and perquisites as yet unknown) would only be separated from his office effective January 2009 by a vote of the bondholders.

  These were governance buccaneers, and Thompson and Burt, and later Kravis, and even Perle, were press-ganged, with an inelegant lack of reluctance in some cases, into complicity. Seitz, Savage, and Paris may have begun their roles on the Special Committee with every intention of acting fairly on behalf of all shareholders. When Breeden arrived with a more murderous agenda, they seem to have fallen into line.

  Thompson, Seitz, and Burt, like Perle and Kissinger were names known in the world beyond boardrooms. I had admired the accomplishments of each, yet here they were engaged in unworthy activities, now voting (except Kravis who had withdrawn), for motions that they should have known to be empty and fatuous, or at least requiring abstention.

  Seitz counts as one of the most horrifying mistakes of my life in judging character. Behind the impeccable facade of the ambassador of a great nation lurks a bureaucrat, a process freak, the ancient curse of the foreign services, disguised by unusually fine packaging. Too intelligent to be a time-server, but too long separated from anything not requiring the instincts of a safe player to be effective outside the foreign service cocoon and lacking the cunning, daring, or cross-disciplinary background of a great foreign minister (like Kissinger), Seitz proved to be only a bloodless valise-carrier ambling gracefully among more formidable players. Seitz would not budge from our corporate trough until, finally, in November 2008 he was muscled out by impoverished debt-holders. The stock at that point was worth .08 cents per share, on a vertical descent to zero at the speed of gravity.

  To become the four-term governor of as large a state as Illinois shows that Jim Thompson had a very sharp political intuition. Tall, loquacious, banal, simulating folksiness when not engaged in scowling righteousness, Thompson never in the ten years he was on our board showed any spark. He too disappointed me.

  If Thompson’s performance under fire was a disappointment, it was a mere sorbet compared with Richard Burt. Burt succeeded Perle as the informal chairman of the independent committee of directors when Perle became an employee. The related-party transactions, which were necessary as we consolidated assets in one company and then dismantled the secondary assets of the company when we delivered at the height of the economic boom, had been skilfully handled by Richard Perle and Dennis Block and never became a source of controversy; both Hollingers greatly profited. But they were relatively sloppily handled by Radler with only Burt and Thompson as overseers.

  Gordon Paris has a perfectly nondescript and entirely forgettable personality, except for a penchant for self-righteous inflexibility, when he assumes a whiny, grating persistence, like a malfunctioning appliance. He hit the jackpot with our company.

  Had Breeden not breeched the Restructuring Agreement, I would still have had to sell out. Once there was a Special Committee, my ability to act
as a real CEO was gone, as Marie-Josée had foreseen. Breeden was in charge and I knew the newspaper business was in decline. All I could hope for was to get the highest price for the company and take my share of cash and move on to something else. The Barclays were the best bet, as events confirmed.

  The Strine judgment was the official seal of approval on Breeden’s demonization of me. From that moment on, his words, endlessly quoted, tainted every move I tried to make to rescue Inc. and International. The press, which we had brought around a long way to seeing the weakness of the initial Breeden-Paris-Thompson case about the so-called unauthorized payments, lapsed back into the mode of regarding me as an ethically flawed character.

  I had already heard from Paul Saunders before the judgment came down that he could not deliver serious peace discussions. Breeden did not want peace. Strine’s judgment gave as much impetus as a civil case could to a criminal prosecution. Though Strine would not have been moved from his pseudo-populist biases, I believe that if Sullivan & Cromwell had administered our evidence more effectively, he would not have been able to assassinate my credibility as severely as he did. As it was, Strine had to note my efforts to act within the rules of the Restructuring Agreement but could shunt these efforts aside with only a reference to them prefaced with an “admittedly” or an “although,” something he could not have done if our evidence had gone in with adequate corroboration.

  We publicly took the position that we were disappointed, we appealed the case, and we told Hollinger International to “put up or shut up.” They were supposed to produce a third-party offer of $20 to $24 per share; we said, let them get on with it, knowing they neither could nor wished to do anything of the kind.