Other People’s Capital

Conrad Black is not the only tycoon to have dreamed of global domination while buying and selling newspapers, and he is not the only tycoon to have had people fawning over him on the way up and shunning him on the way down; he is not the only tycoon to have lived large, issued writs and faced criminal charges; but he is the only tycoon with a wholly distinctive prose style. It is on show in a furious email Black wrote to Tom Bower, protesting that Bower’s forthcoming book about Lord and Lady Black was going to be ‘a heartwarming story of two sleazy, spivvy, contemptible people, who enjoyed a fraudulent and unjust elevation; were exposed, and ground to powder in a just system, have been ostracised; and largely impoverished, and that I am on my way to the prison cell where I belong.’ One can quibble with the punctuation, but as a summary of Conrad and Lady Black: Dancing on the Edge, that paraphrase is accurate to the point of clairvoyance.

Black’s deep love of fruity vituperation gets a thorough airing in Bower’s book. The headmaster who expelled him for stealing and selling exam papers was ‘an insufferable poltroon’ and his wife a ‘desiccated old sorceress’; the school was ‘an awful system whose odiousness was compounded by banality and pretension’. One reviewer of his first book was ‘a slanted, supercilious little twit’; another was a ‘quasi-fascist Jesuit myth-maker’ and another an ‘illiterate bootlicker’. The behaviour of one close associate – without whose help he would never have bought the Telegraph – gave ‘new depth, warmth and colour to the meaning of the word “shit”’. The Canadian attorney general was ‘malicious as well as pusillanimous and incompetent’: in fact Canadians in general are ‘whining, politically conformist welfare addicts’, almost as bad as lefties in general, who are ‘phoney, envious and mediocre bleeding hearts whining and snivelling about meritocratic Darwinism’. As for the concerned parties who first raised the allegations which have led to Black’s facing a court case in America, ‘those truly evil people are a menace to capitalism as any sane and civilised person would define it’ – the lead investigator being a former head of that notoriously anti-capitalist body, the Securities and Exchange Commission.

It is as if Black were never knowingly unbombastic. At Barbara Amiel’s 60th birthday party, he stood up and gave a speech in praise of his spouse. ‘The little woman’s body is agile and youthful. I’ve seen her naked, and it’s all natural.’ It would be nice to know exactly how many people in the audience were thinking: ‘Up to a point, Lord Copper.’ In any case: ‘She looks better with her clothes off than on . . . The little woman is perfect, vertically and horizontally.’ The party cost $62,870; two-thirds of the cost was billed to Hollinger, the publicly quoted company which owned the Telegraph. ‘The only charge that anyone can level against us is one of insufficient generosity to ourselves,’ said the man whose trial, due to start in Chicago on 5 March, sees him facing 12 separate counts of fraud, racketeering, money laundering and obstruction of justice.

The story of the Blacks ought to be comic; there’s certainly no shortage of good material. Black’s almost manic social climbing took the peculiar form of wanting to meet famous people, hang out with them, and fill them in at great length on history and current affairs. He had an excellent memory, and was not afraid to use it. Lists of Swedish kings, Spanish ships in the Armada, minor Napoleonic generals – any one of these could be a topic. When he achieved his first, long wished-for meeting with Mrs Thatcher, Black took the opportunity to lecture her on her place in British history, with special reference to Pitt and Disraeli. When he had lunch with Prince Charles, a mention of the prince’s vegetarianism had him expounding on the eating habits of British royals, notwithstanding the prince’s manifest lack of enthusiasm for ‘excruciating details’ about George VI’s diet. Shaw once said that Coriolanus was ‘Shakespeare’s greatest comedy’, on the grounds that we don’t sympathise with any of the characters, and there are moments on reading about the Blacks when one feels the same. The physically bulky, intellectually ponderous, compulsively vituperative, socially ambitious, wildly free-spending Black should be a figure of the purest fun. He used to be bracketed with Lord Copper, and lately has been compared to Augustus Melmotte, but it’s always seemed to me that the fictional character he most resembles is Mr Toad.

