Hollinger International:

The Lord Black Saga

“Hollinger International - The Lord Black Saga” looks at the troubles at Hollinger
International Inc. (HII), a large publishing house which owned several newspaper
publications across the world. From 2001 onwards, there were a series of accusations
of fraud, investigations, and lawsuits filed against HII’s top executives. The case deals
with issues like personal greed, regulatory loopholes and failed internal controls that
were responsible for a series of frauds committed by Black and his associates. The
importance of corporate governance, shareholder activism and regulatory policies
are also highlighted in this case.
 Hollinger International: The Lord Black Saga

“Self-dealing, misrepresentation and other abusive and unethical practices had

become so deeply ingrained in the corporate culture that they became commonplace
and perhaps indistinguishable from normal everyday practice for some of the key
actors.”
- The Special Committee
report on Hollinger1
“Black and Radler abused their control of a public company and treated it as their
personal piggy bank”
- Stephen Cutler, SEC Enforcement
Director2

Lord Black Ousted from Chairmanship

The unraveling of the web of deceit in Hollinger International Inc. (HII) began in
2001, when Tweedy Browne & Co. (Browne), a New York based investment firm,
which also held a 14.7% shareholding in HII, started questioning the financial
practices of the company. Browne asked HII to justify the high management fees paid
to Ravelston Management Inc. (RMI). HII was controlled by Hollinger Inc.
(Hollinger) while RMI was another subsidiary of Hollinger. Conrad Moffat Black
(Black), Chairman of HII, paid a personal visit to Browne‟s office to assure the
company that the fees would be lowered shortly.
After this, Browne continued to follow HII‟s transactions closely. In 2003, it
expressed concern about RMI using HII‟s funds to refinance another company‟s debt.
It also inquired about the non-compete payments being made by HII to Black and his
associates. Since Browne felt that HII‟s Board was probably unaware of what was
going on, it submitted a written allegation to the company in May 2003. The HII
Board discussed the issue and set up a Special Committee to look into the various
complaints. The committee was empowered to take any director or employee to the
court of law, in case of any evidence of improper conduct. After investigations, the
Special Committee reported in November 2003 that Black and his associates had
received unauthorized payments. Black resigned as Chief Executive Officer but
remained non-executive chairman on the Board.
In January 2004, when Black failed to pay the first installment of money due to HII,
he was ousted from the chairmanship of the company. The Special Committee filed a
law suit against Black for the recovery of $200 million in unauthorized payments
made to Black and his deputies. In August 2004, the report of the Special Committee
revealed the wrongdoings in HII during the period 1997 - 2003. The report alleged
that the unethical and corrupt practices followed by Black and his associates had
resulted in the diversion of $400 million into their personal coffers.
In November 2004, the Securities Exchange Commission (SEC) filed an enforcement
action law suit in a U.S. District Court against Black, Radler, and Hollinger, alleging
that the accused had engaged in fraudulent schemes to divert cash and assets from HII.

1
Jean Shaoul, “Conrad Black and Hollinger International: a financial oligarchy out of
control,” www.wsws.org, September 16, 2004.
2
“SEC accuses Conrad Black of fraud,” www.cbc.ca, November 16, 2004
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Enterprise Performance Management

The suit added that they had concealed their self-dealing from HII‟s public
shareholders. These revelations of fraud enraged HII‟s shareholders; their demand for
compensation was met in January 2005, through the sale proceeds of The Telegraph,
the British newspaper owned by HII.

Background: Black Builds a Feudal Empire

Conrad Moffat Black belonged to a wealthy family in Toronto, Canada. His father
was the President of Canadian Breweries, a part of Argus Corporation (Argus)3.
Black‟s father was also a board member and major shareholder at Argus. Black
initially enrolled at Upper Canada College in History, but was expelled from there for
selling exam papers. He completed his graduation from Carleton University in 1965
and followed up with a post graduate degree in history from McGill University. In
1970, he also got a degree in French civil law from Laval University. Black got his
first informal education on the corporate world through his father. With his friends,
David Radler (Radler) and Peter G. White (White), the younger Black bought
Sherbrooke Record, a small English daily in Quebec, Canada. In 1971, Black, White
and Radler bought some more small newspapers in Canada, and co-founded the
Sterling Newspapers Group.
Black‟s father, with some other shareholders, set up Ravelston Corporation
(Ravelston) in 1969. Ravelston was a private company that represented more than
50% of the voting rights of Argus. In 1976, following the death of his father, Black
became a board member at both Ravelston and Argus. Soon, he took over Ravelston
by gaining a stake of around 70% in the company and became President of Argus. In
1978, Black acquired control of Hollinger Mines and changed it to Hollinger Argus
Limited. In September 1985, Hollinger Argus Limited amalgamated with Argcen
Holdings Inc. (formerly Dominion Stores Limited) and Labmin Resources Limited
(formerly Labrador Mining and Exploration Company Limited) to form Hollinger Inc.
(Hollinger).
In the years that followed, Hollinger went on an expansion spree, acquiring numerous
newspapers in Canada and the USA. HII was incorporated in 1990 as a publisher of
English language newspapers in USA and Canada. The strategy followed was -
reduction of costs (including strategic disinvestment), debt-funded acquisition and a
voting structure that featured differential voting stock. As a cost reduction measure,
Hollinger divested itself of all its other holdings except certain real estate properties of
Argcen. Hollinger held 72.8% voting rights and 30.3% equity interest in HII 4, which
owned most of the newspapers. Ravelston, in turn, had a 78% (direct and indirect)
stake in Hollinger Inc. As both Hollinger and Ravelston were controlled by Black, he
had a hold over a major portion of the voting rights in HII, with just 30% of its equity
(Refer Figure I for Black’s web of control). RMI was formed as a subsidiary of
Ravelston, to manage all the newspapers of HII, for which it was paid management
fees. Black and his associates drew their salaries from this fee.

