Great story; a concern and a thought

The Bancrofts' lawyer is clearly conflicted; spell out where the CEO stands

Business-press readers and family therapy buffs alike will get a kick out The Wall Street Journal’s Saturday story on discussions among the Bancrofts, controlling shareholders of the newspaper’s publisher, Dow Jones & Co., about whether to sell to Rupert Murdoch’s News Corp.

Particularly rich—if a little disheartening for those hoping the Bancrofts and the board were a smoothly operating governance machine—is a scene at the end of the piece in which family members on DJ’s board of directors show non-family directors a planned statement in which the family says it will talk to Murdoch. Family member directors drop off a conference call while non-family directors confer, and decide, to explore options, which is business code for “sell.”

“McPherson” is Peter McPherson, DJ’s (non-family) board chairman; “Steele” is Elizabeth Steele, a family member/director; “Beattie” is Richard I. Beattie, a lawyer to DJ’s board; “Bancroft” is Christopher Bancroft, a family member/DJ director who lives in Texas; “Elefante” is Michael Elefante, a lawyer, whom we’ll get to later.

When the family members rejoined the call, Mr. McPherson informed them that the board had decided to release its own statement saying the board would explore strategic options, attendees said.

“Wait a minute,” Mr. Bancroft said, according to attendees. “My family didn’t understand that this meant we were for sale.” Mr. Beattie, the board’s lawyer, responded by saying that key parts of the family’s statement, which he read aloud, strongly suggested that notion.

Mr. Bancroft then asked Mrs. Steele if she understood the implication of the family’s statement, attendees said. She said she did. Ms. Hill also said she understood the implications, according to the attendees.

A participant asked Mr. Elefante if he could say where the family stood on the Murdoch offer, attendees said. Mr. Elefante responded only that there was
“consensus” among family members in support of their statement, attendees said.

“Is it too late for us to withdraw our statement?” Mr. Bancroft asked. Mr. Beattie responded by saying he was logged onto the Internet and The Wall Street Journal had just posted the statement on its Web site. Minutes later, the statement was formally released.

The Audit says: Oy.

One fault with the story, and it’s more than a quibble, given whom the WSJ is writing about, is a discussion of Elefante, a DJ director and a lawyer representing both Bancroft trusts and individual Bancroft family members:

Others say Mr. Elefante is conflicted in his multiple roles. As a Dow Jones director he is obligated to look after the interests of all shareholders; as a trustee he must protect the interests of the full Bancroft family; and as a personal lawyer he represents his clients’ interests. A person close to Mr. Elefante says the interests of his various constituencies related to Dow Jones are almost always in alignment and he takes pains to avoid any conflicts.

Audit Readers, Elefante can take all the pains he wants, he can’t avoid conflicts—he has them—all he can do is try to manage them.

A director represents the best interests of all shareholders, of Dow Jones as a company; a lawyer represents his clients, the Bancrofts. Anyone who thinks those interests are always in harmony is kidding himself.

Second, it seems to me the story should spell out where CEO Rich Zannino stands in all this. This is important because Zannino appears to be a key figure in breaking the bad news to the family that, absent a sale, DJ shares aren’t getting to the $60 level Murdoch offered, not without one of those pumps you see advertised in Maxim.

Mr. Zannino wanted Bancroft family members to understand that when they turned down $60 a share, “they were turning it down for a long time,” said a person who saw the presentation.

Well, Mr. Audit wants readers to understand that Murdoch has said he would keep Zannino if he bought the company.

But even if he doesn’t, don’t worry about Rich.

As someone smartly reminded me, DJ’s proxy statement, which lists such things, contains no mention of “change of control” provisions, because a sale was not on the board’s “to do” list. But Zannino’s severance under other circumstances would come to $3.2 million in cash; $5.2 million in long-term incentives; $713,000 in benefits continuation; $895,000 in a pro-rated portion of his annual bonus for year of termination, whatever that means; and—I would laugh but it hurts too much—$180,000 for “financial counseling/outplacement.”

Would his exit package be lower if he left in a buyout? I doubt it.

Should the Journal story have mentioned that in the story? You can’t mention everything. But I’d like to know that.

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.