Case 2 – Conrad Black and Hollinger International: All the News That’s Fit to Se
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Question
Case 2 – Conrad Black and Hollinger International: All the News That’s Fit to Sell
Read “Conrad Black and Hollinger International: All the News That’s Fit to Sell,” pages 253- 264 in Understanding Business Ethics. Thoroughly answer the questions that follow the Case Summary below.
Case Summary
The Conrad Black case is truly an international case. While headquartered in Canada, Hollinger International had spanned the globe with its operations and its questionable conduct. Born into wealth and privilege, Black acted like royalty from a very early age. His questionable conduct while seizing control of Ravelston, Argus and eventually Hollinger Incorporated or even by selling stolen test papers when he was a student certainly foreshadowed his strategic focus. He will get want he wants through any means possible. This is a classic case where the CEO has taken complete control of the firm and believes that only he knows what is best for the firm. Of course, what is best for the firm is also what is best for him. The uncontrolled power of Black highlights the complete lack of corporate governance in this case. As a result, this would be an example case to demonstrate a number of concepts mentioned in Chapter 4 on Corporate Governance and Corporate Compliance. As is shown in Table 1, it appears that the board members were selected not because of their knowledge of the newspaper industry but because of the “A list” status in social circles. Having former governors, secretary of states, an assistant secretary of defense and a former ambassador of the Soviet Union would not be an ordinary pool of candidates to help guide the strategic focus of a newspaper empire. As was mentioned in the case, the board would spend more time talking about politics over their lunch than they would at the actual board meeting. It could be argued that this lack of corporate governance could be considered the zenith of a rubber stamp board. The evidence is not only the lack of questions asked during the meetings but the complete claim of ignorance of what Black and his partners were doing after the fraud was discovered. By perceiving that Hollinger’s money was his money, Black found an easy rationale for buying FDR papers or fixing up his Rolls Royce or giving a party for his wife (and board member Barbara Amiel Black) as legitimate purchases because he was the CEO and he controlled the voting shares of the Hollinger stock (see Table 2). His ego may have reached a pinnacle when he was awarded the title Lord Crossharbour and became a member of the House of Lords. That was going to be as close as he was going to get to be considered royalty. Black worked hand and hand with David Radler to make Hollinger International a two man show. Black was the image of Hollinger while Radler was in charge of the day to day operations. Even though they were involved in the fraud together, there certainly could have been actions where neither knew what the other was doing. The partnership between Hollinger and Radler is very common in a large scale corporate fraud since the CEO usually needs a right hand person to help with the different parts of the fraud. In December 2005, Black pled not guilty to fraud charges and by May 2006 the last trances of Black’s influence were erased when Hollinger International changed its name to Sun-Times Media Group.
Major Players in the Hollinger International Fraud
Conrad Black - Title: CEO Charges: Fraud, Racketeering, Obstruction of Justice Results: 6½ Years Prison Forfeit $6.1 Million $125,000 Fine
David Nadler - Title: President Charges: Fraud Results: 29 Months Prison $250,000 Fine
Peter Atkinson - Title: VP/Lawyer Charges: Fraud Results: 24 Years Prison $3,000 Fine
John Boultbee - Title: CFO Charges: Fraud Results: 2¼ Years Prison $152,000 Fine
Barbara Amiel Black - Title: Board Member Charges: Civil Charges Results: Part of $50 Million Settlement
James Thompson - Title: Board Member Charges: Civil Charges Results: Part of $50 Million Settlement
Richard Burt - Title: Board Member Charges: Civil Charges Results: Part of $50 Million Settlement
Marie-Josee Kravis - Title: Board Member Charges: Civil Charges Results: Part of $50 Million Settlement
Henry Kissinger - Title: Board Member Charges: Civil Charges Results: Part of $50 Million Settlement
Henry Kravis - Title: Board Member Charges: Civil Charges Results: Part of $50 Million Settlement
Case 2 Questions:
1. Conrad Black continues to maintain his innocence. Can you explain his reasoning, given the facts presented in the case?
2. Why did it appear that the board of directors continually overlooked the wrong- doings by Black?
3. Explain corporate kleptocracy. Can you think of any other companies that could be described using this term?
4. Conrad Black, for the third time, won the Business Newsmaker of the Year Award. Shouldn’t this award recognize someone who represents more ethical business operations?
CASE 6 Conrad Black and Hollinger International: All the News That's Fit to Sell THE BIRTH OF A LORD Conrad Black was born in Montreal in 1944.1 Conrad has always lived an affluent lifestyle from his birth. His father, George Black Jr., was the president of the global orewing company Canadian Brewcries. His mother, Jcan Black, was the daughter of he founder of the Great West Life Insurance Company and the great granddaughter of the co-owner of the British newspaper the Daily Telegraph Showing his acumen for business at an early age, Black bought shares in General Motors when he was eight and profited from his classmates at the age of fourteen. While attending the exclusive private school Upper Canada College in Toronto, Black sold copies of exam papers that had been stolen, which resulted in his expulsion from the school. Later in life, upon reflection, Black stated he could not believe how quickly his classmates had turned on him after asking for his help the day before. When Conrad's father died in 1976, Conrad and his brother, Montegu, were nger, which was a mining company, and more than given partial ownership in Holli 20 percent of the shares in Ravelston Corporation. Ravelston had a majority control aver a powerful Canadian holding company called Argus Corporation. Argus Cor- poration had controlling interest in prominent Canadian companies such as Domin ion grocery stores, Massey Ferguson farm equipment, and Hollinger Mines. When one of Conrad Black's partners at Argus, John "Bud" McDougald, passed away in 1978, Black saw his opportunity to seize complete control of both Ravelston and 253Explanation / Answer
Conrad Black Case:
1. Conrad Black continues to maintain his innocence. Can you explain his reasoning, given the facts presented in the case?
Conrad while defending his case said that they did not steal from the Holllinger and whatever payments was diverted was due to their position as the CEO & management of the company. He also defended his case by saying that all his decisions were based on the development and benefit of the company rather than his own interest. They highlighted that the monies were the management fees and the shareholders were not hurt by the payments.
2. Why did it appear that the board of directors continually overlooked the wrong- doings by Black?
The Board of Directors were hired by Black himself and these were people from royalty and elite classes. The entire board was the classic rubber-stamp board who spent their days on lunch rather than taking any actions on board decisions. Since the board was appointed and chosen by Black himself and from his social class, they turned a blind eye towards all board malpractices.
3. Explain corporate kleptocracy. Can you think of any other companies that could be described using this term?
Corporate Kleptocracy is the term that describes the greed of the companies and the corporate executives who use multiple malpractices and wrong doings to siphon off the money from the company. They cheat the shareholders and use money for their own material benefit and comforts.
Other companies are as follows:
4. Conrad Black, for the third time, won the Business Newsmaker of the Year Award. Shouldn’t this award recognize someone who represents more ethical business operations?
Yes, I completely agree that these awards should recognize companies that are more ethical and have clean management and business operations. This will motivate and encourage the ethical companies to continue their practices and will demotivate the black ones from practicing malpractices.
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