3
Argus Corporation (Argus) was an investment company whose portfolio consisted of
companies like Canadian Breweries Ltd., Canadian Food Products Ltd., etc. Argus mainly
derives its revenues from investment holdings in Hollinger Inc.
4
Devin Leonard, “Black and Blue,”
http://www.pbs.org/wsw/news/fortunearticle_20030929_01.html, September
29, 2003.

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 Hollinger International: The Lord Black Saga

Figure I
Black’s Web of Control
Ravelston
Ravelston held 78%
Ravelston held
RMI is a subsidiary of stake (direct and indirect)
50% of voting
Ravelston Corporation in Hollinger Inc
rights in Argus

Argus held 61.8%

RMI Hollinger Inc. Argus
stake in Hollinger Inc

Hollinger Inc. held

HII pays a management 30% equity and 72.8%
fee to RMI, under a voting rights in HII.
management service
agreement. HII

Source: Compiled from various sources

The income on iron ore royalties (in Hollinger Mining) was used to fund the
acquisition of 57% of The Telegraph, a popular paper in England, in the year 1985.
HII also acquired 288 papers in the rural areas of United States. In 1989, the
Jerusalem Post, an Israeli newspaper, was bought for $20 million. HII bought a 25%
stake in John Fairfax, an Australian company, thereby gaining a stake in the Sydney
Morning Herald during the early 1990s. Black also started the National Post in
Toronto, Canada. The National Post was not as successful as his other newspapers.
After the acquisition of Chicago Sun-Times in 1994, HII became the third largest
publisher of English language newspapers in the world with a presence in Canada,
US, Australia, and Israel. In 1999, HII‟s revenues were as high as $2 billion and most
of its newspapers made a profit, some even within a year of starting operations.
In 1994, HII went public in the USA and inducted independent directors on its Board.
These included eminent social and political personalities like Henry Kissinger
(Kissinger)- former Secretary of State, Richard Burt (Burt) - a former arms negotiator
and Reagan-era ambassador to Germany, James Thompson (Thompson)- the former
Republican governor of Illinois, Alfred Taubman (Taubman), and Marie-Josse Kravis
(Kravis)- wife of financier Henry Kravis. These people were elected to the Board by
the shareholders. But since Black controlled the majority of voting rights by virtue of
the dual share structure5, he dominated all the decisions taken by the HII Board. Apart
from this, he exerted considerable influence on the editorial board of his newspapers
regarding the content that was published.
Black nurtured a personal wish to be inducted into the British House of Lords in
England. In this regard he faced opposition from the Canadian Prime Minister Jean
Chrétien, who cited a government resolution which ruled that foreign governments
could not confer honorary titles on Canadian citizens. After losing a lawsuit

5
New York Stock Exchange allows companies to list dual categories of shares. Class B shares
are issued to insiders. Class B shares have more votes per shares than ordinary class A
shares, which have one vote per share. There can be even multiple class shares. Such a
listing is done by promoters who want to retain the power in their hands.

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challenging the ruling, Black gave up his Canadian citizenship. Following this, in
2001, he was formally inducted into the British House of Lords and came to be known
as Lord Black of Crossharbour.

