Corporate Kleptocracy
Why Conrad Black has Hollinger investors seeing red
If those folksy delegates in New York for last week's Republican convention strolled down Park Avenue, they must have wondered how anybody can afford such opulent homes. Here's one way: Get your company to buy a $3 million apartment in one of Manhattan's glitziest neighborhoods. Buy a much smaller pad in the same building for $499,000. Six years later, swap your little place and $2.15 million for the swankier digs. Forget the fact that the top-drawer space has appreciated considerably, and you just made a cool $2.5 million.
That's one of dozens of grandiose schemes that media mogul Conrad Black cooked up to finance his lavish, globetrotting lifestyle. Or so says a scathing, 513-page report a special committee of Hollinger International, the publishing conglomerate Black once ran, released last week. The Chicago-based company, which owns the Chicago Sun-Times and dozens of smaller U.S. and Canadian newspapers, ousted Black as chairman in January and sued him and other former top executives for $1.25 billion. The report depicts Hollinger as part Enron and part Tyco, a personal "piggy bank" for Black and his longtime business partner David Radler (formerly chief operating officer of Hollinger). "Behind a constant stream of bombast regarding their accomplishments as self-described 'proprietors,' Black and Radler made it their business to line their pockets at the expense of Hollinger almost every day, in almost every way they could devise," fumes the committee in the report.
Fancy perks. From 1997 to 2003, the report alleges, Black and his cronies helped themselves to more than $400 million from Hollinger coffers--nearly equal to the company's net income during that period. Then there were the fringe benefits that Black allegedly expensed: $1.4 million for a personal chef, maids, and butlers at his four homes; $42,870 for a birthday bash for his wife, Barbara Amiel-Black; $390,000 for the care of his Rolls-Royce and other cars; "summer drinks," $24,950. Hollinger, meanwhile, began losing money, and its stock price drifted down. By 2003, the report concludes, Hollinger had become an enterprise "whose sole preoccupation was generating current cash for the controlling shareholders."
The portrait of excess might sound familiar. But the 14-month "corporate kleptocracy" investigation, as they call it, led by former Securities and Exchange Commission Chairman Richard Breeden, emboldens a growing posse of regulators and shareholders who for years have been demanding more accountability and better corporate performance from the grandiloquent Black, a 60-year-old Canadian who was declared Lord Black of Crossharbour and given a seat in Britain's House of Lords in 2001. It also reveals the curious connection between charismatic moneymen and the public eminences they court. As Black hobnobbed with high society, he attracted board members with unusually high wattage for a midsize company, including former Secretary of State Henry Kissinger and Richard Perle, a key Pentagon adviser. By and large, the group rubber-stamped ruinous management practices, according to the report. The committee singled out Perle, in particular, for "head-in-the-sand behavior" and speculates he may be liable for damages. Perle denies the charges (box, Page 44).
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