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 It's hard not to feel sorry for The New York Times. Just as its premier business columnist relentlessly crusades for shareholder rights, the paper (or, more accurately, its parent company and chairman, Arthur "Pinch" Sulzberger) finds itself under attack by some of its own shareholders, aggrieved by the Times' dual-class, proreporter, ownership structure and lagging stock price. Making matters worse, the situation shows no sign of abating, especially now that two proxy advisory firms, Institutional Shareholder Services Inc. and Glass, Lewis & Co., have advised shareholders to withhold their votes for directors at the company's annual meeting, scheduled for April 24.
For reporters on the Times' business desk, the shareholder brouhaha raises the age-old (and, by now, boring) question of how does a media outlet cover itself when it is in the news? Many reporters face that challenge these days as media companies from Time Warner Inc. to Tribune Co. make news with alarming regularity. But the Times' situation is trickier than most. The paper's business section, mostly through the punditry of Gretchen Morgenson, has emerged as the self-appointed keeper of the governance gulag, declaring guilty any management it deems to be in violation of shareholder rights. It reaches its verdict on the flimsiest of evidence, subscribing to the theory that shareholders, especially activist shareholders, are uniformly good; managements, especially those it deems "entrenched," bad. How ironic, then, that the Times' own governance woes are now illuminating how overly simplistic that shareholder-centric theory can be. Like many media companies, including Dow Jones & Co. and the Washington Post Co., the Times adopted its dual-class ownership structure, which allows the Ochs-Sulzberger family to retain control and insulate its large news operation from the short-term pressures of public ownership and shareholder returns. Should the journalism be protected? You can argue either way, but there's no doubt that there's a decent case to be made defending the dual-class structure. The problem is, the Times' many pundits appear incapable of doing it. That leaves Media Maneuvers, oddly enough, as counsel for the defense. Here's the case: As a great newspaper — and despite its foibles, it remains one of the world's finest — the Times serves far more constituents than the Class A shareholders agitating for change. Companies, in other words, are different, which is reflected in their capital structures. Furthermore, as Stephen Bainbridge, a UCLA law professor who's been critical of the governance movement, pointed out in his blog last week, shareholders knew what they were getting when they bought the Class A shares. They made their bed and now must either lie in it or bail out. For the Times, the price to be paid for the journalism might have to be a lower share price. Why haven't folks at the Times articulated that argument? Because they'd resemble raging hypocrites. Its business pages have already traveled so far down the path toward a kind of monolithic shareholder rights that it's nearly impossible for them to turn around without sounding hysterically self-righteous — even if the paper's own journalism is ultimately at stake. Then there are all those tangled Timesean backstories involving so many players in this drama, making it even harder for the paper to opine on what's going on. Take Morgan Stanley, whose investment management arm first attacked the Times' governance last April. The Times, in a series of articles by Morgenson, last year fingered Morgan Stanley CEO John Mack for possible insider trading charges. The tenor and volume of the coverage was extreme enough to prompt The New York Sun to speculate that it was a direct response to Morgan Stanley's shareholder revolt against Sulzberger and The New York Times Co. More recently, there's proxy adviser ISS. Though the Times' governance cops and ISS are usually on the same side — that of the shareholder writ large, as if that vast herd had a single will — the firm had a falling out with Morgenson in 2005 after it came out in favor of a banking deal she opposed. In a column, Morgenson accused ISS of being — what else? — "conflicted" for serving both investors and issuers. ISS shot back by accusing Morgenson of possessing "blatant disregard for factual and responsible reporting." That's a lot of baggage to carry around. But it's the only real explanation for the uncharacteristic silence on West 43rd Street.—Yvette Kantrow Categories Deal Video
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