The New York Times published its story about John McCain’s hypothetical steamy relationship with telecom lobbyist Vicki Iseman when it did because the people who run the paper believe the future of the U.S., and of the world, will be determined by who the nominees are, and by the outcome of this year’s election.
With the election less than two months away, the Times-excuse me?
Yes, that’s what I said: less than two months away.
Wait a sec-you weren’t thinking of that election, were you? The one that decides which narcissist gets to pad around the White House late at night and to become a member of the Mile-High Club in Air Force One’s bedroom?
No, I’m talking about the election that’s genuinely crucial to the newspaper’s senior management, the one that’s going to be held on Tuesday, April 22, 2008, the one that decides who the directors of The New York Times Company are going to be.
Have a look at a chart of the company’s Class A stock and you’ll see why. (The holders of the Class B shares, 89 percent of which are owned by descendants of Adolph Ochs, who bought the Times in 1896, elect nine of the company’s 13 directors.) In 2002, Times shares were as high as $53. The stock is now trading below $20. During the same period, the S&P 500 index has gone from about 1,000 to more than 1,300.
The decline of the A shares has had two effects. It has attracted the attention of a group of investor/kibbitzers who, as you read this, are engaged in a proxy battle to have their slate elected to the four Times board seats that represent shareholders unfortunate enough not have been born into the Ochs-Sulzberger family. The group hopes its directors can hector the clan’s directors into selling off the company’s non-core holdings (e.g., 17 percent of the Boston Red Sox, not to mention full ownership of that journalistic bastion, the Petaluma Argus-Courier, circulation 7,400-I kid you not) and buy additional Internet-based businesses with the goal of obtaining most of its revenues from Web advertising by 2013. And it has wonderfully concentrated the minds of the paper’s senior managers.
Nothing can be done about the overriding tribulation of the dead-tree press: the enormous expense of growing, cutting, pulping, shipping, printing, folding, and delivering the end-product of the deciduous deceased. But dead-tree diehards believe the value added to the newsprint product can be increased, while simultaneously being leveraged into digital content. The key to it all, as they see it, is that old standby, the scoop. And the best kind of scoop a newspaper can have is the kind where the paper itself becomes the story.
It’s been a long, long, l-o-n-g time since a newspaper has truly succeeded at placing itself at the center of a story. Woodward and Bernstein’s Watergate series did it for the Washington Post, but that was in 1973. The publication of the Pentagon Papers did it for the New York Times-37 years ago.
Sources at the New York Times have told me that “the masthead”-the paper’s top 13 editors, from assistant managing editor on up-has been under relentless pressure from publisher Arthur Ochs Sulzberger Jr. to come up with stories that will themselves make news. In Sulzberger’s view, the only instance in which the Times has shot and scored during the tenure of the paper’s executive editor, Bill Keller, who was appointed in mid-2003, was its coverage of warrantless surveillance of phone calls to and from the U.S., for which James Risen and Eric Lichtblau received the 2006 Pulitzer Prize.
So it’s not a coincidence that the McCain-Iseman story was published the same day-February 21-as The New York Times Company submitted to the Securities and Exchange Commission (SEC) the preliminary proxy statement for this year’s annual meeting. The statement warns shareholders: “Please note that Harbinger Capital Partners NY, LLC and certain of its affiliates have notified us that they intend to solicit proxies for and nominate at our Annual Meeting their own slate of four nominees for election as directors, in opposition to four of the nominees we have selected. Our Board of Directors unanimously recommends a vote for the election of each of our Board’s nominees on the enclosed WHITE proxy card and urges you not to sign or return any proxy card that you may receive from Harbinger.” [Boldface and capitalization in the original.-CSK]
The masked challenger here is one Scott Galloway, who founded an e-commerce site www.redenvelope.com during the dot-com boom and lived to teach brand strategy at New York University’s Stern School of Business and to conduct the business of his “operational activist investment firm,” Firebrand Partners, from his academic office. Galloway has teamed with Harbinger Capital Partners, a unit of Birmingham, Alabama-based hedge fund manager Harbert Management. Harbinger has been accumulating New York Times Company Class A stock, in the past month tripling its position to 15.6 percent of the outstanding shares, worth $395 million. Firebrand/Harbinger LLC is now the New York Times Company’s largest shareholder.
On January 27, after Sulzberger and Janet Robinson, the New York Times Company’s CEO, had declined to meet with him, Galloway wrote to them on behalf of Firebrand/Harbinger:
It has been, and remains, our intention to pursue this effort in a spirit of cooperation with the Board and management that moves beyond the old dichotomy of “hostile” and “friendly” and focuses instead upon our shared interest in building shareholder value. . . .
