The Doofus Defense; Objectivity in Practice; News Bite | Media | Chicago Reader

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The Doofus Defense; Objectivity in Practice; News Bite

Conrad Black's indictment argues that he kept his board in the dark--and suggests how remarkably easy it was to do.



Parsing the Conrad Black indictment . . .

Total number of defendants: 5--Black, three other Hollinger International executives, and Black's Ravelston holding company.

Number of times the defendants' alleged scheme was described in the indictment as intended to "defraud" Hollinger shareholders of not only money and property but their "intangible right of honest services" (the legal argument Jim Thompson successfully used to prosecute former governor Otto Kerner in 1973): 3.

Proper role of the Hollinger board's audit committee, as described in the indictment: to function "as International's independent director committee for purposes of reviewing and approving the fairness of transactions between International and its controlling shareholders, officers and/or directors."

Number of the 60 pages in the indictment that contain references to the audit committee: 36.

Number of references to chairman of the audit committee, the board position held by Jim Thompson: 3.

Number of references to the defendants' alleged failure to disclose important financial information to the audit committee: 16.

Number of references to the defendants misleading the audit committee with false information: 6.

Most intriguing of the indictment's 11 counts: the eighth. It concerns the 2000 sale of Hollinger properties in Canada to CanWest Global Communications for about $2.1 billion, of which $51.8 million was allegedly distributed not to the corporation but as "noncompete" payments to Black, the three other executives, and the previously indicted David Radler (who has agreed to plead guilty and turn state's evidence).

Humiliating detail: About a third of the assets sold to CanWest were owned by Hollinger Canadian Newspapers, a limited partnership controlled by Hollinger International. Yet according to the indictment, the entire $51.8 million in noncompete payments was paid to the executives out of Hollinger International's share of the proceeds and none out of Hollinger Canadian Newspapers' share. Why? Allegedly "to avoid having to raise the issue of the non-competition payments with the [Hollinger Canadian Newspapers] Audit Committee, which [the defendants] feared would ask more questions than the International Audit Committee." (Who but Radler could have told the prosecutors this?)

Were the defendants' alleged financial machinations subtle and impenetrable? Perhaps, but when the indictment was announced Robert Grant, head of the FBI's Chicago office, called them "blatant and pervasive."

But not so blatant and pervasive as to be noticed by the audit committee? Here's a key they-were-clueless quote from the indictment: "After an outside attorney discovered and questioned these payments during the course of a due diligence inquiry, Black [and the other indicted executives] returned to International's Audit Committee and sought ratification of the payments on different grounds, claiming that the information previously provided to the directors misdescribed the transaction in a number of 'inadvertent' respects. In fact, the previous submission's falsehoods had not been inadvertent, and the second submission was false and misleading as well."

Did the new explanation work? "The board approved the payments after the chairman of the Audit Committee summarized the information that had been presented to the Audit Committee, including several of the false statements set forth above."

The indictment states that Black defended the noncompete arrangement at the 2002 shareholders' meeting, saying it was something CanWest's executive chairman had demanded. "Effectively the independent directors of this company determined that . . . it was something that he was paying valuable consideration for and some of that should come to us and not this company," Black said. "And that was not a matter negotiated directly by us." The indictment calls this statement "false and fraudulent" because, among other things, "the non-competition payments were not negotiated by the independent directors."

Here's an unaddressed mystery. Why didn't the independent directors, who presumably remembered that they hadn't negotiated the payments Black said they negotiated, ask him what was going on? Were they too giddy with praise to notice? Unmentioned in the indictment but noted in a scathing August 2004 report by a "special committee" of the Hollinger board was what Black went on to say: "In all of the circumstances, the independent directors felt this was the fair thing to do, and I must say, I agree. . . . You're dealing with a best efforts attempt to accommodate to industry practice and do what's equitable as determined by independent directors who are as a group quite a distinguished group."

Assessment of this "distinguished group" by the special committee: "It was characteristic of both the Audit Committee and the Board during this period that meetings were quite perfunctory. . . . Hollinger's Board may have had interesting lunches, but its deliberations do not reflect a serious effort to understand what Black and Radler were doing."

