If Peter Lynch's theory that extravagance at corporate offices is directly proportional to management's reluctance to reward shareholders is true, then Hollinger (NYSE:HLR) investors must wonder when a crumb or two might finally fall their way.
Hollinger, a media empire with such properties as Britain's Daily Telegraph, the Jerusalem Post, and the Chicago Sun-Times newspapers, has sunk into an imbroglio that began with payments made by the company to Chairman Conrad Black and has expanded into one involving investments into board members' ventures and news of financial misstatements. A peer of the squeaky-clean Washington Post Company (NYSE:WPO) this is not.
It's a stunning turnaround for Black, who, though he only held a minority of company shares, had operational control of Hollinger through a series of holding companies that greatly expanded his influence at the company. It's the sort of corporate structure that one finds among companies in Hong Kong, allowing investors to wrest control of large companies with relatively small amounts of money. Black's holding company, Ravelston, received more than $200 million for "management services" in the last eight years from Hollinger, but now that the scandals have broken, this relationship is over.
At issue were two payments Black received from the company. Hollinger's financial report stated that a $15 million payment was made under the authority of the company's board -- which wasn't true. Also, an additional payment made to one of Black's holding companies of $17 million went undisclosed. These are on top of some $73 million in non-compete fees Black has received over the last few years.
Finally, we find out that Hollinger has made millions in investments into ventures involving Hollinger board members Richard Perle and Henry Kissinger (yes, the Henry Kissinger -- the former U.S. Secretary of State with the funny German accent). Perle, for those of you playing the home game, stepped down from his position as a defense advisor to the Bush administration over controversies surrounding his consulting work for corporate scofflaw Global Crossing.
All of this points to a company that is in the midst of a substantial corporate crisis. Neither Kissinger nor Perle are accused of any wrongdoing, but that doesn't mean they did right either as board members of Hollinger. Why on earth would a board agree to pay out millions in non-compete fees to someone who is on the payroll ($711,000 in pay in 2002) and controls the majority of a company? That's rubber stamp if I've ever heard it -- it's wrong, shameful governance. Though Black has ceded operational control of Hollinger, he still remains as chairman, and his massive voting position means that he can still wield substantial influence.
Just another story of how investors can suffer when the management of a company treats corporate coffers like their own private piggy bank.
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