The Downfall of Lord Black

The year 1999 witnessed the beginning of the troubles at HII, in spite of its good
revenues. National Post, its Toronto newspaper, reported losses of $44.3 million. The
acquisition spree of HII was beginning to take its toll and it had built up a massive
debt. To bring down the quantum of debt, Black sold 40% of HII‟s assets that
included almost all the Canadian newspapers and many of those in the US. HII‟s
biggest deal was with CanWest, a Winnipeg-based television company, generating
$27.8 million non-compete payments6 to Black, Radler and two other top executives.
After the Twin Towers disaster on 11th September 2001, all HII‟s newspapers took a
beating in revenues. The operating income of the Chicago-area papers fell by 70% to
$10 million. Jerusalem Post made a loss of $3 million. The Telegraph and its sister
publications had a drop in revenues from $89 million to $31 million. HII paid out $1
billion from the CanWest deal towards loan repayments. These bad financials only
served to make HII‟s debt situation worse and resulted in HII‟s debt climbing from 5
times to 10 times its EBITA7. Its share price plummeted from $16 to $9 in 2001. HII
made a net loss of $335 million in 2001 and a net loss of $238 million in 2002.
It was at this juncture that Browne, with a 14.7% holding in HII, questioned the
wisdom of the high management fees paid to RMI. Black pacified the firm by
promising to reduce the management fees. Later in 2003, Browne raised another
question on the issue that funds from RMI were to be used to meet interest payments
on a $120 million refinancing of Ravelston‟s debt. This issue indirectly affected HII
as RMI‟s revenues were derived almost entirely from the management fees of HII.
“Why are we paying the money for another company‟s debt?”8 questioned Laura
Jereski, a Browne analyst. Not getting a satisfactory answer, in May 2003, on the eve
of HII‟s annual meeting, the firm accused Black and his deputies of siphoning out the
funds HII received from CanWest as non-compete payments. Following this
allegation, the directors set up a Special Committee to investigate major issues
including RMI‟s fees, CanWest payments and a deal in which HII helped finance a
$38 million sale of its smaller US newspapers to Bradford Publishing, a company in
which Black and Radler had a stake.
The committee was headed by Gordon Paris (Paris), the interim President, CEO, and
Chairman of the Board of HII. The committee‟s legal counsel and advisor was
Richard C. Breeden & Co., the law offices of Richard C. Breeden (Breeden), a former
chairman of the US Securities and Exchange Commission. The committee interviewed
Board members and audited various documents and discovered that $32.1 million of
unauthorized payments had gone to Black and his deputies -- Radler, Richard N. Perle
(Perle), and two other top executives. This included $15.6 million in fees to them,
which was never approved by the Board, and an additional $16.5 million which went
as unauthorized fees to Hollinger. Reacting to this, Black commented, “This evidence

6
Compensation given to the selling party so that they do not enter into a similar business as
the buyer. The agreement is called a non-compete agreement.
7
EBITA- Net earnings adjusted to exclude provision for income taxes, interest and other
expenses, amortization of goodwill and other intangible assets and non-recurring expenses
8
Devin Leonard, “Black & Blue,” Fortune, October 20, 2003.

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 Hollinger International: The Lord Black Saga

of moral turpitude has been conjured out of thin air.” 9 Despite his claim, he resigned
as CEO in November 2003, but continued as non-executive chairman of the company.
President and Chief Operating Officer Radler, and operating counsel Mark Kipnis
(Kipnis) also resigned from the company. Paris took over as interim president and
CEO. The Board of HII also hired an investment banking firm, Lazard LLC, to look at
various strategies like sale of equity and any possible asset sales. It also directed Black
and the other executives to return the unauthorized payments with interest by June
2004. During the same period, the shares of the company registered an increase of
$1.49 to $5, following speculation of its impending sale. Meanwhile, the Special
Committee continued its investigation on various matters pertaining to the financial
history of HII.
In December 2003, Cardinal Value Equity Partners LP, holding 1.75 million shares of
HII, filed a lawsuit asking for compensation to HII on account of the alleged misuse
of company‟s money. According to the lawsuit “While the Hollinger executives were
treating Hollinger like their personal piggy bank, Hollinger‟s board, including
ostensibly blue-ribbon independent directors and Hollinger‟s audit committee were
totally quiescent.”10 The lawsuit covered the deals made by Black to sell smaller
newspapers that were made without any bidding or negotiation. Further, there was
also an accusation leveled at the board for having approved $2.2 million for a private
airplane, though there was no evidence of the airplane being used for corporate
purposes.
In January 2004, on behalf of HII, the Special Committee sued Black and Radler for
$200 million, in the U.S. District Court for the Northern District of Illinois. The
Special Committee alleged that Black and Radler had received this money through
improper means. In the same month, HII sued Black and associates under the federal
Racketeer Influenced and Corrupt Organizations Act (RICO) 11, accusing Black and
other parties of siphoning off money from HII to companies under their control. They
sought compensatory damages of $484.5 million and treble damages of $1.25 billion
under RICO. The case was dismissed by the judge who said, “The conduct alleged as
predicate acts by the plaintiffs would be actionable as securities fraud, and
consequently, may not serve as predicate acts for purposes of a RICO civil action.” 12
The other claims in the lawsuit were also dismissed for similar reasons. HII then
decided to pursue these claims aggressively through the Special Committee.
The SEC also registered a complaint against HII on various issues. Some of them are
listed below:
From 1999-2001, HII has refused to disclose relevant information in its filings
with SEC,
HII tampered with the books and records to misrepresent transfers as non–
compete payments,
HII failed to have suitable internal control to avoid misappropriation of funds,
and
There were a number of instances where the amount transferred to Hollinger Inc.
by HII as non-compete fees was not disclosed.

