National Post Business, July 2004

The Black Watch

How did Christopher Browne and Laura Jereski, a pair of determined Wall Street investors, bring down Conrad Black? It all started when they asked Black and his board a simple question — and got the wrong answer


Christopher H. Browne couldn’t believe what he was hearing. It was late one morning in early June of 2003, and Conrad Black, chairman and CEO of Hollinger International Inc., was sitting across from Browne in the offices of Tweedy, Browne Co. in New York. On May 22, Browne, whose investment firm owned 18% of Hollinger International, had attended the company’s annual meeting. It was a contentious event, with Browne and Black squaring off over what Browne considered hundreds of millions of dollars in excessive, unexplained management fees and non-compete payments paid to Black and other Hollinger executives.To the outside observer, it had been a vintage Black performance: Despite a litany of complaints from Browne and other shareholders, he had responded with his usual bravado and seemed as confident as ever in the hammerlock of control he had over Hollinger. But here Black was, a little over a week later, seeming defeated and, according to Browne, asking him if he wanted to buy Black out of the company. “He wasn’t his usual ebullient self,” recalls Browne of the meeting. “I wouldn’t say he was broken, but he did seem a little subdued. It seemed totally out of character for a man who always seemed to be supremely confident.” The discussion, Browne says, was brief.While Hollinger’s New York Stock Exchange-listed shares were trading for just over $11, both men believed the stock was worth somewhere between $15 and $20, so would Browne be interested in buying Black out for, say, $17.50 a share? (All figures in story in U.S. dollars.) “I told him we weren’t in the business of buying stocks at full value — we were in the business of buying stocks at a discount,” says Browne. And just like that, the meeting — which Browne says was very cordial — was over.Black left the offices and would maintain publicly that there were no legitimate concerns at Hollinger, and that Tweedy Browne’s criticism showed “contemptuous disregard for the facts.”That June conversation between Christopher Browne and Conrad Black has never been reported. Sources close to Black now say that he had no intention of selling at that point — that if he and Browne did talk share price, it would only have been in the abstract. But if their talk had come to light, it might have made the saga of the past year a little easier to understand.In public, Conrad Black defended his integrity and fought to retain control of his multi-billion-dollar newspaper empire like he always has — with panache, vitriol and seemingly endless energy. But behind closed doors, perhaps he saw what loomed ahead. Perhaps he had finally realized, better than most anyone, what kind of force he was up against in Christopher Browne and was hoping to find some sort of compromise. “Did he really want to sell?” asks Browne. “I have no idea. Maybe he was just fishing.If he was really willing to sell, why not just put the company on the block and sell it? Why bother with us? The whole thing didn’t add up.”Of course, over the next year, a whole lot more wouldn’t add up, and Conrad Black would ultimately resign as CEO, be sued with several colleagues for $1.25 billion, and watch powerlessly as a Delaware judge in February stripped him of his ability to influence Hollinger’s fate — a ruling that cleared the way for the potential sale of some or all of the company’s assets as early as the summer.That much is known. What is less known is the story of the two people who put in motion the series of events that brought the man down — Christopher Browne, a long-time partner at boutique investment house Tweedy Browne, and Laura Jereski, a Tweedy analyst and former reporter with The Wall Street Journal. Theirs is the shadow story in the Conrad Black saga, a tale of an otherwise uncontroversial investment company that went toe-to-toe with one of the most adversarial businessmen of his time.Ask Christopher Browne when it all got started, and he’ll point you to October 2001.That’s when he wrote the first letter. It was brief, not quite two pages in length, and it was addressed to each member of the Hollinger International board. Browne wanted to know how the board went about setting compensation levels for Black and other executives. Between 1995 and 2000, his letter pointed out, Hollinger had paid more than $150 million dollars in management fees to Ravelston Corp. Ltd., a private company controlled by Black and several of his Hollinger colleagues. The amounts topped $40 million in 2000 alone.To most, that would seem a reasonable question by a major shareholder of a publicly traded company. But it appears to have struck Black as impudent. After all, Black was a man who ran with kings, princes and prime ministers.He’d stocked Hollinger International’s board with the powerful and the well-connected: people like Henry Kissinger; Republican foreign-policy hawk Richard Perle; former governor of Illinois James Thompson, and former U.S. arms negotiator Richard Burt. Thus, while Browne, who then owned more than 10% of the company’s shares, would receive a prompt response from Black — the very next day, in fact — it was dismissive. Black