The medium's the message -- but is it the wrong message?
Boston — MARSHALL McLuhan didn't mean it that way, but the medium certainly has been the message lately. In fact you'd have to update McLuhan's famous epigram and say the news media have been practically the only message in their own headlines and broadcast bulletins in recent months. Ted Turner vs. CBS is just the latest and splashiest case to dominate the news. Before that there was Capitol Cities' friendly takeover of ABC (in which one bit of epic drama has so far gone unreported: for a frantic hour that multibillion-dollar deal was threatened with collapse unless the principals could track down a big investor who had gone antiquing in stores unknown.)
Then there were the relatively friendly if sometimes anguishing takeovers of the proudly independent Des Moines Register and Tribune by the giant Gannett chain; of staff-owned U.S. News & World Report by real-estate tycoon Mort Zuckerman; and of comfortably old-hat New Yorker magazine by glossy Newhouse Publications.
In some of these cases -- especially Turner vs. CBS -- life seems to be imitating soap opera. And that has caught the fancy of press and public. Unfortunately this also seems to be a case of the media giving America the wrong message.
Let's examine that message. The thought that anyone with enough borrowing power might buy one of the major opinion molders of America to further some ideological aim has caused a lot of discussion. It has also precipitated more talk of congressional intervention than anything since the spate of oil mergers in the early 1980s. Already bills are being proposed to protect corporate management from ``takeover artists'' or ``sharks,'' to use the pejorative headline terms.
What's worrisome about this rush for action is that it seems likely to be far too sweeping. There's a danger that, in some legislators' zeal to protect management independence, the American economy could be dealt a blow if entrenched bad management is also protected.
Rep. Tim Wirth (D) of Colorado and his congressional subcommittee on telecommunications, consumer protection, and finance have been studying takeovers and mergers for the past year. And their slow, careful approach has much to commend it. The subcommittee intends to continue its hearings until midsummer and then decide what law needs to be written.
What should make sense for Congress and the Securites and Exchange Commission is the least amount of new regulation that will do the following:
1. Get rid of greenmail, in which panicked boards make a mockery of shareholder democracy by paying a clever raider more than other stockholders to get him off their backs. This not only makes some stock owners more equal than others, it also dilutes the value of the remaining shares after the buyback at greenmail prices.
2. Eliminate so-called two-tier takeovers, in which a takeover party buys a controlling percentage of shares at a high price, then, once in control, drops the price for the remaining shares. Stockowners also should be given more time to examine and make decisions on takeover offers and management counteroffers.
3. Regulate more stringently the ``poison pill'' defenses that managers and their boards erect to make it difficult for a buyer to gain control through a simple majority vote of stockholders. Such regulation will be very tricky to write.
The American economy needs to protect good management teams from the constant distraction of defending against hostile buyers. But the economy also needs to be kept efficient by making sure poor management cannot defy a majority of its own stockholders when they press for improvement or replacement of the managers.
4. Regulate the use of so-called ``junk bonds'' for buying a company from its stockholders. Those bonds are high-risk, high-interest notes by which a takeover group issues its bonds to owners of the target company's stock in order to buy them out. The stockholders then become bondholders (or stock and bond holders) expecting to be paid back interest from the profits of the same company from which they formerly received dividends.
In theory the investors get a higher rate of return because the new owners run things more efficiently. In practice this may be the case. Or the payback may come from selling off parts of the company. The risk to the overall US economy might come if a recession left too many conglomerates too heavily indebted to pay the high interest promised.
If you have noted the word ``shareholder'' used frequently above, it is because the owner of shares is sometimes the forgotten part of a takeover debate. Hostile buyers, management, and ``white knight'' corporate rescuers tend to dominate the headlines.
But the average shareholder should not be ignored by Congress and the regulators. ``Shareholder democracy'' may seem to be a slogan of the past now that corporate ownership is passing heavily into the hands of pension funds and other institutional investors. But it is still important that democratic rights of ownership be vigorously upheld -- whether the ownership be individual, mutual fund, or pension fund.
By definition share means that each unit of common stock shall have the same rights and value as each other unit. Ditto preferred shares. If this principle is consistently applied, greenmail, two-tier takeovers, and the more extreme poison pills are clearly undemocratic. They are, to put it bluntly, unfair.
And unless fairness remains the measure, the free American economy will be out of step with the American political democracy. That would create increasing distrust from the public. And in the long run it would create inefficiency and falling productivity. With world competition getting ever tighter, that's not the way to go.
Earl W. Foell is editor in chief of The Christian Science Monitor.