Monday, April 24, 2006

Dow Jones's Glass House

Dow Jones’s Wall Street Journal had itself a good chuckle last Saturday at the New York Times’ expense. This brought to mind the saying that those who live in glass houses shouldn’t throw stones.

In case you missed it, the Journal’s breakingviews section hosted an imaginary exchange of letters between Henry Kravis and the New York Times’ Arthur Sulzberger, Jr. Here’s one of my favorite parts of the imaginary Kravis epistle discoursing on Sulzberger’s business challenges:
Investors just hate the sector. The S&P publishing index is down 20% in two years. Your shares have done a lot worse -- down by nearly half. Part of the problem is that you want to run this business for the long term, as your family has since 1896.

That is hard when you have aggressive outside shareholders snapping at you. Your dual-share structure gives you some protection. With just a sliver of equity, your family controls nine of 13 board seats. Not many executives can boast of such insulation from the vagaries of pesky stockholders.

Not many, that is, except for the Wall Street Journal’s parent, Dow Jones. Dow Jones’s Class B shares offer a similar degree of insulation from economic reality. According to its most recent proxy statement, the Bancroft family controls 13.3% of Dow Jones common and 76.5% of the Class B accounting for 61.7% of the Common and Class B voting power. And Dow Jones’s board is full of dicey family relationships, including:

  • Christopher Bancroft of the founding Bancroft family who owns 18.7% of the Class B shares and 293,000 shares of Dow Jones common;
  • Michael Elefante, a partner at Hemenway & Barnes, the Bancroft’s trustee, which controls 27.9% of the Class B shares and 5.7% of Dow Jones common;
  • Elizabeth Steele, Chris Bancroft’s first cousin, who owns 7.8% of the Class B shares and 3% of Dow Jones common; and
  • Leslie Hill, an airline pilot and first cousin, once removed, of Bancroft and Steele, who owns 131,000 common shares and 79,504 Class B shares.

And it’s more than a little curious that Dow Jones’ Corporate Governance Committee includes Hill, Steele, and Elefante. How about keeping these coupon clippers away from governance altogether?

Moreover, Dow Jones’s stock market and financial performance is nothing to boast about. To wit,

  • Stock price. In the last five years, Dow Jones’ common fell 33% compared to a somewhat more dismal 40% for New York Times Class A;
  • Revenue. In the last five years, Dow Jones’ revenue declined at 3.6% average annual rate to $1.8 billion, pretty lame compared to the New York Times whose revenues crept up at a 0.4% average annual rate to $3.4 billion;
  • Net Income. In the last 12 months, Dow Jones earned a paltry $60 million in net income compared to $267 million for the New York Times; and
  • Net margin. In the last 12 months, Dow Jones’s net margin was a thin 3.4% -- roughly half the New York Times’ 7.9%.

I’m all for stripping away the dual-share structures that keep newspapers from competing effectively and maximizing common shareholder value. I just find it ironic that Dow Jones fails to apply the same snarkiness to its own clunky governance as it does to its rivals’.


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