9
Elena Cherne, “Media Baron Lord Black resigns his post over improper payments,” The
Wall Street Journal Online, November 18, 2003.
10
Barbara Shector, “Hollinger executives accused of diverting hundreds of millions,”
www.fpp.co.uk, January 3, 2004.
11
RICO Act is a US law that provides extended penalties for various harmful activities carried
on by criminal organizations.
12
“Hollinger International suit against Black dismissed,” www.bloomberg.com, October 8,
2004.

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Black announced that he planned to sell his voting rights (70%) as well as stake (30%)
in HII to the Barclay Brothers for 260 million pounds, soon after his ouster from
chairmanship. However HII challenged this sale in the courts and won the case;
following this, the Barclay Brothers withdrew their offer. Later, in March 2004, there
was an open auction of newspapers owned by HII -- The Telegraph newspapers
(Sunday and Daily), the Spectator magazine, the Chicago Sun-Times, and the
Jerusalem Post. The auction was handled by Lazard, and both The Telegraph and The
Spectator were sold off to the Barclay Brothers at a price of 665 million pounds in
June 2004. The auctions for the Chicago Sun-Times and the Jerusalem Post were
unsuccessful and these two publications remained with HII. However in November
2004, HII managed to sell the Jerusalem Post to Mirkaei Tikshoret, an Israeli
publisher for $13.2 million13. Mirkaei Tikshoret planned to bring in CanWest Global
Communications as a 50:50 partner.
The Special Committee‟s report on the HII investigations was made public in
September 2004. Two months later, SEC filed a civil fraud lawsuit against Black and
his associates for using funds from the company for their personal gain. In light of the
malpractices and ongoing investigations at HII, the company sought permission from
the New York Stock Exchange to delay filing its annual report with the Securities and
Exchange Commission.

Other Allegations against Black

The Special Committee, with Paris as Chairman, Graham W. Savage and Raymond
G.H. Seitz, aided by Richard C. Breeden & Co., the law offices of Breeden, filed a
detailed report with SEC dated August 2004. The committee stated that through the
years 1997-2003, Black and his affiliates took more than $400 million from the
company, which was around 95.2% of HII‟s adjusted net income during that period
(Refer Exhibit I for a brief note on the activities of Black and his associates). The
committee investigated a lot of deceptions in the financial dealings of HII, including
the initial complaints on management fees and non-compete payments. The following
sections contain a synopsis of Black‟s practices.
Management fees
Black never took a salary from HII. Instead, he and his associates took a portion of the
management fees paid to RMI. However, the amount taken by them was not
disclosed. From 1997-2003, HII paid $218.4 million in management fees to RMI, and
the amount of services vis-à-vis the compensation was never questioned by the Board.
RMI‟s fees rose more than 20% in 1998 despite a decline in HII‟s revenues. In the
following year, the management fees rose by 26% when there was a further drop in
revenues. In short, it rose from $4 million in 1995 to $38 million in 1999. In 2000,
after the sale of Canadian newspapers to CanWest, RMI continued to charge an
amount of $3.9 million for management of those newspapers. Approval for the steep
management fees was given by the Board without looking at the salaries and perks of
the top five officials of HII. On investigation, it was revealed that $196.9 million was
given as compensation to Black and others, which was 90% of the total amount paid
to RMI as management fees.

13
“Hollinger to sell Jerusalem Post,” http://news.bbc.co.uk/1/hi/business/4018393.stm,
November 17, 2004.

