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For The Times, Corporate Democracy Lags at Home

Tuesday, April 24, 2007

The newspaper company should preach what it practices.

Why can’t the beleaguered shareholders of the New York Times Company enjoy the corporate democracy that the paper’s opinion makers tirelessly advocate?

There are few more fervent cheerleaders for what some call “shareholder democracy”—that is, the power of stockholders directly to elect directors, just like voters elect Senators—than the writers and editors at The New York Times.

The New York Times Company held its annual meeting today, and shareholders were not pleased.

A typical editorial, in 2003, hailed the arrival of a “New Sheriff on Wall Street”—Bill Donaldson. The Times urged him to “see that more is done to shore up shareholder democracy.”

Then, of course, there is Gretchen Morgenson, the front-page Sunday business columnist for The Times (who does double-duty as a news reporter). Her columns stand up for the powerless shareholder who is, in her view, at the mercy of the bullying CEO. Larry Ribstein, the distinguished professor of corporate law, has made an avocation out of chronicling her rhetorical excesses.

In one piece, she exulted: “Shareholders are finally awakening to the fact that some corporate directors must be forced to live up to their duties and mind the store for the owners they are supposed to represent.” That piece was headlined, “One Share, One Vote: One Big Test.”

While others disagree (including Peter Wallison, who will explain his point of view in the forthcoming May/June issue of The American), Morgenson and the Times editors argue that a corporation should function much like a political democracy. Holders of equal numbers of shares should not have unequal power.

Their employers don’t seem to agree. The New York Times Company held its annual meeting today, and shareholders were not pleased. Some 42 percent of them voted to withhold their support from the slate of directors in order to protest both the dismal performance of the company and the distinctly undemocratic nature of its ownership structure. That structure is a classic example of the divergence between corporate organizations and political ones—and Arthur Sulzberger Jr., who serves as the company’s chairman and the publisher of its namesake paper, says his family is “firmly and unanimously committed” to maintaining it.

While its editorial pages campaign for a classless society, the Times’s corporate set-up gives special power to one group: the Sulzberger family, which owns 89 percent of l Class B shares. Those shares allow them to elect nine of the 13 directors. The other four are elected by Class A holders, who voted at the shareholders’ meeting today.

Since the family also owns 20 percent of Class A shares, the 42 percent vote to withhold support of directors indicates that a majority of non-family shareholders oppose the current regime.

And it’s no wonder shareholders are upset: Times stock has fallen by half over the past three years. Profits dropped in 2004 and 2005, and then in 2006, the company suffered a $543 million loss. In the first quarter of this year, earnings fell by one-third.

Meanwhile, the Times suffers from entrenched, unimaginative management. Institutional Shareholder Services and Glass, Lewis—two organizations that advise institutions on how to vote proxies—recommended a “withhold” vote today. But to no avail.

If it’s good enough for the Times, why shouldn’t a divided ownership structure—whose defenders argue it helps businesses by encouraging a longer-term approach to big decisions—be encouraged for other companies? Will Morgenson deliver another blistering column about shareholders being denied their rights this Sunday? Somehow, I doubt it.

 

David Robinson is Managing Editor of The American.

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