Black's conviction presents latest deterrent against CEO misdeeds

Former Hollinger CEO Conrad Black was convicted on three counts of mail fraud plus obstructing justice.

from the July 16, 2007 edition

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"People are being extremely careful today," says Paul Danos, dean of the Tuck School of Business at Dartmouth College in Hanover, N.H. Most executives, he says, will rightly reckon that they have a lot more to lose than to gain from bad behavior.

Mr. Black's trial is the latest reminder of how times have changed. As a businessman, Black built Hollinger International into a prominent publishing empire, with an array of community newspapers as well as the Chicago Sun-Times, Jerusalem Post, and London's Daily Telegraph. Black renounced his Canadian citizenship to become a member of Britain's House of Lords.

But the media holdings weren't standout performers. In the late 1990s, the firm began to sell many of its small papers. Black and other executives arranged for the deals to include "noncompete" agreements.

In return for a fee, Hollinger would promise not to launch new competition against the papers it was selling.

The unusual twist: Much of the "noncompete" money went to Black personally, not to Hollinger.

The move first spawned shareholder ire, then criminal and civil lawsuits.

Black was ousted as CEO and chairman. Hollinger has changed its name to Sun-Times Media Group.

In the criminal case, US attorneys in Chicago alleged that Black and his colleagues had illegally pocketed some $60 million in these fees. The trial involved 13 charges, from fraud and racketeering to obstruction of justice. Some focused on Black's lavish lifestyle – including the allegation that he had bilked the company by riding a Hollinger-owned jet to a vacation in Bora Bora.

The prosecution won only a partial victory, with the jury convicting on just three of the mail fraud charges, plus obstructing justice. The toughest penalty Black faces is for obstruction when he carted boxes of documents from his office, an act caught on video.

Even if he fails on appeal, Black's prison term may end up being much shorter than the 15 or more years that prosecutors hope for – and shorter than the sentences won in some other white-collar cases. Former WorldCom CEO, Mr. Ebbers, is serving a 25-year term after an accounting that ruined the phone company.

But legal analysts say Black's loss still carries a warning. "Corporate CEOs are very intelligent, very rational, and if they see a guy like Conrad Black getting a prison sentence ... that has a very important prophylactic effect," says Andrew Stoltmann, a Chicago securities lawyer.

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