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Exhibit I
Alleged Fraudulent Activities by Black and His Associates
Black and his associates used the services of Kipnis, an internal lawyer, to
create false documents and transferred $9.5 million of corporate cash in 2000
without consulting HII‟s Board. Kipnis was paid a $100,000 special bonus for
this.
The proxy and disclosure statement filed with SEC contained false statements
and lack of information regarding compensation and 'other party' transactions
involving heavy outflow of cash from HII. Although the proxy statements
stated that Black and Radler, among others, were affiliates of Ravelston which
had been paid the management fees, the amount of compensation was not
indicated.
They transferred income generating assets from HII to their own entities at a
lower market value by concealing facts and making misrepresentations to the
Audit Committee.
Black and Radler took almost $80 million from HII as loans to Hollinger,
without paying market levels of interest. They also used HII‟s cash to repay
Hollinger's debt to HII and at times, did not repay HII.
They got $5.3 million from HII as „incentive compensation‟ on HII's digital
transactions by again misrepresenting the characteristics of this „unusual‟
incentive plan, and the plan was kept out of the knowledge of the Board.
Without authorization from the Board, they reduced the interest rate on a
Hollinger loan to 4.9% from 13%. This cost HII around $3.9 million in
reduced interest income.

Source: www.cbc.ca/news/background/black_conrad/hollinger_report.html

Non-compete agreements
Non-compete agreements were effectively used by Black and his allies to siphon cash
away from HII on a regular basis. Starting from 1997, there were many instances of
such transactions. In May 1998, HII sold American Trucker Company for $75 million
and received $2 million as a non-compete fee. It was alleged that this non-compete fee
was transferred to Hollinger by Black and Radler. In 1999, when CNHI acquired some
assets of HII, $12 million was transferred to Hollinger from the purchase price which
was not disclosed. Similarly, in 1999 and 2000, substantial amounts were transferred
to Hollinger as non-compete fees relating to sale of assets to Horizon Publications Inc.
and Forum Communications.
In 2000, some more newspapers were sold to CNHI, and Hollinger received non-
compete payments of $750,000. Black, Radler and other executives of HII were
reported to have received payments amounting to around $9.6 million. Both these
transactions went unrecorded in the books of HII. American Publishing Company, a
subsidiary of HII, did not own any newspapers. This subsidiary was used as a tool by
Black to generate payments in the form of non-compete fees which were not reported.
The payments were then backdated to the prior year so that they could be hidden by
relevant accounting entries. Analysts said that if these amounts had been part of the
revenue inflow to HII, there would have been better gains to the shareholders.

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Personal extravagance
According to the Special Committee report, Black filled the board with his own
nominees and ran HII like his personal piggy bank. The directors did not even
question Black as he siphoned out more than $400 million from the company. This
was equivalent to 95% of the net profits of the company for the period 1997 to 2003.
Black and his wife (Barbara Amiel Black) reportedly used $6.5 million of HII‟s
money in the form of corporate donations over the same period to contribute to causes
like New York‟s Metropolitan Opera and thus enhance their social status. The heavy-
duty expenditure which Black and his wife indulged in included $90,000 spent on
refurbishing a Rolls Royce and $42,870 spent on Barbara Black‟s birthday party at a
New York restaurant, and these were just some of the expenses that were charged to
HII. Black also wrote a book - a widely acclaimed biography of Franklin Delano
Roosevelt, for which, he used HII‟s funds amounting to $8.9 million on the purchase
of FDR memorabilia used in writing the book.
Tax avoidance/ unauthorized transfer of cash
Black and his associates created dummy companies -- Moffat Management and Black-
Amiel Management, which were registered in Barbados. Funds were transferred to the
dummy companies by way of management fees for non-existent services. In the guise
of dividends received from these companies, Black and his associates collected
enormous funds for themselves. This was a convenient way to avoid the tax net in
Canada and the USA.
Domination over a weak board
HII‟s Board came in for much criticism after the discrepancies involving financial
dealings were made public. In 2002, the Board consisted of 12 directors, 6 of whom
were insiders, holding positions in Hollinger Inc. (a Black-controlled company). Apart
from Black and his wife, the Board included David Radler, Daniel Colson, Richard
Perle, and Peter Atkinson. Kissinger, Burt and Thompson were some of the
independent directors. The Board of HII was noted for its meetings where business
issues were briefly discussed and more time was spent on discussing non-managerial
matters and long lunches. Most decisions were made or influenced by three members,
namely Black, Radler and Colson (Refer Exhibit II for background details of the
board members).
Failure of the audit system
HII‟s audit committee was considered to be a formality rather than a regulatory
mechanism for the company dealings. It approved the 26% increase in management
fees paid to RMI despite declining revenues. Apart from these, in many instances, it
approved non-competing payments of $32 million, made directly to Black, Radler and
a few others. Analysts criticized the audit committee on three counts. First was the
lack of inquiry and questioning of various decisions. Second was the failure to hire
independent agencies to look into payment matters, which would have generated
unbiased reports. The third criticism related to the speed with which the committee
gave approvals for major expenditures and strategic decisions. For example, the audit
committee decided on the payment of $38 million management fees to RMI, the sale
of two papers to Horizon for $1 million, as well as an incentive plan benefiting Black
and Radler to the tune of $5.3 million, in a single meeting lasting just one hour, in
February 2000.