referred to Browne’s letter as “righteous and self-pitying” and, as if speaking to a schoolchild, he wrote, “I remain accessible to you … provided you are prepared to behave more civilly than the tenor of your letter implies.”It would be two and a half years before Black effectively lost control of Hollinger International.But this first, brief exchange between the two men led directly to that last dance. Browne attended a couple of annual meetings, but mostly he and Jereski let their letters, regulatory filings and headline-grabbing quotes do the talking. Last year, when Hollinger International’s 2003 filings served up a fresh batch of disclosures, they partnered with a shareholder activist and turned on the heat. Ultimately, their demands led to the creation of the special board committee that later said Black, former president and COO David Radler and other Hollinger executives collected $32 million in “unauthorized” payments — a revelation that led to Black’s resignation last November. (Initially, Black and Radler agreed to a partial repayment, but Black later balked, claiming most or all of the payments were in fact authorized. None of these allegations have been proven in court.)There are other players in the drama, including a former chairman of the U.S. Securities and Exchange Commission (SEC) and an eloquent judge who had no time for Black’s obfuscations.But if it weren’t for the tenacity of Browne — a self-effacing value investor who has worked at the same company for 35 years — and Jereski — whom Black famously described as Tweedy’s “chief rottweiler” — it’s almost certain this wouldn’t have happened.Until now, almost no one has seen the story through Browne’s eyes. Or Jereski’s. It’s a view that answers many questions and raises a few more — as to how it went down and why. Both protagonists insist Tweedy Browne first bought Hollinger International shares in September 1999 because they felt they were undervalued.They say they’re almost accidental participants in the downfall of one of the most colourful media magnates in history. There are others, however, who say that Browne and Jereski set out from the start to topple Conrad Black and break up his company in pursuit of investment returns. If true, they’d have been incredibly savvy — yet both deny it. Still, at certain moments, their self-proclaimed navet seems strangely at odds with their experience, knowledge and connections. Whatever the case, when the opportunity arose, they wasted no time in making their move.Christopher Browne does not see himself as a giant killer. Nor, for that matter, does he look like one. In fact, he looks and acts more like a university professor: He has a serious yet genial nature, and as often as not, is dressed the part — blue shirt, red tie, grey suit and wire-rimmed glasses.Spend some time with the man, and you’d likely conclude that he’d make a good professor if he ever actually decided to give it a go.The reception area at Tweedy Browne, high above Park Avenue, is austerely decorated, with dark wood paneling and historical etchings depicting Wall Street scenes of days gone by. The place is hushed, and you get the feeling that the 45-odd people who work there spend more time thinking than talking.The office doesn’t even take up a whole floor, and it’s quite certain that it wouldn’t pass muster with a Hollywood producer who wanted to evoke a stereotypical Wall Street scene — it’s way too quiet.It all makes Christopher Browne seem an unlikely adversary for Black. Browne confirms the suspicion when he points out that, in other circumstances, he would have found it interesting to travel in Black’s circles. “Politically, he’s very close to me, in terms of being libertarian,” Browne says. “Would I like to go to dinner with Kissinger? That would be fascinating.Discussing the Iraq war is far more interesting than discussing co-op prices.” In some ways, the setting, too, shows common ground. Dark paneling, dark furniture and a conservative elegance also characterize the Toronto home of Black’s Hollinger Inc., the holding company through which he owns his stake in Hollinger International.Until the whole Hollinger saga took over the business pages, Browne had been quoted only infrequently in the press.The reason: He’s stuck to the same investment principles he’s held since he joined the firm straight out of university in 1969. Along with four partners — including his brother, William Browne — he manages more than $10 billion in assets for individuals and institutions, more than half of which is invested in two mutual funds — the Tweedy Browne Global Value fund ($5.3 billion) and the Tweedy Browne American Value fund ($734 million).The “Browne” in Tweedy Browne comes not from Christopher or William, but from their father, Howard S. Browne. Howard Browne began his career on Wall Street in 1920 as a runner. In 1945, he joined forces with Bill Tweedy, who in 1920 had founded his own firm, Tweedy & Co., focussing on closely held and inactively traded securities.Tweedy’s most influential early customer was a man named Benjamin Graham, the author of Security Analysis and The Intelligent Investor, a pioneer in the “value” investing approach. Value investing, as it has been defined since the 1930s, consists of looking for stocks that are selling below their “intrinsic value” — the estimated share value should