Dateline, March 6, 2007, Chicago
The Tribune Company has garnered a lot of press during the last six months over various proposals to restructure the media conglomerate, which includes the Chicago Tribune and the L.A. Times. Will it sell off divisions, go private, undergo a takeover by another media company, or undergo some other major restructuring? Who knows, but possibly under consideration is a management buyout or an effort to buy-out the interests of the dissident Chandler family (with a 20% ownership stake). Enter the Robert R. McCormick Tribune Foundation. The foundation, along with related entities, controls over 13% of Tribune company stock. Steve R. Strahler of Crain’s Chicago Business reports that the foundation’s most recent filings show that somewhere around 75% of the foundation’s holdings are in Tribune Company stock. Steven R. Strahler, Tribune Foundation Catches AG's Eye, Crain's Chicago Business, Mar. 4, 2007. That raises obvious diversification questions. Guess who is looking at the duties of current foundation directors?
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Yes, it is Attorney General Lisa Madigan. Madigan’s office is charged with regulating charities in the State of Illinois. As regular readers of this column know, we often disagree with Madigan, who we find to be a tad to aggressive in her efforts to legislate through the Attorney General’s office. This time, however, we share her concerns
Strahler notes that Dennis FitzSimons is CEO of the Tribune Company, Scott Smith is the President of Tribune Publishing, and David Hiller is the publisher of the Tribune Los Angeles Times. He reports that these three individuals also serve on the foundation’s five-member board of directors, together with former Tribune officers John Madigan and James Dowdle. We are unable to confirm this through the Forms 990 available on GuideStar. The last one is for 2005 and it shows six directors.
Those overlapping relationships raise the obvious question: Can the existing officers/directors act in the foundation’s best interests when making decisions with respect to the foundation’s Tribune Company holdings? Any decision will have significant consequences to them as officers of the Tribune Company and related entities. If the foundation owned 1,000 share of Tribune Company stock, this wouldn’t be such a big deal. If the Tribune Company stock had doubled in value in the last year, there might not be as much concern—although there should be as a matter of law. As noted, the foundation controls a significant block of Tribune Company stock. And according to Strahler, the price of Tribune Company stock has declined by 43% since February 2004. As Strahler notes, the S & P 500 has increased 13% during the same period. Setting aside the question of stock value, paper-based media companies aren’t exactly the place anyone should concentrate their wealth these days. In fact, Strahler reports that under at least one plan, the foundation's holdings in the Tribune Company would increase. It is hard to see how reducing diversification is a good idea, particularly given the recent declines in the price of Tribune Company stock.
A Tribune spokesperson told Strahler that all the foundation’s decisions are made after consultation with lawyers and investment advisors. We have no doubt. In fact, the foundation’s 2005 Form 990 reports $152,793 in legal fees and $144,406 in investment management fees. That’s a large number, but not as large as we expected it to be. It also lists another $162,276 in “other professional” fees. Interestingly, the foundation escapes private foundation status because it normally receives a substantial amount of its support from the general public. Section 170(b)(1)(A)(vi) and 509(a)(1). Amazingly, it raised over $20 million from special events, much of it from partnering with other organizations. We’d like to know more about these partnering arrangements.
In any event, the diversification and loyalty questions that AG Madigan is focused on are legitimate ones. We will be watching how this all plays out. It is hard to imagine the board acting without outside advisory advice—“tell us what is fair.”
At some point, we would think the foundation's board might consider replacing at least some members with independent directors--although that is difficult given that the foundation is a company foundation. But if the existing board members choose to remain on the board, then they should at least form a special committee comprised of completely independent individuals (possibly community leaders) to make decisions pertaining to the foundation's holdings in the Tribune Company. That poses an interesting question as to whether the existing directors can delegate their duty to a committee of non-board members. But we suspect that AG Madigan would readily acquicese to such a delegation. It is hard to see how the existing board can make a decision that doesn't raise fundamental loyalty questions.
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