On Conrad Black and Corporate Greed

We all suffer when greed is the creed


If you doubt the malign effects of big business out of control, consider Conrad Black’s downfall

Will Hutton
Sunday November 5, 2006
The Observer

There has rarely been a better time to be a plutocrat. This is an unrivalled era in which both to acquire great wealth and keep it. Taxation on super-high incomes and vast fortunes is largely voluntary beyond a minimal contribution. Britain is at the foot of the international league tables for regulation. More extraordinarily still, criticism of extravagant wealth is culturally forbidden.

The largely fictitious story is that taxation is intolerably high on the well-off, a tale the rich take advantage of as they vie with each other to demonstrate their opulence with no wider questions asked. I quizzed one of the more thoughtful former FTSE CEOs recently who had secured an incredible pension deal as part of his golden goodbye (which he could not hope to spend in old age) on why he had done it. His answer was telling. ‘Of course I won’t need it nor can spend it,’ he replied, ‘but I needed to show the market that I was valued as highly as everyone else.’

It was an argument that the socially aspirant columnist Barbara Amiel used to great effect with her husband, Conrad Black, according to Tom Bower in Dancing on the Edge, his account of the former Daily Telegraph proprietor’s rise and fall. Leaving a dinner party in Manhattan early to check in for the commercial flight to London, Amiel assailed her husband: ‘I’ve never been so humiliated in my life. Why haven’t we got our own private jet?’ Bower writes that Black already had a jet; her complaint was that they did not have one that could cross the Atlantic like their peers.

A Gulfstream 4, complete with three pilots, was duly acquired for more than $3m, a cost charged to the company, an intermingling of his personal and business affairs that was ultimately to bring him down. Black denies that his wife ever demanded a private jet.

Before you shake your head at the alleged extravagance, though, consider that, today, the market for private jets and air taxis is now booming, fed by exactly the same sentiments. The very rich, in this respect, are like the rest of us: they don’t want to be left behind by their social equals, but they have the buying power to make sure they are not. Hence the boom in private jets. Hoodies compete with each other to be more sinister than the other; the rich, at the other end of the income scale, are up to the same human game.

Civil society is meant to shrug its shoulders. The rich should live untroubled because they deliver a vigorous capitalism, as long as some minimal effort is made to put a floor under the circumstances of the poor. Never a secure bargain, it is now seriously beginning to fray.

For what is striking about Bower’s account of Black, due to face trial in Chicago next March, is the way Black’s justification of his conduct is reinforced by the wider culture. Investment bankers were unsurprised, politicians did not ask questions, his own non-executive directors nodded through his deals. He even became elevated to the House of Lords. He was the charismatic and articulate expression of what businessmen do.

No whistles were blown until, finally, the trading weakness of the Telegraph titles rang alarm bells.

Black protests his innocence and challenges much of the detail and, especially, the substance of Bower’s book. In his world view, an owner has proprietorial rights and the panoply of regulations, taxation and corporate governance obligations are insignificant unless there is outright theft. You cannot steal from yourself. Black wants to position his accusers as putting the essence of capitalism on trial and himself as the hapless victim.

The stakes are high. If the charges do not stick, the message to British, Canadian and American business will be inescapable and the floodgates, already half-open, will disintegrate. The Telegraph Media Group, now under the ownership of the Barclay Brothers, is struggling to recover in the post-Black era. Journalists last week voted for a three-day strike against new working practices that the new management insists are imperative to make the company a going concern.

In the long run, companies that are the playthings of their owners do not prosper because great companies, paradoxically, are about common purpose, shared endeavour and a fair distribution of rewards, not grossly enriching the owner or those at the very top. This is not a flat earth position. Of course directors should be paid more and entrepreneurs should get rich – the issue is to what extent .

Between 1997 and 2003, Bower claims, the private Black companies appropriated 73 per cent of the net income of the publicly quoted Hollinger companies they controlled in income and expenses for themselves. Everyone can agree that is excessive. But it is an extreme outlier of more general excess. Executive pay rose 28 per cent last year. Income Data Services reports that never in its 15 years of monitoring executive pay have so many earned so much. Remuneration packages of £2m or more are now commonplace in the City and in business. What has driven this is not performance or talent. It is a Gadarene rush not to be humiliated by being paid less than one’s peers – the Amiel effect – and a lack of effective checks and balances, either institutional or cultural.

Paying these staggering salaries is starting to distort companies as Black distorted his. Company strategies become more about how to pay the executives than develop the company. Nor does the impact stop there. In order to compete, the public sector has begun paying high salaries: 87 public-sector high flyers now earn more than the Prime Minister’s £186,000.

After excess, however, comes nemesis, as Black has discovered. Today’s grossly unfair distribution of reward will one day create a backlash. Fairness is an elemental guiding human principle. The curious thing is that not one front-rank politician ventures a word of criticism. But this can’t go on… can it?

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