A Kleptocrat in the Boardroom?

Corporate Research E-Letter No. 49, September-October 2004


by Philip Mattera

In the past, the word kleptocracy – rule by thieves – was typically used to describe corrupt third world despots such as Papa Doc Duvalier in Haiti and Ferdinand Marcos in the Philippines who plundered their own country’s wealth. In recent weeks, the word has gained new currency on the business pages of Western newspapers following its use in an extraordinary report issued by a special board committee at Hollinger International, owner of the Chicago Sun-Times and other major newspapers.

The special committee, headed by former Securities and Exchange Commission chairman Richard Breeden, accused Conrad Black, former chairman and chief executive of Hollinger, and F. David Radler, former deputy chairman and president, of “aggressive looting” during their time running the company. The report charged that “self dealing, misrepresentation and other abusive and unethical practices had become so ingrained in the corporate culture [of Hollinger] that they became commonplace.”

Whereas most greedy corporate executives are content to skim some of a company’s cream, Breeden accused Black and his associates of appropriating nearly the whole dairy. The report describes “a myriad of schemes, fiduciary abuses and fraudulent acts that were used to transfer essentially the entire earnings output of Hollinger” into the pockets of the Black group. The take was estimated at several hundred million dollars.

The Breeden report is a rare example of an official document in which executive greed and corruption are described in blunt terms. The story is even more tantalizing given that Conrad Black is not just another businessman. His background as an arrogant press baron with a right-wing agenda is second only to that of Rupert Murdoch. He has been a major funder of the neoconservative movement that is now under attack for its role in fomenting the invasion of Iraq. Moreover, Black filled his board of directors with the likes of Henry Kissinger and Richard Perle, whose reputations have now been tainted by their dismal performance as overseers of Hollinger’s affairs.


Breeden’s 500-page report describes an array of methods by which Black and his associates appropriated vast sums of Hollinger corporate funds. Among these were:

“Excessive and unjustifiable management fees.” In addition to running Hollinger, Black was the company’s majority shareholder. He arranged for Hollinger to pay large management fees to private entities controlled by him and Radler. Breeden reported that these fees, which had not been disclosed to minority shareholders, amounted to more than $200 million since 1997.

Questionable payments. Black and his associates arranged to receive personal compensation in connection with various transactions undertaken by Hollinger. “In one case,” the Breeden report states, “Radler simply ordered Hollinger employees to pay himself, Black and two others $9.5 million in cash at the closing of a transaction, even though the related agreement didn’t provide for any such payment. He then authorized the employee who helped implement the cash transfer to pay himself a $100,000 special bonus.”

Company payments for personal expenses. Like Dennis Kozlowski at Tyco International, Black is accused of using corporate funds to support his lavish lifestyle. The Breeden report cites cases of questionable real estate transactions and use of a company jet for personal trips as well as social events such as a birthday party for Black’s wife that cost Hollinger $42,870. Among the 80 guests at the event, the report notes, were media superstars Peter Jennings, Barbara Walters and Charlie Rose.

There are many more allegations, including charges that Black arranged for his wife to get a “no show” corporate post with a $1.1 million salary and that he frequently saw to it that Hollinger made charitable contributions that he had committed to personally and for which he and his wife took credit. According to Breeden, “Hollinger was used as a piggy bank for the Blacks.”


The cloud hanging over Black is all the more significant because of the heights to which he had risen in the corporate world over the past quarter-century. In 1979 Fortune magazine anointed him “the boy wonder of Canadian business.” Black, then 34, had just maneuvered to gain control of Argus Corporation, the parent company of several of Canada’s largest businesses, including farm equipment giant Massey-Ferguson and Dominion Stores, the country’s leading supermarket chain.

Black was not satisfied with being recognized in the corporate world; he wanted wider fame and influence. He achieved this by turning himself into a press baron. Beginning in the mid-1980s, he began acquiring newspapers on several continents, including Britain’s Daily Telegraph, Israel’s Jerusalem Post and Australia’s Sydney Morning Herald. In Canada he went on an incredible buying spree, eventually taking control of more than half of all the dailies in the country, including major papers such as Montreal Gazette and the Vancouver Sun. He also started a new Canada-wide daily called the National Post. In the United States he acquired the Chicago Sun-Times and many smaller papers.

