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“This should be understood, should not be a surprise and not considered harassment.”
October 7, 2010 12:59 PM   Subscribe

“They threw out what Tribune had stood for, quality journalism and a real brand integrity, and in just a year, pushed it down into mud and bankruptcy,”. Tribune Company - Tales of a Bankrupt Culture: 'Based on interviews with more than 20 employees and former employees of Tribune, Mr. Michaels’s and his executives’ use of sexual innuendo, poisonous workplace banter and profane invective shocked and offended people throughout the company. Tribune Tower, the architectural symbol of the staid company, came to resemble a frat house, complete with poker parties, juke boxes and pervasive sex talk.''“They threw out what Tribune had stood for, quality journalism and a real brand integrity, and in just a year, pushed it down into mud and bankruptcy,” said Ken Doctor, a newspaper analyst with Outsell Inc., a consulting firm. “And it’s been wallowing there for the last 20 months with no end in sight.”'But even as the company foundered, the tight circle of executives, many with longtime ties to Mr. Michaels, received tens of millions of dollars in bonuses.'

'Mr. Zell’s first innovation was the deal itself. He used debt in combination with an employee stock ownership plan, called an ESOP, to buy the company, while contributing only $315 million of his own money. Under the plan, the company’s discretionary matching contributions to the 401(k) retirement plan for nonunionized Tribune employees were diverted into an ownership stake. The structure of the deal allowed Tribune to become an S corporation, which pays no federal taxes; its shareholders are responsible for all taxes.'

'The company is now frozen in what seems to be an endless effort to emerge from bankruptcy.'

'More than the Tribune’s creditors took a haircut: the shares that about 10,000 nonunion employees received in the ESOP deal are now worthless as a result of the bankruptcy, although at the beginning of this year, the company replaced the ESOP plan with a cash incentive contribution. But if and when the Tribune exits bankruptcy, the value of the company will be worth substantially less than when Mr. Zell bought a controlling interest. Under a proposed settlement filed recently with the court, senior lenders, including the Angelo Gordon hedge fund and Oaktree Capital Management, would receive $5.5 billion, while other lenders with less priority would receive far less. The case is in mediation.

“How can anybody say that they have done a good job?” said Henry Weinstein, a former Los Angeles Times reporter who filed a lawsuit, still pending, that contends that the use of employee pensions to finance the deal was illegal.

“Anybody can make money when you are not servicing the debt and cutting people. Zell and the people he brought in had no idea what they were doing.”

And Mr. Zell? On Aug. 13, his lawyers suggested that if other junior creditors were paid, he should get his money back as well.'

Related.
posted by VikingSword (44 comments total) 17 users marked this as a favorite

 
I probably shouldn’t laugh since the 4200 people who lost their jobs certainly deserve better. It’s hard not see this as a metaphor for contemporary America: a bunch of spoiled frat fucks running a once great country into the ground, all the while being celebrated as Galtian supermen.
posted by Joe Beese at 1:14 PM on October 7, 2010 [24 favorites]


I always kind of assumed that old newsrooms were full of cussing, sexist remarks, and editors who swiveled cigars around in their mouths.
posted by QuarterlyProphet at 1:16 PM on October 7, 2010 [2 favorites]


"Sales of Tribune newspapers dropped precipitiously in the subsequent years, so it sounds like the staff wasn’t all that inspired to new heights of creativity by this policy, either."

Ah yes, once freed of the heavy burden of respecting one's co-workers, naturally success was but around the corner.
posted by yeloson at 1:21 PM on October 7, 2010 [4 favorites]


It is really worth reading all of the insane Lee Abrams memos (Zell brought in Abrams as "chief innovation officer.") And then remembering them the next time somebody tells you they should run the government like a business.
posted by enn at 1:26 PM on October 7, 2010 [7 favorites]


“The conversation just wafted down on all of the people who were sitting there.”

An apt description.
posted by benzenedream at 1:30 PM on October 7, 2010


Is there anything to be done about shamelessly flagrant corporate theft?
posted by drogien at 1:38 PM on October 7, 2010 [2 favorites]


> Is there anything to be done about shamelessly flagrant corporate theft?