the company be bought as a whole or sold piecemeal — and snapping them up cheap.Today, the firm remains highly respected by its peers and the investing public. Among its attributes is the fact that Christopher Browne, his partners and their employees are among the largest investors in Tweedy’s own funds. “They make more money when their funds do well than they do merely from managing those funds,” says Adrienne Carter, a staff writer at Money magazine in New York. “Anyone who has stayed with Tweedy Browne has been handsomely rewarded in the long run.” Through March 31, its Global Value fund had returned 8.9% annually over the past 10 years, versus 7.5% for the average global stock fund.Tweedy’s American Value fund returned 10.1% annually over the same time, just shy of the 11% return of the S&P 500.Tweedy Browne’s investing approach begins with something common to most portfolio managers’ offices: a computer “screen” that sifts through data on thousands of companies, tweaked to conform to that particular manager’s investment criteria. Tweedy’s model first kicked out Hollinger International as a match for its value-driven criteria in mid-1999. The file went to Jereski, she did more analysis and, that September, Tweedy Browne bought its first shares.The decision bucked Wall Street’s then-fascination with Internet stocks, but it was true to Tweedy Browne’s long-time investment discipline. Browne and Jereski say they were impressed with the cash-generating abilities of the company’s media properties and — they insist — with Conrad Black as well. “We loved Conrad’s annual reports,” Browne says. “They were so shareholder friendly — it was everything you wanted to hear from a CEO who was going to be working in shareholders’ interests.”Now it’s right here that more than one experienced investor is going to wonder about Browne and Jereski’s candour.Ask Stephen Jarislowsky, the veteran Montreal money manager, and he describes Hollinger’s financial statements as being so “convoluted” its own executives probably didn’t understand them. “People just didn’t have confidence in them,” says Jarislowsky.Jereski, apparently, was someone who did. At the time, she recalls, Hollinger seemed to be firing on all cylinders, with strong financial results at the Daily Telegraph in London, the launch of the National Post in Canada, and big-market papers in The Chicago Sun-Times and Jerusalem Post. The company was well on its way to topping $1.5 billion in revenues for the second straight year, and Black was actually simplifying the corporate structure. That, says Browne, was enough to give him confidence that the company’s stock — then trading around $11 — would soon move closer to what he and Jereski had calculated as its true value, somewhere north of $20 a share.Tweedy Browne started buying the shares in bulk, and in less than two months had bought so many that they triggered a provision in U.S. securities laws requiring them to file a 13-D form with the SEC.When a single investor accumulates more than 5% of the outstanding shares of a company, he must file a 13-D, and by October 27, Tweedy Browne had spent $56.7 million to acquire 5.2 million shares of Hollinger, or 5.26% of the company. The provision functions mainly as a deterrent to surprise hostile takeovers. But it also applies to “passive” investors like Browne, who says he just liked the assets at their going price and had no intention of interfering in the company’s affairs.Even if he were inclined to meddle with management, Hol-linger would hardly have been the obvious place for such a strategy. Through a dual-class structure, Black maintained tight control over Hollinger — at the time, despite owning a mere 30.3% of Hollinger International’s economic value, he controlled some 72.8% of the company’s voting rights. Browne and Jereski say it couldn’t have meant less to them. Jereski recalls the healthy pace of share buybacks at the time, as well as rumours that Black was considering taking the company private. While Black never confirmed the latter, he did say he’d consider more share buybacks at what he thought was a then-attractive price.That was enough for Tweedy to pour more than $100 million into the stock within just six months, making it a 10% shareholder by March 31, 2000.Browne and Jereski also paid little heed to the legendary “Black factor” — a term coined by financial analysts to explain the discount typically applied to Black’s company’s shares, due to the perception that he has insufficient regard for minority shareholders. “Did we think about it? I don’t really think we did,” Browne recalls. Jereski elaborates: “When stocks are cheap, they are cheap for a reason. And when you’re engaged in value investing, you try to decide whether the other things that you like about the company compensate for the reasons that the stock is cheap.”What that leaves unsaid, of course, is what investors of Tweedy Browne’s stature might plan to do if the reason the stock is cheap is the CEO — in this case Black. Wouldn’t they at least consider that the most effective strategy for “unlocking” the company’s true value might be to get him out of the way?Such a strategy would have been extraordinary, but it wouldn’t be the only time Tweedy Browne flexed its muscles as a shareholder to pressure management. Just two months ago, for example, it was accused of pressuring