By the late 1990s, Black had amassed the third largest newspaper group in the Western world (ranked by total circulation), trailing only Murdoch’s News Corp. and Gannett. Revenues of the group, which came to be called Hollinger International, climbed to more than $2 billion.

Black generally did not endear himself to his employees. He clashed with newspaper unions as he moved to cut costs, especially headcount. He once called journalists “ignorant, lazy, opinionated, intellectually dishonest and inadequately supervised.”

Journalists (though not those writing in his papers) responded in kind, describing Black as a pompous social climber. They chronicled his very overt effort to obtain a British knighthood, which he finally achieved only after renouncing his Canadian citizenship.

In a 1994 profile the Wall Street Journal called him “an incorrigible name dropper” and dismissed his published autobiography as “a self-serving, navel-gazing” work. Articles on Black frequently made snide references to his preoccupation with Napoleon Bonaparte, pointing out that the press lord liked to make important decisions while seated in an antique chair that was supposedly once used by the French emperor.

Black also generated controversy in some quarters because of his close ties with prominent conservatives. For a long time, Black arranged for Hollinger to pay generous fees to the likes of Margaret Thatcher, Henry Kissinger, William F. Buckley Jr. and George Will to advise the company, though critics say Black’s real motivation was to be able to hobnob with luminaries of the Right. In the years before his downfall, Black and Hollinger became a leading sugar daddy for conservative (and neoconservative) publications such as the National Interest and the New York Sun.


Black’s halcyon days started to come to an end around 2000. He arranged for Hollinger to sell most of its Canadian papers to help pay off the company’s debt, which had risen to an alarming level. The asset sales were not enough to stabilize the company, and Hollinger’s stock price began to decline. By the time Hollinger held its annual meeting in May 2003, some of the company’s large minority shareholders were in open revolt.

Money management firm Tweedy Browne successfully pushed Hollinger’s outside directors to launch an investigation of the company’s finances. At the center of the probe was to be questionable payments received by Black himself and some of his associates in Ravelston Management Inc., the private firm through which Black held his 73 percent stake in Hollinger. Specifically, minority holders were concerned about more than $70 million in payments made by the purchaser of Hollinger’s Canadian newspapers that ended up in the hands of Black and his Ravelston associates rather than in Hollinger’s account.

As the evidence of financial irregularities grew, Black found himself on the defensive. He lashed out at the minority shareholders, calling them “governance terrorists,” but the tide had turned against Lord Black. In November 2003 he stepped down as chief executive of Hollinger, and two months later he agreed to sell his holdings in the company. There were also reports that Black was the subject of a criminal investigation.

The recent Breeden report seems to increase the chances that Black may have to fight to stay out of prison. Also in the hot seat are some of Hollinger’s former directors. The report went easy on Henry Kissinger but came down hard on Richard Perle, the controversial former Pentagon official and prominent neoconservative.

Breeden charged that Perle “repeatedly breached his fiduciary duties” as a member of the board’s executive committee by failing to challenge the many questionable transactions involving Black and his associates. The report also notes that Perle received more than $3 million in undisclosed bonuses from a Hollinger subsidiary and that he arranged for Hollinger to invest in his Trireme Partners venture capital fund. “As a faithless fiduciary,” Breeden wrote, “Perle should be required to disgorge all compensation he received from the Company.”

Perle is now telling reporters that he was duped by Conrad Black, who meanwhile has filed a defamation suit in an Ontario court against the Breeden committee, asking for $1 billion (Canadian) in damages. Black seems to be preparing for a defense like that used by executives at Tyco—that the lavish payments and perks he received were authorized and thus were not criminal. If that’s the case, it implies that the outside directors were failing to do their job.

The question surrounding the looting at Hollinger may come down to whether larcenous executives or negligent directors are to blame. The worry is that neither category of culprit may ultimately be held to account.