I'm laughing, but only to keep from crying.
posted by The Card Cheat at 1:44 PM on October 7, 2010 [1 favorite]


When they killed off the California/local news section of the LA Times (aka the main reason to even subscribe to the Times), I knew they didn't give a fuck about the paper.
posted by mandymanwasregistered at 1:56 PM on October 7, 2010


"Randy is a tremendous motivator"

it is?
posted by vectr at 1:56 PM on October 7, 2010 [2 favorites]


The smarmiest guys in the room-- any room.
posted by jamjam at 1:57 PM on October 7, 2010 [2 favorites]


The whole concept of the sale of the Tribune just rankles. From what I've understood, Zell said, "Hey, I don't have nearly enough money to buy this company. What I'll do is give you this pittance, and then take out a loan based on the company I don't own yet to get the rest of the cash, thereby assuring that the profitable company I want to buy is so crushed by the weight of said loans that it will never be profitable again.

I myself, would like to buy Microsoft. I've got about $2,000. I'm sure I can get a bank to float me a loan based on the value of Microsoft to cover the distance. The thing is, though, let's not put the loan in my name. Let's put it in Microsoft's name.
posted by Ghidorah at 2:16 PM on October 7, 2010 [14 favorites]


"Hey, I don't have nearly enough money to buy this company. What I'll do is give you this pittance, and then take out a loan based on the company I don't own yet to get the rest of the cash,

so I assume you don't believe in mortgages then either - because that's basically the same thing.
posted by JPD at 2:20 PM on October 7, 2010


@Ghidorah: Congratulations, you've just described how Manchester United and Liverpool were bought.
posted by salmacis at 2:26 PM on October 7, 2010


I don't think so, JPD. My house isn't responsible for paying my mortgage.
posted by kipmanley at 2:34 PM on October 7, 2010 [5 favorites]


JPD, the funny thing about mortgages (at least until recently) was that you had to be able to prove you could repay the loan. That seems to be how my mortgage works. There were plenty of houses I loved, but I didn't buy them because I wouldn't have been able to handle the monthly payments. I'm pretty sure gutting a company and taking it from profitability to crushing debt it can't recover from, thus forcing it into bankruptcy, while it might sound like a mortgage, is not basically the same thing.

To me, mortgages are something like "Hey, I make $3-4,000 a month, let's be realistic, I can afford to pay about $1000 a month for the mortgage." Not "I make $3-4,000 a month, I'm sure I can swing $10,000 a month."
posted by Ghidorah at 2:35 PM on October 7, 2010 [4 favorites]


so I assume you don't believe in mortgages then either - because that's basically the same thing.
No, it's not. In a mortgage, the borrower takes on the obligation of the debt, and the house is the security. In this case, the security also took on the obligation of the debt. The person who received the loan took no exposure and all the gain.
posted by Ickster at 2:39 PM on October 7, 2010


Using money that's supposed to go into the employee retirement plan (essentially forcing the non union workers to become Zell's unwilling partners in the buyout) is just monstrous. Especially so when his plan to restore profitability involved firing many of the same people.
posted by Kevin Street at 2:42 PM on October 7, 2010 [4 favorites]


Comparing the Tribune deal to mortgages? That's the most trollish financial comment I've seen here in a long time. (And financial trollery is so damn easy these days)
posted by oneswellfoop at 2:48 PM on October 7, 2010 [1 favorite]


I can appreciate the concerns about mismanagement and shady dealing but aren't the complaints a bit like saying someone did a poor job flying a dodo bird? It's only going to go down.
posted by srboisvert at 2:49 PM on October 7, 2010


How come the article never mentions the Tribune's CFO during that time? I hear about all these crazy things happening and misuse of money, and somehow the guy who was the CFO during that time never gets mentioned? Because this was sort of enlightening.
posted by anniecat at 3:26 PM on October 7, 2010 [2 favorites]


It’s hard not see this as a metaphor for contemporary America: a bunch of spoiled frat fucks running a once great country into the ground, all the while being celebrated as Galtian supermen

oooh, but you're missing how TALENTED they are. They're just so TALENTED and obviously they get compensated for their TALENT. Not just ANYONE can DO what they DO. You have to have the brains and TALENT.
posted by anniecat at 3:34 PM on October 7, 2010 [7 favorites]


oooh, but you're missing how TALENTED they are

Ah, I see, it's like the Roman Polanski thing: TALENT excuses all. Gotcha.
posted by yeloson at 4:12 PM on October 7, 2010 [1 favorite]