London’s Daily Mirror to fire editor Piers Morgan after his unfortunate decision to use fake photos of alleged abuse of Iraqis by U.K. troops (officially, the paper said it would be “inappropriate” for Morgan to continue).And in 2001, Tweedy Browne supported British Pubmaster — the U.K.’s leading pub company — in its attempt to acquire Midlands brewer Wolverhampton & Dudley, while simultaneously calling for the company to eliminate what it considered an overly generous options package for its directors.It’s been more than 30 years since Conrad Black first offered up his view that “a substantial number of journalists are ignorant, lazy, opinionated and intellectually dishonest.” Yet it’s hard not to think of that line, and how much it misses the mark, when sizing up Laura Jereski. After graduating from Harvard in 1983 with a degree in economics and history, Jereski spent nearly 15 years in the business press, working for Business Week, Forbes and The Wall Street Journal. By 1998, however, she was looking for a change.Chris Browne gave it to her, hiring her as an analyst.Jereski has the brash demeanor and dry sense of humour of a native New Yorker, and clearly brought the tenacity that made her a good reporter to her new job. While she won’t come out and say it, her decision to leave the newsroom must have been at least partly influenced by her experience in the courtroom. In 1993, while at The Wall Street Journal, Jereski wrote a harshly critical story about a little-known Houston brokerage firm called MMAR Group and its largest client, the Louisiana State Employees Retirement System.MMAR was out of business less than a month after the story appeared, and the company sued Jereski and Dow Jones Co. — parent company of The Wall Street Journal — for libel.In 1997, a jury found that her story had contained five false and defamatory statements and awarded MMAR $22.7 million in actual damages. But that was not all. They also tagged Dow Jones with $200 million in punitive damages and hit Jereski up for $20,000 personally. It was the largest libel judgment in U.S. history.All of the awards would ultimately be overturned in 1999 when the judge found that MMAR won thanks to “its own misconduct and misrepresentations” during the trial, but by that time Jereski would already be ensconced at Tweedy Browne. For his part, Browne says he didn’t see the lawsuit as anything to get worked up about. What mattered more was Jereski’s reputation as a hard-hitting, take-no-prisoners journalist. When they first met, she left him with a pile of her stories.”What struck me was the investigative nature in her articles,” says Browne. “Good analysis is really investigative journalism with a bit of math.” After a couple of interviews, they hired her. Today, she is one of six company analysts.It’s all the more interesting, then, that one of the stocks Jereski would ultimately be assigned to cover was Hollinger. On the one hand, they maintain, the decision to initiate coverage of Hollinger and give it to Jereski was not the result of any particular qualitative insight. On the other hand, there was Jereski, just barely out of the woods on the MMAR suit, working up some initial analysis on a company run by Conrad Black — a man who won’t hesitate to bring a law suit and thus a scourge of reporters who make the mistake of making a mistake in an article about Black or Hollinger.If Jereski’s experience had chastened her at all, it was hard to tell as the story unfolded. While Browne took care of all official correspondence, Jereski would be quoted as often in the media as he.And she would not mince words, as this quote from The Sunday Times in 2003 attests: “This has been a lucrative enterprise for everybody but us. This company is not run on behalf of its other shareholders, or with any sense of independence on the board. It abuses the rights of minority shareholders.” As their remarks piled up, the firm received a letter from Black’s counsel last summer suggesting a lawsuit was in the offing, but nothing came of it.Like all veteran investors, Christopher Browne knows that you can have the occasional down year — or two.Thus, when newspaper advertising revenues experienced a sharp downturn in 2000 and 2001 — which would ultimately help push operating income at Hollinger to $157.4 million in 2001 from $245.4 million in 2000 — Browne didn’t pull the ripcord on his investment. Instead, Tweedy Browne bought more shares, closing out 2001 with more than 10.9 million, at a total cost of $124.1 million.What Browne will not tolerate, however, is management blunders or executive decisions that seem to run at odds with the interests of all shareholders. And around that time, that’s what he began to see at Hollinger. In particular, he was concerned about the level of payments to Black’s private holding company, Ravelston. Ravelston’s shareholders also included Black’s wife, Barbara Amiel Black, a columnist for the Daily Telegraph and then vice-president of editorial at Hollinger International, Radler and other Hollinger executives. Ravelston owned 78% of Hollinger Inc., which in turn owned some 30.3% of Chicago-based Hollinger International.In a curious setup, instead of paying executives of Hollinger International their compensation directly, Hollinger International paid Ravelston several million dollars annually under a management agreement