Somehow, though, comedy is not the dominant note of Conrad and Lady Black. For one thing, the purity of Bower’s Schadenfreude is off-putting: he begins with Barbara Amiel’s marriage, at which he has former lovers freely discussing her sexual prowess, and never lets up in hostility for a moment. He says that writing the book was an ‘unmitigated pleasure’, and you believe him, but it does leave the reader feeling like a witness at an execution. It’s probably easier to feel that if one never met the Blacks in their pomp; I know a few people who did, and it’s no exaggeration to say that I’ve never heard a good thing said about them. The trait most consistently described is Black’s absolute lack of interest in anyone perceived by him as lower down the pecking order. Neither he nor Amiel was a tiny bit shy about showing people they didn’t think they mattered. The widespread Schadenfreude – it’s not just Bower – is fully explicable, though it’s no more attractive for that.

The arc of Black’s story, however, is close to tragic, or it would be, if Black wasn’t quite such a bully and blowhard. He was born in 1944, the second son of a father who worked as a senior manager for the Canadian conglomerate Argus. His childhood was privileged and isolated; in 1953, aged eight, he was taken on the Queen Elizabeth to see the Coronation. Argus was rich, powerful and ‘fundamentally dishonest’, with the directors regularly trading in assets which they bought from and sold to the company, always at a profit to themselves. Black’s father was one of the six main shareholders of Ravelston, the private company which controlled Argus, and which was to be an important vehicle for Conrad’s business interests. Black senior died in 1976 by falling over the banisters at his home; he may have committed suicide – in any case, Conrad saw it happen. ‘Life is hell,’ the father told the son while they waited for medical attention. ‘Most people are bastards, and everything is bullshit.’ He died later that night. It’s no surprise to learn that Black has had his troubles with depression.

The other major shareholders of Ravelston had no children. After their deaths, Black befriended their widows, and persuaded them to align their votes with his. Before long he was able to take control of Ravelston, and borrowed the money to buy out the other major shareholders. That cost a total of C$30 million, and brought with it control of Argus, worth C$4 billion. (That kind of company structure, in which a minority share has control of the voting rights, is not legal for a public company in this country. This is one of the reasons Black was later to float his business interests in the US. Common sense would point out that this is a flawed system, though as Bower says, it’s not a criticism you’ll find being levelled in the New York Times or Washington Post, both of which have similar structures.)

Black’s first steps in the newspaper business had come in 1965 when he bought a half-share in two weekly newspapers for $500. He moved to a small town near Montreal, and began editing the Knowlton Advertiser. ‘Living in a poorly heated boathouse, he spent the day struggling to find news and advertisements, and trying to master the finances of printing and distribution. At night he read Joseph Conrad and other classic authors, and after midnight spoke for hours on the telephone with his father about politics, history and the stock markets.’ Once he made it to the big leagues via his adventures with Argus, Black began to expand his portfolio of North American newspapers, acting in concert with his close associate David Radler, whose sincerely expressed view was that the ideal newspaper consisted of ‘a three-man newsroom – one journalist and two advertising salesmen’. Sackings, cuts, and fines for wasting paper and pencils might not sound like a recipe for brilliant journalism, but the beauty of the scheme was that this didn’t matter. Because so many of the small-town newspapers were monopolies, the circulation could drop, but they still had a reasonable stream of advertising revenue. With the dramatically lower costs, the papers’ profits zoomed upwards. Black’s second acquisition, the Sherbrooke Record, was typical. The circulation fell, but the bottom line went from a C$10,000 monthly loss to a C$15,000 profit. Eight years later the paper was sold for 48 times what Black had paid for it – and it had also generated C$1 million in profit, which Black had used to buy 20 further papers.

This activity was accompanied by a shuffling of assets and company names. By 1985, seven years after Black took control of Argus, most of its businesses had been sold, not without the occasional mishap on the way. A controversy about Black’s purchase of a mining company called Hanna had ended up with a court case (after which Black was, on Black’s account, extravagantly complimented in private by the judge, as ‘the finest witness I’ve ever had in my court’ – though the judge has no recollection of saying that). This led to Black’s having to sign a ‘consent decree’ with the Securities and Exchange Commission – basically, a promise to be a good boy from now on. If that fact had been more widely known, some of what transpired might not have. The company controlling his newspapers in Canada was sold to Hollinger, a former subsidiary of Argus now owned by Black. ‘Most of the cash ended up as management fees in Ravelston, his private company.’