Recent corporate development: Hollinger announced on November 21 that Thompson and other members of the distinguished group--including Henry Kissinger, Richard Burt, and Richard Perle--don't intend to stand for reelection at the shareholders' meeting in January. Chairman Gordon Paris, no friend of the old management, thanked them for their "important contributions to the company's significant accomplishments during the past two years."

Contributions? Last weekend the Toronto Star called this "bizarre send-off" an apparent attempt "to rehabilitate the directors' reputation." Painting them as comatose plays into Black's hands. He's already made it clear in civil litigation with Hollinger what he intends to argue--which is that far from trying to deceive the audit committee, he made the mistake of putting his "good faith" in its judgment. He'd "reasonably relied on the Audit Committee's unanimous approval." He might go so far as to argue that his intangible right of honest services was abused.

Objectivity in Practice

The debate over the press's use of anonymously quoted sources needs to take into account the real-world motives of reporters who do the quoting.

On November 20 New York Times public editor Byron Calame devoted his column to anonymous sources, which his paper is haunted by and can't quite get right. As an example of the bumbling he cited a Times article on the United Nations that ran on August 2, when John Bolton was reporting in as the new American ambassador: "'Most of the reforms sought by the United States are well on their way to completion,' said a senior administration official, speaking anonymously to avoid undercutting the rationale for the Bolton appointment."

The new rule at the Times, put into place last June, requires articles that protect sources to explain why the paper believes they deserve the protection. The Times's performance in this case wasn't good enough for one reader, whose e-mail Calame quoted with apparent approval. "How absurd that the Times considers this an acceptable reason to use an anonymous source," the reader wrote. "It is the quote itself which undercuts the rationale for the appointment, whether the official is willing to own up to it or not."

Well, of course it does. Did the reader think the reporter wasn't aware of that? The quote's obviously in the story for one reason--because it's too revealing to leave out. The Times needs to be willing to admit that sometimes it's happy to let even anonymous sources put their foot in their mouth.

Calame quoted from a second story that made him unhappy, a July 6 article on the Supreme Court. "A senior White House official who spoke on condition of anonymity because most staff members are not authorized to speak about the vacancy" told the Times that "at the end of the day, the president is going to decide this based on those principles, not from any pressure from the groups."

Again a reader erupted. "What possible reason related to news can justify running this quote?" he wondered. "It's just spin." Motives here aren't so obvious, but I'd bet the quote was stuck in the story for the same unpleasant reason I'd have stuck it in one of mine. Because it's so bogus. Because it's gratifying to hoist spinners with their own fatuities. Because reporters tell themselves that something important is revealed about intellectual bankruptcy when senior officials under cover of darkness are still capable of only empty-headed mush.

News Bite

One of the most interesting benefits the Internet offers is the opportunity to grade the news. When I go to Yahoo to read about what just happened, I also find out what the public already thinks about it. The technology has a long way to go, but one day it might be possible to keep news the public has no interest in from happening in the first place.

For instance, on November 21 I came upon a short AP item that Yahoo had posted 91 minutes earlier. There'd been drama in the skies--a Nike corporate jet had landed uneventfully after circling Portland, Oregon, for several hours with jammed landing gear. As always, at the bottom of the story Yahoo invites readers to award it stars, as many as five.

The Nike yarn was averaging a lackluster two stars. What did this mean? Was it a judgment on the writing? A harsh message to Nike CEO William Perez that his fate mattered little to the rest of us? A message to Yahoo that it shouldn't post any more corporate-jet-crisis stories with anticlimactic endings?

One week later the AP story on Randy "Duke" Cunningham's guilty plea was basking in four-star acclaim 82 minutes after it broke. The blubbering Cunningham was on his way to prison, and rank venality in office had been the Republican congressman's downfall. This was a rich stew.

Because the Yahoo-browsing public applauded, we can expect more of the same. Now when other Washington dignitaries are led off in handcuffs, it won't be mere scandal we're looking at but a market-tested product.

Art accompanying story in printed newspaper (not available in this archive): photos/AP Photo--Aaron Harris, AP Photo--James A. Finley.

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