Harold Meyerson: The Worst CEO (Sam Zell)

Sam Zell never really had much skin in the game. Last year, when he purchased the Tribune Company, which filed for bankruptcy today, he put up $315 million of his own money and paid the balance of the purchase price, $8.2 billion, with the employee stock ownership plan – a move in which Tribune employees had no say whatever. But that actually overstates the amount of Zell’s investment. Of the $315 million he sunk into the company, it turns out that $225 million was simply a promissory note. Due to the vagaries of bankruptcy law, writes business analyst Mark Lacter on laobserved.com, that means that Zell has better protection for his stake than all his employees. Trib’s ESOP holds 100 percent of the company common equity – and it’s the holders of common stock who usually take a bath, or get wiped out altogether, in the debt restructuring that goes on under Chapter 11.

In his memo to his employees this morning, Zell wrote, “in general, the existing benefits in the pension and cash balance plans are also unaffected by the filing.” To quote Lacter one more time: “In general?”

Even when measured against today’s sub-prime standards for CEO performance, Zell is in a class by himself. The CEOs of the Big Three auto companies may have paid a good deal less attention to the quality of their cars than they should have, but Zell repeatedly and profanely expressed his disdain for quality journalism. The company’s leading papers, the Chicago Tribune and the Los Angeles Times – the latter one of the four great American newspapers – carried too much national and international news, he decreed. Hundreds of excellent reporters and editors were unceremoniously shown the door; the Times lost its Sunday book review and opinion sections; the Washington bureaus of the papers were consolidated and cut back at the very moment when readers are following decisions made in Washington more intently than they have in decades.

When the Tribune company’s former owners elected to sell the company to Zell, they bypassed some other potential buyers, either of the company or its constituent papers, who were actually willing to put up their own money to make their purchases. In Los Angeles, David Geffen, Eli Broad and Ron Burkle all tried to buy the Times, but the Trib board wanted to sell to a fellow Chicagoan, even if he had no regard for journalism. In the end, not only has Zell lowered the quality of some great and good papers, but he structured a deal so laden with debt that he’s plunged his company into bankruptcy, too. Even if – an operator, that Zell – he’ll come out of it a whole lot better than the employees whose ESOP he dragooned.

http://voices.washingtonpost.com/postpartisan/2008/12/the_worst_ceo.html#more