that included “strategic advice, planning, and financial services.” This was not news to Browne; what was, however, was that the fees paid to Ravelston seemed out of step with company performance.”What confused us was when the payments kept rising even as company performance was deteriorating,” he says.So he did what he says any concerned investor might have done. After a few conversations with Black that seemed to go in circles, he wrote his October 2001 letter to the board, asking them to explain how they went about setting the significant amounts paid to Ravelston. (The sums would ultimately exceed $220 million between 1995 and 2003.) It contained, in effect, a single question: “What comparative standard did you and your colleagues use, and by what process did you approve these payments?”Black chose mockery as his mode of response. He referred to an “arithmetical travesty” in a calculation by Browne about the company’s enterprise value. As to Browne’s ultimate question, Black’s answer was no help: He declared that the Ravelston fees were “valued by an independent committee of directors on the basis of whatever criteria its members judge appropriate.”Black did visit Tweedy Browne a month later, where they discussed the possibility of reduced payments, but Browne says those talks went nowhere.”It wouldn’t have been so bad if the fees weren’t four, five or six times what really hard-working newspaper people make,” says Browne. “People who aren’t writing a book at the same time,” he adds, referring to the fact that Black was known to be working on an exhaustive biography of Franklin Delano Roosevelt, published last November.Still, Browne and Jereski say not a single board member other than Black ever responded to what they considered a fairly straightforward — and completely acceptable — question. “Think about it — there just aren’t that many decisions that this board would have to make,” says Jereski. “This is the major one, and they can’t even explain to us how they made it?” (All of the board members declined interview requests for this story.)Browne now attributes the board’s lack of response to its inappropriate makeup. Each member had been hand-picked by Black, and several had business dealings with him. “Think about the circle of friends,” says Browne. “They probably just thought it was some disgruntled shareholder pissing contest.At the time, I really doubted that they looked at how much money Conrad was being paid or compared Black’s management fees with those paid at other companies of similar value.” Browne still doesn’t know what analysis they did, but he’s right to question its value. In the $1.25-billion lawsuit filed in May, the Hollinger board effectively acknowledged as much: “For its part, the audit committee did not retain its own experts or financial advisers to provide independent data and analysis regarding the management fee.”Throughout early 2002, Browne remained perturbed about what he saw as unfair use of corporate assets by Black and his executive team. By that point, too, he had begun to raise the question with Black personally about $73 million in “non-compete payments” that had been paid to Hol-linger Inc., Black and three other executives — Radler, Peter Atkinson, an executive vice-president and board member of Hollinger Interna-tional, and J.A. Boultbee, also an executivevice-president — in conjunction with three newspaper asset sales in 2000 and 2001.Browne wondered why such payments (not unusual in the newspaper industry) were being paid to individual executives (very unusual), when Hollinger International owned the papers that were sold.”The non-compete fees seemed so unique that we wanted to know how the board arrived at the conclusion to approve them,” he recalls. “We couldn’t find any precedent for payment directly to the individual executives for opportunities that belonged to the corporation.” So Browne took what he says was an unusual step and attended Hollinger International’s 2002 annual meeting on May 23 to put his questions before the board.The only problem: Not a single non-management board member bothered to attend.Browne suspects that some had begun to see the writing on the wall — or in his letter. Jereski is more pointed: “That’s when the Farewell Symphony began.” It would prove to be a long one, however, which Black apparently did not yet hear. He wrote a memo to other Hollinger executives on September 6, 2002, which stated, “[We] have pretty well won the great battle over the non-competition agreements and a decent interval has passed.”In retrospect, Black might have taken a much different route with Browne. After all, the two were in complete agreement about one thing: The stock market was not valuing Hollinger appropriately. Hollinger shares topped $15 in 2000 and 2001, but were back to between $10 and $11 for much of 2002.And Tweedy Browne kept buying, finishing the year with 13.3 million shares. By then, Browne owned 14.53% of Hollinger International — nearly half the stake that Black controlled through Hollinger Inc.Where they disagreed entirely, however, was in the need for transparency in corporate governance and in equal rights for all shareholders. With $150 million at stake, Browne felt he deserved to know how the company was spending its money. “We had too much money on the table just to walk away,” he says.Underscoring the lack