(That's me agreeing w/anniecat. Realizing after the fact it might be misread...)
posted by yeloson at 4:13 PM on October 7, 2010


Lots of mortgages in the us are non-recourse that's exactly the same thing as this. The distinction of where the cashflows come from is irrelevant. My point wasn't that it was not an insane transaction, but that rather the mechanism by which the transaction was effected was not unusual. Gildorah's second comment is of course exactly on point - the amount of leverage was always going to be insane and unsustainable. Zell saw the banks willing to do something utterly stupid and took them up on it. He's still kind of scum but everyone should have known that coming in. Additionally wrt to the ESOP the article totally let's off the hook the trustees of the plan who should have been financially savvy enough to not get snookered, or at least told them that buying out a declining business at double digit multiples of EBITDA was not a good use of the plans money. The rest of the article is just media navel gazing.
posted by JPD at 4:32 PM on October 7, 2010


Oh and as to the homes not generating cash-flow. Banks will always consider a loan secured on a cash-flow generating asset to be a better loan to make then one just secured on asset value
posted by JPD at 4:45 PM on October 7, 2010


The rest of the article is just media navel gazing.

Riiiight. The utter evisceration of a century-old pillar of American journalism, one of the nation's great newspapers (like it or not) is interesting only to those inside the business. Nothing to see here.
posted by stargell at 6:11 PM on October 7, 2010 [1 favorite]


It's amazing how often shitty people get to destroy good things.
posted by ifandonlyif at 6:22 PM on October 7, 2010 [4 favorites]


No doubt there's a lot of stupidity afoot in the story, but I do wonder what the Tribune's decline looks like relative to the rest of the industry. It's been a punishing few years for just about any newspaper. Just about every other news organization in the country suffered circulation/viewership declines and layoffs in the newsroom. I think you could make the case that the ship was already sinking and would have sunk anyway, with or without all of these hijinks.
posted by Mid at 6:46 PM on October 7, 2010


It's amazing how often shitty people get to destroy good things.

Yup. I used to be a big fan of WGN AM 720, the Tribune Co's flagship news-talk station, with 80 years of history in the community, the Cubs, and decades of continuity. It had fans passionate about the station, and who loved their show hosts, because both loved Chicago.

After Zell bought the Tribune company, he installed Kevin Metheny, aka Howard Stern's "Pig Virus", who immediately started driving out (firing) established talent in favor of his people, seemingly wanting to alienate and drive away the traditional audience, without replacing it with much in return.
posted by ZeusHumms at 6:51 PM on October 7, 2010


I think you could make the case that the ship was already sinking and would have sunk anyway, with or without all of these hijinks.

Maybe, but it's one thing to be on a sinking ship run by professional sailors, and another by the Morning Zoo crew.
posted by ZeusHumms at 6:52 PM on October 7, 2010 [2 favorites]


Who would have thought Conrad Black would end up being only the second most loathsome rich asshole in the last decade to run a major Chicago newspaper into the ground playing Hearst?
posted by enn at 7:06 PM on October 7, 2010 [5 favorites]


A profile of Zell in the New Yorker a year or two ago viewed him as a mover and shaker.
posted by ovvl at 8:21 PM on October 7, 2010


Well, his moves surely leave me shaking.

With anger, of course, but still.
posted by DreamerFi at 10:59 PM on October 7, 2010 [2 favorites]


The ideal result here would be to assign ownership of the Tribune free and clear to the ESOP so they can revive the paper, and take every dime Zell has to pay back the creditors.
posted by Jimmy Havok at 1:05 AM on October 8, 2010


Ah, I see, it's like the Roman Polanski thing: TALENT excuses all. Gotcha.

The problem with that (even accepting the sarcasm), is that Polanski actually is talented, with a proven ability to do remarkable things.*

I suppose getting away with embezzling millions of dollars from a company you're destroying as if it were a sign of business acumen is a remarkable thing. But not talent per se.