Black was now on the lookout for a big acquisition. A remark by Andrew Knight caused him to begin looking at the Daily Telegraph, which was owned by the Berry family and presided over by Michael Berry, now Lord Hartwell. Hartwell was 75, a serious and decent man presiding over a newspaper that had in many respects gone to sleep and which was suffering chronic problems with the print unions. I was told by a man who’d worked for the Telegraph in those days that the skiing correspondent was in his late seventies and had not actually been skiing himself since the Winter Olympics of 1936 – which might well not be true, but does describe how the paper seemed. The circulation had dropped by 300,000 over the previous five years and the paper was losing £1 million a month. Hartwell, once he (belatedly) realised the financial difficulties, went to the City of London, confident that the Telegraph’s reputation would make it easy to raise money. To Hartwell’s immense surprise, the city had no confidence in the Telegraph’s finances or its management. The Berrys needed outside money. ‘Would any money be welcome?’ Knight asked the company’s bankers. ‘Even from a North American?’

Black was introduced to Hartwell and played it brilliantly.

His cultivated performance, concealing a burning ambition to become a media tycoon, suggested a gentle knight coming to the rescue. ‘All I have to worry about is which pocket the money’s coming from,’ he told Hartwell as he described his achievements and his limitless cash flow. There was no hint that his bankers in Toronto were demanding the repayment of loans, or that he was being publicly described in some quarters as dishonest. Nor did he reveal that he would need to borrow the £10 million he was offering Hartwell.

And then the masterstroke, the move by which Hartwell was definitively fucked over. Black’s money came with a proviso that, if further shares in the Telegraph were to come on sale, he would have first refusal, and that any investment would give Black majority control over the company. Hartwell’s advisers should have told him that this meant he was effectively surrendering control of the company; they kept silent. ‘Rothschild’s,’ in the words of another banker, ‘handed the Berry family’s balls to Black on a silver platter.’ The deal was signed on 13 June 1985. By 11 December, Black had full control of the Telegraph, for a total cost of £30 million.

There are two stories of what happened next. One is the external story, the one the world saw. Black appointed Max Hastings to run the Telegraph, and was able – thanks to the way Rupert Murdoch destroyed the power of the print unions by moving to his new plant in Wapping – to make the paper spectacularly profitable. The printing staff went from 2200 to 507, and the 413 hot-metal compositors were replaced by 27 technicians. The paper took on new energies as a voice of the Conservative Party. Both Bower in Conrad and Lady Black and Max Hastings in his memoir Editor seem to think the paper wasn’t rabidly Thatcherite, which isn’t at all how I remember it. (Though Hastings did sack Carol Thatcher, a move which went down well with Telegraph hacks but caused a permanent alienation from her mother – a brave thing for the editor of the Tory paper.) Staff were changed and cut. ‘Max,’ Black said, ‘is good at drowning kittens.’ It became a much better paper, under Hastings and his successor, Charles Moore, though one with a strong ideological slant which may – as Geoffrey Wheatcroft recently argued – have damaged the Tories by losing the historic thread of fuzzy, inclusive One Nation Conservatism. It certainly did a brilliant job of backing the wrong candidate in the Tory Party’s many leadership contests, in every case supporting men (Hague, IDS, Howard) who had been thoroughly sprayed with Eurosceptic voter-repellent. The profits from the Telegraph funded the expansion of Black’s empire: he tried to buy his way into the Australian newspaper market, bought the Chicago Sun-Times, and founded a new paper in Canada, the National Post. He was, or seemed to be, on the verge of authentic global tycoonship. Henry Kissinger and Richard Perle were proud ornaments of the Hollinger board.

After the end of his first marriage in 1991 Black married Barbara Amiel, a right-wing journalist who had been born in London, moved to Canada as a teenager, and made a name for herself as a polemicist there before moving back. She gets a great deal of space in Bower’s book, quite a lot of which is dedicated to her love life (Black is her fourth husband) and emotional ups and downs. Her snobbery, power-worship, extravagance and general all-round not-niceness get a thorough airing; so too does the fact that she is manifestly a troubled and unhappy woman. After their marriage, the Blacks began living the life of the international mega-rich, with homes in New York, Toronto, Palm Beach and London, the latter being two huge houses in Cottesmore Gardens knocked together to form a single bloated mausoleum. The parties were huge, the old friends were dumped, the private jet was upgraded (after Amiel felt publicly humiliated by having to leave a social function to check in on a commercial flight). There were setbacks in the public story – the National Post flopped, the price war launched by the Times badly affected the Telegraph group’s profitability – but essentially this was a happy narrative of rich and horrible people growing richer and horribler and the world continuing to turn on its axis.