of any long-term plan to unseat Black, Browne says that even as recently as early 2003, he and Jereski didn’t really understand the options in front of them; that while he’d rattled off his complaint letter in 2001, he was really more of a mindset that shareholders like himself didn’t have much power against management, especially one as entrenched as that of Hollinger.Black seems to have felt the same way, as an August 2002 e-mail he sent to two executives — and which a source close to Black says was in reference to Tweedy, among others — indicates.In it, he wrote: “We now have an unsatisfactory situation where a number of the shareholders think … we are running a gravy train and a gerrymandered share structure, and we think they are a bunch of self-righteous hypocrites and ingrates, who give us no credit for what has been a skillful job of building and pruning a company in difficult circumstances just ahead of seismic financial events.”Those same seismic financial events, mind you, had started to expose cracks in the governance of a number of high-profile companies.So it is curious that Black seems to have paid little heed to the changing tone in regulatory and legal circles. Then again, he still controlled Hollinger, and Browne’s complaints to that point had been both informal and unsuccessful. That changed when Hollinger filed its annual report, or 10-K, with the SEC on March 31, 2003. Upon reading it, Browne and Jereski were so enraged they decided the time for polite questions had come to an end.”That 10-K was really something,” says Jereski. She remembers plowing through the front of the document, which tends to include boilerplate legalese, and being stopped in her tracks by the following sentence that was apparently included at the insistence of Hollinger’s auditors, KPMG: “Lord Black is our controlling shareholder and there may be a conflict between his interests and your interests.” Not even 15 lines later, another: “Entities affiliated with Lord Black and other officers and directors of the Company engage in significant transactions with the Company, which transactions may not necessarily be consummated on an arm’s length basis.”This was a complete reversal, says Jereski: “Far from the warm words that we heard from Conrad when we first invested — about his being shareholder friendly — this was a document that basically said his interests were at conflict with ours.”Jereski was particularly incensed, she adds, with new disclosures about the deals between Hollinger and other publishing entities that showed Hollinger executives were effectively on both sides of the transactions. The board had approved these deals despite an apparent conflict of interest that could damage the interests of Hollinger shareholders.At this point, someone who would prove quite helpful in the effort to shine some light on Hollinger’s internal decision-making contacted Browne. His name was Bert Denton, and he was the president of Providence Capital, an activist investment and brokerage firm based in New York.In April 2003, Denton had received a phone call from another Hollinger shareholder, Gene Fox of Greenwich, Conn.-based Cardinal Capital. Fox had asked Denton to look at the 10-K and think about ways of effecting change at the company. “We told them that they could project enough energy into the boardroom through a publicity effort, the force of logic, and the Delaware courts to cause the board to grab Conrad and bring him back to earth,” says Denton.Denton, Fox and, increasingly, Browne and Jereski, were highly attuned to the changing regulatory order, in contrastto Black.They realized that even though they couldn’t outvote Black directly, they could exploit his corporate structure’s Achilles’ heel — the board’s accountability; the fact that its members can be sued for failing to act in the interest of all shareholders, even if this means opposing the will of the majority shareholder.Cardinal ultimately decided to do just that, suing the board late last year. Not convinced it was the best initial approach, Denton contacted Chris Browne. “We dropped by and had a quick meeting. He thought our ideas were interesting and said he was open to further discussion.” Denton enlisted Robert Curry, a partner at New York law firm Kirby McInerney & Squire, which specializes in securities litigation and corporate governance issues, and went back for another meeting with Browne.The subject of their early discussions, interestingly enough, was not about Hollinger. Rather, it was about Walt Disney and the firing of its one-time president, former Hollywood uber-agent Michael Ovitz.At the time, a case filed by Disney shareholders was working its way through the Delaware courts (where Disney, Hollinger and the majority of U.S. companies are incorporated). It claimed that Disney’s directors breached their fiduciary “duty of care” to the corporation in both approving Ovitz’s employment contract and in failing to consider the terms of his firing — and $140-million severance payment — just a little over a year later. Denton and Curry were not alone in noticing that, in the wake of the corporate scandals of the late 1990s, Delaware judges were becoming more active in policing the behaviour of corporate management and board approval thereof, especially as regards executive compensation.In a hastily convened meeting with Curry