*Not that it excuses anything at all, really.
posted by Grangousier at 1:17 AM on October 8, 2010


I'll never understand why people don't call these fucks on the fact that they are, in fact, assholes. Corporate world politeness allows some of the stupidest people the most power, and they never get a reality check. It amazes me that people put up with this. The company needs the people at the bottom more than it needs another middle-manager, never mind a rockstar CEO. So all you folks at the bottom? Organize a skip day. They can not fire all of you. They can't even fire some of you. Maybe they'll axe the ringleaders. Do it again. Do it until they cave. They'll cave pretty damn quick. Especially if you organize a media blitz. Which is easy. Call up the local news stations and be like "Yo, there's going to be a few hundred of us hanging around outside with some signs. You in?" the reporters will flock to you. You are the ones who do the work that the company needs to stay in business. Also, can we stop hiring rockstar CEOs yet? The world of X doesn't need a fucking rockstar it needs a person who understands how to make X better. Unless you produce rock, you don't need a rockstar.

(Sorry the only reason I get like this is we as a group have a direct say in who is our manager at my job. (Manufacturing) Every interviewee for upper division stuff who is coming from outside the company, we've got a person from the floor who is at the interview and who can ask questions. People have not been hired based on the fact that they literally couldn't understand why someone who would be working under them was included in the interview process.)
posted by Peztopiary at 1:31 AM on October 8, 2010 [2 favorites]


As people have pointed out, this is exactly like what has happened in numerous industries and business sectors in America.

I'm surprised people aren't talking more about realistic, practical ways of destroying this kind of frat-boy scumbag for good, stripping them of their wealth and power and making as sure as possible that people like this can never, ever get any kind of influence ever again.

This quote sums it up for me:
“They were like 14-year-old boys — no boundaries at all — but with money and power,” Ms. Richards said in an interview.

Do we really want our societies run by man-children? What can be done?
posted by lucien_reeve at 1:48 AM on October 8, 2010


I deeply wish my ability to get multi-million bonuses was entirely disconnected from how well I did my job.

Seriously - $57 million in bonuses when they company has axed 4200 staff and has been in bankruptcy for 20 months? What the fuck?
posted by Happy Dave at 5:23 AM on October 8, 2010


Peztopiary: " Every interviewee for upper division stuff who is coming from outside the company, we've got a person from the floor who is at the interview and who can ask questions. People have not been hired based on the fact that they literally couldn't understand why someone who would be working under them was included in the interview process.)"

Yeah, that should be standard practice. Might get some effective managers that way.
posted by Happy Dave at 5:24 AM on October 8, 2010


These fucktards have been ruining the Baltimore Sun, too. Watching reporters, good ones, get laid off and in depth local reporting replaced with wire fluff from Chicago has been painful.

I thought that after the Detroit Newspaper Strike I'd stopped caring about newspapers, but Zell and his minions managed to help me to new depths of anger.
posted by QIbHom at 5:26 AM on October 8, 2010


It's been a punishing few years for just about any newspaper.

Well, the people who read newspapers have stopped reading them because, ever since USA TODAY hit, newspapers have slowly stopped reporting news.

So, why would I buy one? Esp. a US newspaper, the very best of which are utter dreck, and the vast majority are worse.
posted by eriko at 6:59 AM on October 8, 2010


Sure, my only point is that the whole industry is in a terrible decline, so singling out one group of bad managers is sort of questionable. Like - look at these horrible managers of the horse and buggy factory! They're running it into the ground!
posted by Mid at 7:57 AM on October 8, 2010


I work in the ESOP industry and the unfortunate thing about all of this is that Zell's slimy misuse of this financial instrument tars the industry. Most ESOPs are established by business owners who built up a family business into a thriving workplace in one generation but would prefer to sell/transfer the ownership to its employees than sell to an outsider or competitor. When done well, the statistics bear that ESOP companies are more effective and the employees retire better.

The Tribune case is an example where the ESOP is used only as a tool to leverage a purchase and reduce taxes. Gaming of these instruments is probably inevitable, but when I hear ESOPs regarded as synonymous with sleazy financial dealing it is a little disappointing because there are so many stories of how it has worked well.
posted by dgran at 8:04 AM on October 8, 2010


Tribune Co. Chief Innovative Officer Lee Abrams, who earlier this week sent a company-wide e-mail that contained content deemed inappropriate for the workplace, resigned today.
posted by readery at 3:04 PM on October 15, 2010


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