Hollinger International: The Lord Black Saga
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Case Details:
Case Code : BECG053
Case Length : 15 Pages
Period : 1999 - 2005
Pub. Date : 2005
Teaching Note : Available
Organization : Hollinger International Inc.
Industry : Publishing
Countries : Canada, US, and UK
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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"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 Hollinger.1
"Black and Radler abused their control of a public company and treated it as their personal piggy bank."
- Stephen Cutler, SEC Enforcement Director.2
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).
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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.
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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.
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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. |
Hollinger International: The Lord Black Saga
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