The external story, however, was not the only one. The unravelling of Black’s affairs has left him feeling very hard done by, as you’d expect, but one thing he says is true: none of this would have happened without a change of climate on Wall Street. The tech crash of 2000 cost a lot of people money and brought about one of those fits of financial probity which always follow a sharp downturn. The bust of 1987 led to the conviction of, most notoriously, Michael Milken; the bust of 2000 led to that of Jeffrey Skilling at Enron, Bernie Ebbers at WorldCom, Dennis Kozlowski at Tyco; and has also led to Black’s court case. Yet such scandals never occur while the market is booming. Go figure.

At the time of its public flotation in 1996, Hollinger International, the vehicle for Black’s companies, had an overall market value of $2 billion. It also had debts of $1.4 billion. The big asset – the cash cow which repaid the debt and enabled the company to keep going – was the Telegraph. But the Telegraph’s revenues, which had come under pressure from the Murdoch price war, suffered further from the post-2000 advertising recession. One of its biggest shareholders, an investment fund called Tweedy Browne, grew concerned, and an analyst there called Laura Jereski began to take a hard and detailed look at the accounts. The rock was rolled over and the beasties emerged.

The first problem derived from the complexity of the ownership structure. Hollinger International, the public company quoted on the Nasdaq exchange in New York, was controlled by Hollinger Inc, a public company based in Toronto, 78.2 per cent of whose shares were owned by Ravelston, a private company belonging 65.1 per cent to Black and 14.2 per cent to Radler. Black was chairman of all three companies, Hollinger International, Inc and Ravelston, and could choose their directors, and in addition the executive directors of Hollinger were not employees of Hollinger but were paid via management fees to Ravelston. None of this was illegal but it was not easy for outsiders to work out exactly what was going on. By early 2003, Black needed another bank loan. Bower’s explanation gives a flavour of how things worked:

The loan was given to Hollinger Inc in Toronto and the security was Black’s shares; Ravelston guaranteed the annual repayments to the banks; but Ravelston could only pay the money on receipt of income from Hollinger International in New York; and Hollinger International survived thanks to loans from its Canadian parent company, Hollinger Inc; and that company survived thanks to loans from Ravelston. The circle was completed because Ravelston only had money if it was paid by Hollinger International in New York.

This was complicated, but, to use a Black word, ‘licit’. When Jereski took a closer look she began to find things were less straightforward. As parts of the Hollinger empire were sold off to reduce the debts, some of the sums handed over in payment were assigned as ‘non-compete fees’. A ‘non-compete fee’ is a payment made to ensure that the people whose business you’ve just bought don’t turn around and immediately start another business vying with the one they’ve just flogged you. There is nothing unusual about such fees, but some of the details were interesting. In November 1998, the board of Hollinger International was told that 45 of its American newspapers were being sold to an Alabama company called CNH, for $472 million: $50 million of that was a non-compete fee.

CNH’s directors were surprised. Hollinger’s newspapers were monopolies distributed in small communities, so a non-compete clause was irrelevant . . . At the last minute, Radler directed CNH’s directors to send $12 million of that fee to Hollinger Inc in Toronto. The destination was significant. Hollinger Inc was a shell company without employees, not party to the deal, and would be unable to ‘compete’ with CNH.

So:

Once the $12 million was deposited, Radler used the money to partly repay the $42.5 million debt which the Toronto company had owed the New York company since 1997. In other words, Hollinger International in New York was being ‘repaid’ with its own money, and no one at Hollinger’s headquarters on Fifth Avenue was told or noticed. The remaining $38 million of the non-compete fee was paid to Ravelston, fulfilling Radler and Black’s decision to receive a ‘cut’ out of the deal. Again, the directors in New York were not told.

