The value of incompetence: Tank the firm, grab the gold

What do you get if the share price of the company you run topples from $50 to $30 on your watch?

What do you get if your principal stockholder bails out, claiming you failed to act to maintain the share price?

What do you get if you lay off hundreds of employees over the years to reduce expenses but fail to improve the product sufficiently to invigorate revenues?

What you do get? You get rich. Now that Chicago businessman Sam Zell has wheeled himself into ownership of the Tribune Co., current Chairman and Chief Executive Dennis J. FitzSimons is expected to leave at the end of year — with an estimated $40 million, according to corporate disclosure documents.

FitzSimons, a 25-year Tribune veteran who rose through Tribune broadcast management and sales, became CEO in 2003 three years after Tribune bought Times Mirror, owner of the Los Angeles Times. From The Times:

That eventually put him in direct conflict with the Los Angeles-based Chandler family, which had controlled Times Mirror for more than a century. By mid-2006, the Chandler heirs, who were Tribune’s largest shareholders, were openly disaffected with FitzSimons’ management. They contended that he had failed to exploit the promise of the Times Mirror acquisition, which had been predicated on the advertising and news-gathering synergies of owning newspapers and broadcasting in the same cities. The Chandlers contended that Tribune management had failed to respond to the challenges of declining newspaper circulation, broadcast audience share and advertising revenue afflicting both its major businesses.

FitzSimons had been instituting expense reductions across the company. But those actions created turmoil, especially at the newspapers. At The Times, two publishers and two editors resigned, the latter in opposition to staff and budget cuts ordered from Chicago headquarters. Similar turnover occurred at other newspapers in the chain.

In June 2006, the Chandler family accused management of not moving decisively enough. In an open letter, it complained that FitzSimons had “failed to generate a viable strategic response” to changes in the industry and had allowed “value to deteriorate.” Tribune’s stock price had fallen to about $30 from above $50 since FitzSimons took over, the letter claimed.

The family demanded that the Tribune board consider a breakup, a sale or a leveraged buyout of the company, which it contended would yield more than $35 a share. FitzSimons led a search for potential suitors lasting nearly a year. After a troubled auction, Zell emerged the winner with a $34-a-share bid to be financed by debt. The Chandlers sold all their Tribune shares in the first phase of the transaction in the summer.

So Mr. FitzSimons will receive, it appears, 40 really, really large for his business acumen, expertise and long service.

I suppose I should be shocked! appalled! outraged! etc. But it’s just another story of the American Dream becoming the American Scheme.

xpost: Scholars & Rogues

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