I want to assure you that we are not pursuing a change in the dual class shareholder structure. The New York Times is a great institution controlled by the Sulzberger family and we have no illusion about, or desire to change, that fact. Our efforts are focused on how we can work with management and the Board for the benefit of all stakeholders.
The New York Times is the world’s foremost evangelist for democracy, capitalism and culture. This “public trust” is not at odds with the pursuit of shareholder value, but is complementary, as the Company’s ability to fulfill this role is a function of its economic viability. The greatest threat to The New York Times is the continued diminution of its business model and destruction of shareholder value, both of which imperil the Company’s ability to invest in and maintain the tradition of journalistic excellence that has made The New York Times one of the most trusted brands in the world.
There is nothing wrong with The New York Times Company that cannot be fixed with what is right with The New York Times. We believe a renewed focus on the core assets and the redeployment of capital to expedite the acquisition of digital assets affords the greatest shareholder appreciation and creates the appropriate platform to compete in today’s media landscape.
The current Board, while impressive in stature, has not been effective in inspiring the requisite bold action this media environment demands. Our nominees bring deep expertise in capital allocation, Internet media and brand strategy. In addition to myself, our director nominees include: Allen Morgan, Managing Director at venture capital firm Mayfield Fund, whose investing practice focuses on Internet media; Gregory Shove, a former executive at AOL and advisor to Firebrand Partners; and James Kohlberg, co-founder of private equity firm Kohlberg & Company. We are also joined in this effort by Harbinger Capital Partners, which has a long track record of identifying undervalued public companies with untapped potential and investing substantial resources to maximize shareholder value.
Our desire is to serve as an honest broker between the Company, its stakeholders and the opportunities presented for shareholder appreciation. In our meeting, we hope to discuss the optimal capital structure and a path for transforming The New York Times from a low growth company to a robust firm that is both the newspaper of record and the most trusted starting point on the Internet.
I look forward to hearing from you.
The letter resulted in a meeting on February 8 between Sulzberger and Robinson and the would-be directors, which was followed by the Times‘ warning to its shareholders not to vote for any of them.
Though it’s not clear what, if anything, Firebrand/Harbinger would actually bring to the boardroom table besides a desire to save The New York Times Company from itself, plus some advice they’ve paid almost half a billion dollars to give, it’s conceivable that they’ll get their slate of directors elected. At the 2006 annual meeting, after Morgan Stanley portfolio manager Hassan Elmasry, who’d bought 7.6 percent of the A stock, had been campaigning against the two-tiered voting system, Class A holders withheld 30 percent of their votes from the Times’ management’s slate to protest the company’s anemic performance. At 2007’s meeting, 42 percent were withheld. Not only is the trend line of disgruntlement soaring skyward, but this year disaffected shareholders will be able to vote for Firebrand/Harbinger’s slate. A-share owners who in previous years could only express their frustration symbolically are going to have a chance to put their mouth where their money is.
On February 21, The New Republic posted an article by Gabriel Sherman that offered a interesting account of how the McCain-Iseman story-non-story, actually, given its un-Gray-Lady-like reliance on innuendo so minimally sourced it should really be called minuendo-got published. Sherman writes that the reporting began in November 2007, was leaked to Drudge Report in late December, went through several drafts in late December and January, and didn’t assume its final form till February 19. Sherman writes:
In fact, McCain advisers stated that TNR’s inquiries pressured the Times to publish its story before it was ready so this magazine wouldn’t scoop the Times’ piece. “They did this because The New Republic was going to run a story that looked back at the infighting there, the Judy Miller-type power struggles-they decided that they would rather smear McCain than suffer a story that made The New York Times newsroom look bad,” [McCain campaign aide Mark] Salter told reporters last night in Toledo, Ohio.
One of the characteristics of journalism is that the buzz is almost always inside baseball regarding editors and reporters, with seldom a mention of anyone on the corporate side-the people who hire, fire, and supervise the top editor, for whom the rest of the editors and the reporters work.
I think it’s possible that the fact that the New Republic was working on a story played a role in the Times‘ decision to run the McCain-Iseman piece sooner rather than later. But the likelihood that the piece was going to be held back much longer at a time when the competence of the New York Times Company’s management is about to be put to a vote is zero.
The Times‘ proxy solicitation will soon be in the mail. Firebrand/Harbinger has retained heavyweight D.F. King & Co. to do its proxy solicitation, and plans to submit its preliminary proxy statement to the SEC this week.
Arthur Sulzberger is hoping that the splash made by the McCain-Iseman piece, which has put the Times at the center of the story once again, will wow all those non-Sulzbergers who are going to receive the proxy materials, showing them that there’s life in those dead trees yet.
Craig Karpel is a journalist in New York.