Non-compete fees are at the heart of the case against Black that goes to court in March. They will be at the heart of his defence, too, I expect. Non-compete fees are tax-free, and Black might well be intending to argue that these arrangements were merely an intricate form of legitimate tax minimisation. There were also expenses such as $90,000 for refurbishment of the Blacks’ Rolls-Royce, $4.7 million for the use of two aircraft in 2003, and $20 for a tip given by Amiel to the doorman at Bergdorf Goodman. The fees, and the other management costs, added up to such an extent that from 1997, Black, Radler and the rest of their group allegedly took $401.7 million from Hollinger International. At the time of writing, the amount claimed by Hollinger International from Black is $425.2 million plus interest, adding up to a cool $541.9 million. Black is confident that he will be vindicated – his email to Bower promised a ‘spectacular’ trial. Bower is trenchant about that: ‘His misfortune will be to forget that the production is controlled by a judge, not by himself. Individuals seeking the limelight in the cause of justice are frequently crushed by the institutionalised atmosphere and procedures of the courtroom.’ Almost as interesting as what happens to Black will be what the judge and prosecution have to say about the role of Hollinger International’s directors in overseeing Black and Radler’s actions. Radler, by the way, cut a deal for a 29-month prison sentence in Canada, and is co-operating with the prosecution.

Why didn’t anybody guess? I include myself in that – I was never an employee of the Telegraph but I wrote an arts column for the paper between 1996 and 1999. I know a zillion people who worked there. No one I know had any inkling of what was happening at Hollinger. The general view of Black was that he was bumptious, fond of writing letters to his own paper and of the sound of his own voice, but, notwithstanding the things he’d said about journalists (‘a very degenerate group’), a pretty good proprietor, as proprietors go. The great exception to that was Barbara Amiel’s terrible column on the op-ed page, any mention of which would cause Telegraph staffers to clutch their heads and groan in unsimulated pain. Anyone could see that the Blacks were greedy and excessive, but those qualities have long since ceased to be unusual in British public figures. For all Black’s ultra-right wing blowhardism, his fascination with Napoleon and overt longing for a peerage, he seemed sane and reasonable at heart, and there was no reason for thinking anything was untoward. Under other circumstances, that apparent reasonableness would have been confirmed by his gigantic biography of Roosevelt, a work whose seriousness and range are unquestionably impressive. Black sees the New Deal as a Good Thing, on the grounds that it rescued capitalist democracy; his Roosevelt did do the Bad Thing attributed to him – he knowingly provoked the Japanese attack on the US – but for motives which were noble and vindicated by history. As chance would have it, the book came out in late 2003, just as Hollinger’s troubles were becoming very public.

There are some dark morals to be drawn from Conrad and Lady Black. One is so obvious I hesitate to mention it, but it is that our libel laws are now nothing but an aid to rich bullies and malefactors. No government is going to reform them, because the stifling effect of the libel laws suits them very well, even though it is in the opposite of the larger public interest. So there’s almost no point in drawing attention to Black’s liberal use of writs, and their chilling effect on the reporting of his affairs, except to point out that our libel laws are so biased that they encourage an over-confidence in the rich men who rely on them. Archer and Aitken were undone by lies told in libel cases, and Maxwell would surely never have got in so much trouble if he had feared free press coverage of his affairs. Black’s trial will tell us whether the same is true of him.

He and Amiel also seemed to forget the way in which capitalism surrounds all of us, every day, with images of things that we can’t afford, and encourages us to want them. We all know that our economic survival depends on buying only what we can pay for. The Blacks seemed to forget that: they were multi-millionaires who wanted to live like multi-billionaires, and so spent money as if that’s what they were. Many have taken pleasure in their story, but to me it’s as lowering as those increasingly ubiquitous radio and TV ads which target people who have spent their way into trouble. It’s startling to see just how little Black, publisher of some of the most stridently pro-capitalist newspapers in the world, seemed to understand capitalism. The whole point of taking Hollinger public, he said, was because it enabled him to make ‘relatively cheap use of other people’s capital’. No. The people who buy the shares are the people who own the company; they regard the company’s money as their money, for the good reason that, actually, it is. That is why it is called capitalism: because the thing that matters most is the capital. Black made a big public fuss of celebrating capitalism while simultaneously behaving as if its central principle didn’t apply to him. It’s as if Proudhon were to complain about somebody nicking his wallet.