Well-known newspaper publisher US holding company Owns Chicago Sun times (US), Daily Telegraph (UK), National post (Canada)and English-language Jerusalem (Israel).
1985 Established Global Press Empire 1986 Acquired a large number of smaller newspapers 1992 Purchased American Publishing Co Controlled Southam Inc. and Daily Telegraph 2003 Black was forced to resign as CEO 2004 His empire was collapsed
Originally Canadian but gave up to be a British Ennobled as Lord Black of Crossharbour by Britain’s Queen Elizabeth Former Chairman and CEO who controlled majority of shares Enjoy extravagant lifestyle by misusing the corporate assets
Black did not own the majority of Class A shares Ownership of the Class B shares with 10-1 voting preference over the Class A shares Multiple voting rights Handpicked the directors ‘’Rubberstamping’’ in payouts to company executives
Misuse of corporate assets at the expense of the International and its public majority shareholders Luxurious expenses$ Birthday party for his wife$42,870 Opera tickets$2,785 Silverware for Blacks’ corporate jet$3,530 Summer drinks$24,950 Repair of Rolls Royce$90,000
Sale of the National Post to CanWest CanWest paid the ‘non-competing fee’ to International to agree that it will not enter the market and set up newspaper to compete with National Black and the other directors allocated approximately $51.8M of the sales proceed to the non-competition agreement Pocket the payment without approval of the board of directors nor any public shareholders
Misleading informationTruth It claimed that only $32.4m was allocated to non-competition agreement. It should be $51.8m. International would be paid $2.6m.It actually received nothing. Ravelston would be paid $19.4m as a break- up fee to end a long-term management agreement with International. Ravelston had not right to any payment if International terminated its agreement International would pay 100% of the non- competition consideration to HCNLP. Black and the other executives had unilaterally made the decision without sufficient disclosure.
The audit committee just believed what the directors told them and no investigation Must act with due care E.g investigated all the material issue
Did not read the document carefully before signature Allowed the corporate pay the executives’ improper bonus Provided pension funds for employees when legal status was in doubt Even absent from the AGM Any decisions made by the directors of a corporation must be made in the stakeholders’ best interests Make reasonable enquiry before making a decision Must follow the law to make decision Attend and participate in meetings so they can be informed about the association's business
M isuse Non-complete fee 1. Black sold the company and agreed not to compete ‘personally’ 2. In the sales of 50% interest in the National Post to CanWest They received $51.8million as non-complete fee for him and 3 directors 3. Pocket all the proceeds obtain through selling the National Post 1. Executive cannot engage in business that creates a conflict of interest 2. Black should not personalize the money that belongs to the corporation.
Fail to disclose all the issue related to interest of corporation: 1. International’s Audit committee 2. Board of International and obtained their approval before selling the company Failed to provide sufficient information on the issue of selling the company Disclose potential conflicts to the members Disclose information related to the corporation
Provide misleading information to all relevant department as well as the annual report: 1. The non-competition payment was diverted to Black and the others director 2. Understate non-compete fee 3. When lawyer of bank discovered the information is fraud, Black and the three director also lie on it that just an “inadvertent” 1. Ensure that all provided information is correct 2. Should not provide mislead information to protect his self interest 3. Confess the misleading action when the mislead information is discovered
Abuse of power to misuse corporate perks and assets: 1. Use corporate jet for personal use 2. Defrauded international 3. Paid for his wife’s surprise birthday party 4. Paid break-up fee to end management agreement with Ravelstion. Should not use corporate resources for personal use. Should not treat the personal expenses as business expenses and Should act fair
Creditors Investors Shareholders
Loss of investment due to decrease of stock price Reduce of investment due to unfavorable reputation Invest in alternatives
May difficult to recover the liabilities Decrease the confidence Reduce credit limit
Loss of investment Reduce of dividend income due to misappropriate of capital and asset
Multiple approvals for material item : Approved by authorized executives Proper vouchers Disclosure : Especially for personal interest Internal Audit: Strengthen and enhance profession skepticism Comply with the relevant audit standard
External Audit: Test of controls Uncover the material misstatement in the financial report Code of conduct: Emphasis as the mission and culture Supported by the top management Training related to ethics Appraisal of director: Conduct and behavior of directors should be evaluated by independent third party
Serving a 6.5-year jail sentence Return all illegal interest Not worthy to cheat Integrity is long term benefit for both side