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Exhibit II
Board of Directors of HII in 2002
Name of the
# Details of their background
director
1. Lord Black of Chairman and Director at The Telegraph (UK),
Crossharbour Jerusalem Post and The Spectator. Director in
various public companies in Canada-CanWest Global
Communications Group, Brascan Ltd and others.
Chairman of Advisory Board of National Interest
(Washington) and a member of International
Advisory Board of the Council of Public Relations.
2. Lady Barbara Director since 1996. Editor of Toronto Sun and a
Amiel Black columnist for many magazines – The Times, The
Sunday Times, Maclean magazine and The
Telegraph. Also a Director in Hollinger and
Jerusalem Post.
3. F. David Radler Director in HII since 1990. Also director in
Jerusalem Post, CanWest Global Communications
Group and other Canadian public reporting
companies.
4. Richard N. Director since 1994. Was Assistant Secretary for
Perle United States department of Defense from 1981 to
1988. Director in two US public companies. Also co-
chairman at Hollinger Digital Inc. and a director at
Jerusalem Post.
5. Richard Burt Director since 1994 and chairman of IEP advisors
LLP, an investment banking firm since 1994. Was
the chief negotiator in Strategic Arms reduction talks
from 1989 to 1991. Also director in four other US
public companies.
6. James R. Director since 1994. Governor of Illinois State in US
Thompson between 1977 and 1991. Has also served as director
in various other US public companies.
7. Daniel W. Director since 1995 and on the senior level of other
Colson Hollinger companies apart from other public
companies.
8. Dr. Henry A. Director since 1996. Was the Secretary of State of
Kissinger the US from 1973-77 and a member of the
President‟s Foreign Investment Advisory Board. Was
also assistant to the President for National Security
Affairs from 1969-75. Was also a director for four
US companies between 1984 and 2001. Was
chairman of the International Advisory Board of
American International Group Inc.
9. Marie-Josse Director since 1996 and also a senior fellow at
Kravis Hudson University since 1994. Also director on other
company boards.
10. Shmuel Meitar Director since 1996. Also Vice chairman of Aurec
Ltd, a major media and communications company
since 1991. Before that, he served as President of
Aurec Group that included Golden Channels, the
largest Israel television franchise as well as Israel‟s
Yellow Pages.

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11. A. Alfred Director since 1996. Was chairman of Sotheby‟s

Taubman from 1951 to 2001.
12. Peter Y. Director in 2002, prior to which he was vice
Atkinson president of HII since 1997. Held senior positions in
Hollinger since 1996. Also director in other US
public companies.
Source: www.hollingerinternational.com
*This information pertains to the year 2002. Only relevant details have been included here.

Hollinger International - A New Beginning?

HII filed its 2003 annual report in January 2005 after a delay of almost a year.
Analysts reported that HII had spent around $57 million in legal and other costs in the
years 2003 and 2004. It reported a loss of $74.3 million in 2003 (Refer Exhibit III
for income statement of HII). The stock price of HII fell following the declaration of
losses. (Refer Exhibit IV for comparison of HII stock performance vis-à-vis the
Dow Jones Industrial Average Index). In light of the damages accrued to
shareholders, HII decided to give $500 million back to the shareholders as
compensation. They decided to do this by offering a special dividend and stock
buyback. For this purpose, HII opened an escrow account in January 2005 and
transferred out some of the funds resulting from the sale of The Telegraph. On
January 18, 2005, HII paid the first special dividend amounting to $227 million to its
shareholders. On January 27, 2005, it announced a second dividend of $273 million.
At the same time, HII formally announced the appointment of Paris as its CEO and
Chairman.

Exhibit III
Income Statement of HII
(All figures in US$ million except per share amounts)
JUL APR JAN
’04- ’04- ’04- FY FY FY
PARTICULARS
SEP JUN MAR 2003 2002 2001
’04 ’04 ’04
Revenue 140.2 290.0 285.9 1,061.2 1,006.2 1,146.3
Cost of Goods Sold 97.1 179.4 187.0 657.7 585.1 726.5
Gross Profit 43.1 110.6 98.9 403.5 421.1 419.8
Gross Profit Margin
30.7 38.1 34.6 38.0% 41.9% 36.6%
(%)
SG&A Expense 57.4 90.5 92.6 338.9 309.0 367.4
Depreciation &
2.9 11.5 11.9 57.4 59.4 82.7
Amortization
Operating Income (17.2) 8.6 (5.6) 7.2 52.7 (30.3)
Operating Margin (%) -- 3.0 -- 0.7% 5.2% --
Non-operating
(18.4) (9.2) (5.5) 76.3 (121.2) (230.9)
Income
Non-operating
2.6 26.5 2.0 55.6 58.8 78.6
Expenses
Income Before Taxes (38.2) (27.1) (13.1) 52.7 (128.3) (361.5)
Income Taxes (8.4) (9.0) 13.2 121.6 67.0 (10.2)

