As discussed in today's WSJ, Morgan Stanley Investment Management, a 5% holder of NYT Class A shares withheld votes of Class A directors as a protest to get the company to eliminate its Class B, which is controlled by the Sulzberger family, and which in turn elects nine of the 13 NYT directors. Morgan was joined by an additional 25% of the Class A votes. Steve Bainbridge has a problem with this.
I'm no fan of the Sulzberger's holier-than-thou approach to journalism, but I'm also no fan of shareholder activism. And, in this case, I'm particularly unsympathetic to Morgan Stanley's position. . . . .Morgan Stanley bought Class A shares in the Times knowing that the Sulzbergers were in charge and would remain so by virtue of the dual class stock structure. Morgan Stanley knew or should have known that dual class stock presents a serious agency cost problem because incumbents who cannot be voted out of office are almost impossible to discipline. Morgan Stanley accepted whatever trade-offs the deal entailed as appropriate compensation for that risk. Now Morgan Stanley wants a second bite at the apple. I say, Morgan Stanley made its bed and now must lie in it.
Prof B would have a point if this were a legal challenge. But there's nothing wrong or inconsistent with shareholders saying a governance structure that worked under market conditions prevailing ten years ago doesn't work now and trying to change it.
Why doesn't it work? At least partly because old media is under pressure from new media, particularly the web. The powers that be at old media may find all this quite disturbing. After all, until not long ago, professional journalists could use their control over the print/broadcast-based news infrastructure to determine what was "fit to print." The web lowers costs and admits voices that organizations the NYT may find uncomfortable. I discuss the new competitive dynamic in my recent paper, The Public Face of Scholarship.
If the market demands that the NYT adjust to these new voices and technologies and its managers are lagging in that respect it's easy to see why the Times would be suffering and why its shareholders would want change.
It's called creative destruction. A system that doesn't accommodate it is doomed to fail. We shouldn't lament its happening at the Times.
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