and Denton at Tweedy Browne’s offices in April, Browne and Jereski figured they could make a similar case at Hollinger.Tweedy Browne would make a demand of the board to investigate the payments to Ravelston and the individual Hollinger executives. If the board failed to investigate, they faced the threat of a lawsuit. Simultaneously, Browne decided to take their case to the business press, thinking that might also prod the board into action. “What’s often forgotten here is that this is not about Tweedy Browne and Conrad. It’s Tweedy Browne and the board,” says Browne. “Did we force him to step down? No. We had nothing to do with it. All we did was ask the board the same question we’d been asking for months: ‘What was the approval process for hundreds of millions in management fees and non-compete fees?’” Adds Jereski: “All we wanted was for them to explain it to us slowly, in words of one syllable.”With the help of Denton, Browne compiled a list of issues that ran 17 pages, the majority of which were culled from Hollinger’s own regulatory filings. On May 19, 2003, Tweedy Browne filed an amended 13-D that took issue with the Ravelston service agreements, the non-compete payments and asset sales to affiliated entities.Tweedy Browne was no longer a passive investor, but one intent on forcing the board into action. At the same time, Curry sent a letter to the board seeking to recoup the $73 million in non-compete payments.”You know what’s interesting?” says Curry. “The market had put such a significant discount on Black that every time we turned over a new rock, instead of the stock price going down, which is normal, it went up. The market ultimately determined that Tweedy Browne, which has an exemplary reputation for rectitude, was going to see this thing through.”A few days later, at Hollinger International’s annual meeting, Browne asked Black and audit committee head James Thompson if they knew of any precedent for the non-compete payments being made to individual executives. They did not. But Black was not deterred, and said later that, “Like all fads, corporate governance has its zealots.” Browne later told an interviewer that calling corporate governance a fad “is like calling the Internet a fad.”Remarkably, mission one seemed on the verge of success: At the meeting, Black tentatively agreed to the creation of a special committee of the board of Hollinger to investigate the issues raised by Tweedy Browne. Just under a month later, Hollinger established that committee, headed by newly elected board member Gordon Paris and aided by former SEC chairman Richard Breeden.From Browne’s perspective, he’d finally gotten somewhere: He’d apparently convinced the board that it needed to start doing its job.”Are you going down to Delaware next week?” Christopher Browne asked this reporter in an e-mail in mid-February. “It should be quite a show.” He was referring to an upcoming court date, at which Black was to argue – unsuccessfully – that he still had the authority to sell the holding company, Hollinger Inc.Browne was there, but only as a highly interested spectator. That’s been pretty much his and Jereski’s role since the special committee formed last summer. Its work led to the announcement last November that it had found $32 million in unauthorized payments to Black and three other Hollinger executives. The news broke just as Black started a press tour for his book on FDR. He agreed to step down as CEO and repay his share of those payments.In January, Black said his lawyers had found evidence indicating that the payments may have been approved, and refused to make restitution. The committee disagreed and forced him out as chairman. (Of the other three executives, Radler repaid his share, while denying wrongdoing, Boultbee claimed they were approved and sued for wrongful dismissal, while Atkinson reached an out-of-court settlement on all concerns.) Black then attempted to outflank the committee by selling Hollinger Inc. to the Barclay brothers – a reclusive set of British twins whose ultimate goal was a controlling stake in the Daily Telegraph – but the board blocked that sale.Its victory came in the February suit in Delaware. In his ruling after an expedited one-week trial, Judge Leo Strine said he found Black “evasive and unreliable” and that his explanations of key events did not “have the ring of truth.”More recently, the special committee went back to court to file a $1.25-billion lawsuit against Black, Radler and other executives, charging, among other things, the unauthorized transfer of Hollinger’s cash to themselves, the violation of fiduciary duties of loyalty, care and fair dealing, and the usurping and waste of corporate assets. Ravelston responded on behalf of all co-defendants, saying the “vast majority” of agreements and deals in question were “reviewed and approved” by the company’s independent directors.Interestingly, Browne and Jereski share some motivation with Black at this juncture – they continue to insist that members of the Hollinger International board be held to account.In May, they took issue with aspects of the special committee’s $1.25-billion suit, and fired off a letter in protest. As far as they’re concerned, the lawsuit, while extensive in detailing Black’s alleged financial misdeeds, doesn’t hold the board accountable for its own failings.”My biggest concern with the