A Canadian story made the front page of the Times and the Journal last week. Okay, that would be the New York Times and the Wall Street Journal, and the main subject, Conrad Black is technically no longer a Canadian, but what the heck, it must be big news, and it does concern us.

It is surprising that despite being in the news since March 2003, when The Lord Black of Crossharbour first came under major attack for his practices as Chairman of Hollinger International, not one Canadian journalistic voice has spoken out in his favour. The Globe and Mail did run a defence of Black by his business associate,Peter White, but think of the people Black placed, supported and encouraged in the Canadian media. All have gone missing just when their one time mentor, boss and sponsor, the angel of the Canadian right is most in need of public support .

Could it be that all these Canadian journalists already knew, in their hearts, that these accusations about Black were true to what he represented? Or, is it because the basic ethic of capitalism — whatever you can get away with — was not broken, it was just confirmed. As Black did not get away with it, he deserves what he gets.

Capitalists should be capitalists, and not pretend to be social activists or environmentalists, or in charge of charitable trusts. Black is a great throwback to the real robber barons who built the U.S.A. and then took over Canada. His role is much under-appreciated. Since he deserves better treatment, it time to give him his due.

Conrad the capitalist “acquired” Argus Corporation from the widow of one of its main players, Bud McDougall. Argus grew by buying into established Canadian corporations such as Dominion stores, Hollinger Mines, Canadian Breweries and Massey-Ferguson.

The technique was first to borrow money, then to buy a large minority interest in a target company. As holder of an important block of shares, Argus would demand representation on the board of directors, where it would argue for increased dividends to be paid out to shareholders. The desired effect was to lift the stock market price up, as new money came looking for the dividends. The net effect of Argus was to divert money away from new investments needed to keep the company healthy, and put it into the pockets of stock market gamblers, speculators, and, of course, Argus.

Those richer dividends allowed Argus to pay interest on its loans. The dividend income received favourable tax treatment, the bank interest was deductible against income, and pre-Carter commission there were no capital gains tax on stock appreciation. So, Argus made money for its founders.

But by the time Black got hold of it — the unkind say he bilked the widow McDougall out of it — Argus had run its properties into the ground. Black kept the Hollinger name, after the Timmins gold mine, and restructured his holdings, divesting himself of the old Argus portfolio, and acquiring newspapers instead.By 1985, with the purchase of the Daily Telegraph, Black was on his game, headed for media baronetcy.

But, the expansion of his holdings to include the Chicago Sun-Times, the Jerusalem Post, the The Spectator, and eventually Southam Press necessitated capital. So Conrad went to the U.S., the deepest and widest capital market of them all.

Now, a newspaper has assets, but they are difficult for the stock market to evaluate. What price can you put on an audience demographic, advertisers, journalists and reputation? When a company without significant tangible assets goes looking for capital, the underwriters price the anticipated income as best they can. So, Hollinger International was launched with a lot of capital, but for it to grow it needed to show income growth.

Black and his close associates developed a neat trick. They kept control of Hollinger Int. in private holding companies, and had Hollinger Int. pay them management fees, and cover business expenses. So when the Hollinger Int. papers made money, Black paid himself not just dividend income — he only held 18 per cent of Hollinger Int. — he took fees and expenses. The extent was just documented in those front page stories. We are talking about 95.7 per cent of the net income of Hollinger International that was going to Black and his associates in the holding companies.

So what went wrong? Black owned the papers, he put the media empire together, why shouldn’t he get management fees, all the expenses he wanted, and loans as needed?Remember Argus, and its aggressive style buying into established companies? Some sharpies in New York, at Tweedy, Browne decided to use the Argus gambit on Conrad. In the name of shareholder value, the fly-by-night investors demanded to know where the income went, and why the dividends were not growing and why the stock price had not gone up as fast as the value of the stock exchange?

Conrad the capitalist got beat by the move Argus perfected. Bud McDougall would have found that good for a laugh.

Duncan Cameron

Duncan Cameron

Born in Victoria B.C. in 1944, Duncan now lives in Vancouver. Following graduation from the University of Alberta he joined the Department of Finance (Ottawa) in 1966 and was financial advisor to the...