- The Washington Times - Wednesday, February 18, 2004

WILMINGTON, Del. - Lawyers for Hollinger International Inc. began laying out their case yesterday against their controlling shareholder, Conrad Black, saying he took several payments without authorization.

Gordon Paris, a board member who is serving as interim chief executive officer and chairman of the company, testified that Mr. Black took millions of dollars in payments never authorized by the independent board of directors, even though the company’s financial statements said they were allowed.

In one case, a payment occurred well after the transaction with which it was supposedly linked. Mr. Paris said this payment appeared to be an “afterthought.”

Mr. Paris also said Mr. Black failed to disclose on a questionnaire in 2001 that he had received payments the previous year.

The company, which publishes the Daily Telegraph of London, the Chicago Sun-Times and the Jerusalem Post, is accusing Mr. Black of using his control of Hollinger International to line his own pockets as well as those of several associates.

They also say that he improperly made a private deal to sell control of Hollinger International’s parent company, excluding the input of minority shareholders and undermining a separate sale process of Hollinger International that was already under way.

The case is being heard in Chancery Court in Delaware, where Hollinger International and many other U.S. companies are incorporated.

At stake is far more than bragging rights over several major newspapers and the towering ego of Mr. Black, who boasts top-level political connections and holds the title of Lord Black of Crossharbour in England. Henry Kissinger and other political luminaries serve on his board.

The Court of Chancery in Wilmington will be taking up an extremely unusual legal issue — does a company’s board of directors have a right or duty to challenge the actions of a controlling shareholder if they believe that shareholder is acting selfishly and against the interests of the other shareholders?

Corporate governance experts say the trial will be closely watched because of the civil warlike battle that will determine whether Mr. Black or the board has the last word.

“It’s a fascinating case,” said Franklin Edwards, a professor at Columbia Business School. “How much power are you going to give a board against its controlling owner?”

Mr. Black built up Hollinger International from a small publisher of Canadian community newspapers into a major publishing empire.

Through a holding company in Canada called Hollinger Inc., Mr. Black holds voting power of 73 percent in Hollinger International thanks to a special class of supervoting shares, even though his economic interest is closer to 30 percent. What’s more, he packed the board with people friendly to him, including his wife.

In May, a minority shareholder raised tough questions about payments worth millions of dollars that Mr. Black and other top associates received.

In November, Mr. Black and other executives agreed to step aside and repay millions of dollars in unauthorized payments.

Mr. Black and the company also agreed that Hollinger International would be offered for sale. Mr. Black later changed his mind about repaying the money.

And then he dropped a bombshell: Mr. Black had made a private deal to sell his controlling stake in Hollinger International to the Barclay brothers of Britain, who run a media business from an island in the English Channel, circumventing the sale already under way.

Hollinger International’s board then sued to stop the sale.

“It’s going to be an interesting show,” said Charles Elson, director of the Center for Corporate Governance at the University of Delaware.

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