Much ink has been spilt over the conviction of Conrad Black in Chicago last week. I’ve read a few biographies of the newspaper baron (I recommend Shades of Black by Richard Siklos) and followed the case with some interest. Surprisingly, the real-life Shakespearean drama of the prodigal Canadian offers some financial lessons for little capitalists like us:
Spend less than you earn: Tom Bower suggests in his unauthorized biography that Black’s troubles can be traced back to the time when he started living like a billionaire despite having the means of a multi-millionaire. It takes a lot of money to maintain homes and domestic staff in three countries and apparently even a newspaper proprietor like Lord Black could not really afford to.
Don’t attempt to keep up with the Kravises: While it is a natural instinct to try to keep up with the neighbours, it can become a destructive habit that must be endlessly fed. Lord and Lady Black moved in elevated social circles with the likes of billionaires like Henry Kravis and his wife Marie-Josee Kravis (who also served on Hollinger’s board) and reputedly hankered after bigger private jets and a more glitzy lifestyle.
Invest in companies with shareholder-friendly management: One of Warren Buffet’s criteria for investing in a company is trustworthy management. Even before his troubles began, there is plenty of evidence that Lord Black viewed shareholders in Hollinger as a “cheap source of capital”, not as partners and co-owners of the company.
Avoid investing in companies with “country club” boards: The board of directors of a publicly-traded company is supposed to look out for the interests of shareholders. They should function as management’s watchdog and at least some of the directors should be independent. Hollinger’s board was packed with Lord Black’s social friends and cronies, who instead of following the “trust, but verify” dictum, simply rubber stamped all management decisions.
Do you think there are any other lessons to be learnt from Lord Black’s troubles?
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8 responses so far ↓
1 growthinvalue // Jul 17, 2007 at 11:13 pm
I would suggest the obvious — never assume you’re somehow better, or smarter, than everybody else. Because things have a nasty way of putting you in your place whenever your hubris gets too great. That’s as true in life and business as it is in personal finance.
2 Canadian Capitalist // Jul 18, 2007 at 7:44 am
GIV: Good point about hubris connected to personal finance.
3 Ahmed // Jul 18, 2007 at 9:39 am
Although its easy to point fingers at Black after the fact but in his day it was probably difficult to view him as the criminal he is labeled now. I’d like to know who are the Conrad Blacks of today?
4 anon anon // Jul 18, 2007 at 12:53 pm
This comment doesn’t relate to this article, but the advertisement saying “you are today’s $3000 t-cash prize winner” is really annoying and makes this website look a lot less classy.
5 Canadian Capitalist // Jul 18, 2007 at 1:38 pm
anon: Thanks for letting me know. I’ll try and locate the offending ad and block it.
6 Nabloid // Jul 18, 2007 at 8:54 pm
I like the article. The only problem I have is that I don’t know which companies have ‘country club’ boards… and without a TON of research, I really don’t know which management teams are actually shareholder friendly… you usually have to read the fine print to see what sneaky things most management teams are trying… lol.
7 ML // Jul 19, 2007 at 11:00 am
Marie-Josee (Drouin) Kravis was a student at the University of Ottawa back in the days when I was. We were in different faculties but seemed to end up at some of the same student parties.
I never thought back then to ask for a flight on her private jet, if she was ever to acquire one. I wonder if it is to late to ask now?
8 Canadian Capitalist // Jul 19, 2007 at 11:53 am
Nabloid: Unfortunately, it isn’t easy to spot a board that is acting as a lapdog of management. S&P stock reports make an attempt to rate companies on their corporate governance. You’ll have to read the annual report and do some digging.
ML: Some tips on which companies KKR is targeting would be nice too
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