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 Hollinger International: The Lord Black Saga

JUL APR JAN

’04- ’04- ’04- FY FY FY
PARTICULARS
SEP JUN MAR 2003 2002 2001
’04 ’04 ’04
Net Income After
Taxes (29.8) (18.1) (26.3) (68.9) (195.3) (351.3)
Continuing
(31.4) (18.6) (26.7) (74.3) (197.5) (337.5)
Operations
Discontinued
366.3 0.0 0.0 0.0 0.0 0.0
Operations
Total Operations 334.9 (18.6) (26.7) (74.3) (197.5) (337.5)
Total Net Income 334.9 (18.6) (26.7) (74.3) (238.9) (337.5)
Net Profit Margin (%) 238.9 -- -- -- -- --
Diluted EPS from
Continuing (0.35) (0.21) (0.30) (0.85) (2.06) (3.42)
Operations ($)
Diluted EPS from
Discontinued 4.04 0.00 0.00 0.00 0.00 0.00
Operations ($)
Diluted EPS from
Total Operations ($) 3.69 (0.21) (0.30) (0.85) (2.06) (3.42)
Diluted EPS from
Total Net Income ($) 3.69 (0.21) (0.30) (0.85) (2.49) (3.42)
Dividends per Share
0.05 0.00 0.05 0.20 0.41 0.55
($)
Source: www.hoovers.com
Exhibit IV
Comparison of Hollinger International Stock (HLR) Vis-À-Vis Dow
Jones Industrial Average Index (DJI)

Source: http://finance.yahoo.com

315
Enterprise Performance Management

According to media sources, Paris said that the company would continue to focus on
increasing shareholder value. Earlier, in June 2004, when Paris was the interim
Chairman and CEO, HII had negotiated an agreement with Donald J. Trump (Trump),
CEO of the Trump Organization, which allowed Trump to acquire HII‟s interest in
„The Trump International Hotel and Tower‟ in Chicago, a joint venture project
between HII and Trump Organization, for $73 million 14. This was part of HII‟s efforts
to focus on its core publishing business and also support its cash flows through sale of
assets.
Hollinger, the holding company of HII, also adopted new corporate governance
policies to start afresh. These included amending the code of business conduct and
ethics, a written charter for all committees of the Board, and policies on related party
transactions and whistle-blowing policies15. Comprehensive charters were drafted for
the Audit Committee, the Compensation Committee, and the Nominating and
Corporate Governance Committee. Further, formal job descriptions were set in place
for the Chairman of the Board and its various committees. These policies were
developed by a panel of corporate governance experts hired by an independent
committee of Hollinger. They studied the existing practices in Canada and the USA,
before framing the policies.
In July 2005, Hollinger announced the resignation of its directors, Allan Wakefield
(Wakefield) and Robert J. Metcalfe (Metcalfe). These were some of the high level
changes in the composition of Hollinger‟s Board after the exit of Black. Wakefield
and Metcalfe, independent directors during the tenure of Black, were expected to
receive a $600,000 payout as termination fees. This payout was similar to the payment
made when two former directors, Gordon Walker and Paul Carroll, exited the
company a few weeks before Wakefield and Metcalfe quit. Four new directors were
appointed to the board after their exit. The fees paid to the outgoing directors caused a
lot of criticism. However it was reported that the new board was reviewing the
compensation of the directors and was expected to make changes in the future.
According to Paris, “It is often said that the longest journey begins with a single step,
and we recognize many more steps will be needed to complete the task ahead of us.
However, the Board and management of Hollinger International Inc. are justifiably
proud to have taken these important steps in creating openness and transparency for
our company.”16
Meanwhile for Black and his associates, their legal problems only seemed to get
worse. In August 2005, Radler and Kipnis were indicted by federal prosecutors in
Chicago on charges that they had defrauded HII of $32 million. It was reported that
Radler, a long time associate and confidant of Black, had decided to co-operate with
the prosecutors and plead guilty to the charges against him. U.S Attorney Patrick
Fitzgerald said that the investigation against Black would continue.