suit as filed is this,” says Jereski. “It wraps the management services payments – which are the biggest chunk of money out the door and were squarely the responsibility of the board – in with other monies that Conrad may or may not have misled the board about.”One thing they can take comfort in: Their investment sense has been vindicated. Since Black resigned, Hollinger International shares have traded as high as $20.Meanwhile, in preparing for the asset sale, the company was valued at $18 to $24 per share – the same as Browne and Jereski’s original target in 1999.What’s left, then, are the two questions with which we started: What motivated Browne and Jereski? And how did Hollinger’s board decide to pay Conrad what it did?Among those who insist that Tweedy’s actions were all part of a premeditated campaign is Black’s long-time friend, business associate and Hollinger Inc. executive, Peter White. In a February speech, White said that Tweedy Browne “feelsit must sometimes destroy companies and reputations in pursuit of higher investment returns.” In an allusion to greenmail, the Wall Street practice of buying up shares of a company and forcing management to buy them back at a premium or face the possibility of a takeover, he suggested a new term called “Browne-mail,” or “the practice of using legal and media pressure to force a board of directors into launching investigations and involving regulators, in an attempt to gain control of an unsuspecting company and break it up.”White, of course, is much more free to speak his mind on Browne and Jereski’s motives than, say, Conrad Black.Still, a source close to Black confirms that relations between Browne and Black were originally just fine – something Browne has repeatedly maintained. Over time, however, that source says that both Browne and Jereski became increasingly hostile and that no efforts on Black’s part were able to satisfy them.For their part, neither Browne nor Jereski will even entertain the idea of a response to White’s speech. “Those are comments made by an executive of a company we don’t even own shares of,” says Jereski. Browne nods his head in agreement. When pressed as to whether they really had mapped out a five-year plan when they first bought shares in 1999, Browne and Jereski are emphatic. “This wasn’t well planned in advance,” says Browne. “It was more like the decision to go into Iraq. We had no game plan.” Jereski concurs: “There was no campaign, no end game in sight. That’s not how we do things here. We owned stock in a company whose performance was deteriorating minute by minute, that had a CEO who kept taking more and more money out.All we asked was, ‘How are you guys deciding to give him this money? On what basis?’ Because it sure wasn’t performance. That’s a question, I might add, that we still don’t have an answer to.”And so one more chapter remains: Tweedy Browne has set its sights on the board members and says it won’t go away until its original question is answered. “This can be an example that boards will be held to a higher standard going forward,” says Browne. “There was outlandish disregard for shareholders – all these things going on and no one really gave a shit. And they should have.” Odds are, before Browne and Jereski are done, they will.SEPT. 3, 1999 Tweedy Browne Co. (TB) buys first shares of Hollinger International Inc. (HI)OCT. 27, 1999 TB discloses it now holds a 5.26% stake in HIOCT. 16, 2001 TB’s Christopher Browne writes HI board, asks how it calculated “management fees” paid to Conrad Black’s Ravelston Corp. Ltd., which topped $40 million in 2000MAY 23, 2002 Browne goes to HI annual meeting to put fees question to the board, but no non-management directors attendMARCH 31, 2003 HI annual 10-K filing includes disclaimer noting potential “conflict” between HI’s interests and those of Conrad BlackMAY 19, 2003 TB files new concerns with SEC over Ravelston service fees, noncompetes and asset sales to affiliated entities. TB also demands HI board recoup $73 million paid in non-competesJUNE 17, 2003 HI creates special committee of directors to look into TB allegationsNOV. 6, 2003 Special committee tells Black it found he, president/COO David Radler and HI execs Peter Atkinson and Jack Boultbee were paid $32 million without board approval. Atkinson later settles with HI. Radler also repays, but he, Black, Boultbee say payments approvedNOV. 11, 2003 Black contacts Barclay brothers to discuss their desire to buy Daily Telegraph, then Hollinger Inc.NOV. 17, 2003 Black resigns as HI CEO, Radler leaves too. Moves are part of a “restructuring proposal” in which Black stays as HI chairman to help with asset sell-offJAN. 17, 2004 HI board ousts Black as chairman. The next day, Black announces “sale” of Hollinger Inc. to Barclay brothers. Struggle leads to February trial, in a suit brought by the special committee against Black to stop the Barclay deal.FEB. 20-26, 2004 In court, Black denies taking unauthorized payments. Judge denies his authority to sell Hollinger. Says Black “breached his fiduciary and contractual duties persistently and seriously”MAY 7, 2004 HI special committee files $1.25-billion lawsuit against Black, Radler, other associates; includes allegations of racketeering and fraud. Black, Radler, others deny charges, say deals were approved.

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