14
“Donald J. Trump acquires Hollinger International‟s interest in The Trump International
Hotel & Tower Chicago for $73 million,” http://www.hotel-
online.com/News/PR2004_2nd/June04_TrumpChicago.html, June 24, 2004.
15
It refers to a policy where employees are encouraged to report any suspected
financial, operational, and regulatory irregularities in any shape or form to the top
management or a supervisory body.
16
“Hollinger Inc. adopts rigorous governance policies; Meets or exceeds Canadian public
company requirements,” www.2ccnmatthews.cmo, January 27, 2005

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 Hollinger International: The Lord Black Saga

Additional Readings & References:

1. Barbara Leiterman, The Ascendancy of Conrad Black,
http://www.fair.org/index.php?page=1369, December 1996.
2. Devin Leonard, Black & Blue, Fortune, October 20, 2003.
3. Conrad Black Resigns over Irregularities, www.fpp.co.uk, November 18, 2003.
4. Media Tycoon Black Denies Wrongdoing over Unauthorized Million Dollar
Payments, www.clari.net, November 18, 2003.
5. Daniel Gross, Man Overboard, www.slate.msn.com, November 20, 2003.
6. Lord Black's Ships Starting to Burn Halfway Crossharbour,
www.comiterepubliquecanada.ca, November 29, 2003.
7. Devin Leonard, Black’s Silver Lining, Fortune, December 23, 2003.
8. Barbara Shector, Hollinger Executives Accused of 'Diverting Hundreds of Millions',
www.fpp.co.uk, January 3, 2004.
9. Story vs. Story: The Soap Opera of Hollinger & Lord Black,
www.stevedenning.com, January 18, 2004
10. Barclay Twins bid for UK Telegraph, www.cnn.com, January 19, 2004.
11. The Race for Conrad Black’s Media Empire, www.news.bbc.co.uk, March 2, 2004.
12. Q&A: Battle for the Telegraph, www.news.bbc.co.uk, June 23, 2004.
13. Report of Special Committee on Hollinger International, www.cbc.ca, August 30,
2004.
14. Probe: Ex-Hollinger CEO Looted Profits, www.newsmax.com, September 1, 2004.
15. David Black, Walter Mitty Life of Media Magnate Turned Robber Baron,
www.scotsman.com, September 2, 2004.
16. Daniel Gross, The Curse of Black’s Perle, www.slate.msn.com, September 2, 2004
17. Hollinger Head Looted US$400 Million: Report, www.taipeitimes.com, September 2,
2004.
18. Jean Shaoul, Conrad Black and Hollinger International: A Financial Oligarchy Out
of Control, http://globalecho.org/view_article.php?aid=1594, September 16, 2004.
19. Hollinger International Suit against Black Dismissed, www.bloomberg.com, October
8, 2004.
20. Conrad Black: Lager-heir to London Lord, www.cbc.ca, November 15, 2004.
21. SEC Accuses Conrad Black of Fraud, www.cbc.ca, November 16, 2004.
22. Hollinger International Gets Extension to File 2003 Report, www.thestate.com,
December 31, 2004.
23. Stephen Matchett, Paint It Black, www.theAustralian.news.com, January 1, 2005.
24. Hollinger to Escrow Some Telegraph Funds, www.kfmb.com, January 15, 2005.
25. Nathaniel Hernandez, Hollinger International Files 2003 Report,
www.saettlepi.nwsource.com, January 18, 2005
26. Hollinger International Makes Series of Announcements, Including Declaration of
Dividend, www. newswire.ca, January 27, 2005.
27. Hollinger Inc Adopts Rigorous Governance Policies; Meet or Exceeds Canadian
Public Company Requirements, www.2ccnmatthews.cmo, January 27, 2005

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Enterprise Performance Management

28. Richard Blackwell, Hollinger to Share More of Telegraph Gain via Dividend,
www.theglobeandthemail.com, January 28, 2005
29. Newspaper Tycoon Under Investigation,
http://afr.com/articles/2005/03/23/1111525193955.html, March 23, 2005.
30. It's a Blackout for Conrad, www.smh.com.au/news/business/its-a-blackout-for-
conrad/2005/07/01/1119724812097.html?oneclick=true, July 2, 2005.
31. Lights Out for Black, The Age, www.theage.com.au/news/business/lights-out-for-
black/2005/07/04/1120329383454.html?from=moreStories&oneclick=true, July 5, 2005.
32. Radler Charged with Fraud, The Globe and Mail,
http://www.theglobeandmail.com/servlet/ArticleNews/TPStory/LAC/20050819/RBLAC
K19/TPBusiness/Canadian, August 19, 2005.
33. Conrad Black, www.disinfopedia.org
34. Conrad Black, www.en.wikipedia.org
35. Securities and Exchange Commission’s Complaint for Permanent Injunction and
other Equitable Relief, www.sec.gov.com
36. www.hollingerinternational.com
37. www.hollinger.com
38. www.hoovers.com
39. www.ketupa.net/black.htm
40. www.sourcewatch.org/index.php?title=Conrad Black
41. www.topix.net

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