Panic At the New York Times

Vanity Fair reports on the problems at the New York Times:

The owners of the Class B stock—the Sulzberger-Ochs family, who hold voting control—are, in a very real sense, supported by the A shareholders, who own most of the company. It's the A shareholders who maintain the price of the stock. It's the B shareholders—50 or so descendants and spouses—whose daily lives are supported by the dividends produced by the stock.

The traditional assumption is that, for media companies, the market understands and accepts two tiers of stock (Murdoch's News Corp. has two tiers; The Washington Post has two tiers; Viacom has two tiers). If you don't like it, you don't buy it in the first place. But in this new age of shareholder activism, two tiers suddenly become a juicy wedge issue.

The activist shareholders are—not dissimilar to the Bush White House—waging a press campaign against the Times. The dissidents—only Morgan Stanley Asset Management, with 5 percent, has taken a public stand, but Bruce Sherman's Private Capital Management, which forced Knight-Ridder into a sale, is one of the Times's largest shareholders—are claiming that the B shareholders, presiding over scandal, are being reckless with the Times's brand and with their stewardship of a national treasure. (To cut costs and raise revenues, management is trimming the width of the paper by 1.5 inches, reducing news coverage by 5 percent, and selling ads on the front page of the Business section.)

They're characterizing the B shareholders as, in effect, being in it for themselves, pointing to Arthur's ever increasing multi-million-dollar compensation package—$3.2 million in 2005.

They are also using the "governance" word. By challenging the "governance" of a company—the independence and responsibility of its board—you question its integrity and uprightness (i.e., its fundamental Timesness). And, truly, the Times board—controlled by its B shareholders—is a passive and lackluster bunch. Whereas Warren Buffett is on the Washington Post board, the Times board's one corporate star, IBM's former C.E.O. Lou Gerstner, resigned in frustration several years ago.

In any conventional sense, control of the company, as long as the family stays united, is invulnerable. And most people take the fact of that unity as a historic given. But now it's being tested in the face of shareholders whose activism effectively talks down the price of the stock, the point on which management, the board, and the family are most accountable, and does it with the one other thing the Sulzbergers are perhaps most touchy about—bad press.

What will the B shareholders give to make it stop?

The fear in the newsroom is that the first thing to be given up will be bodies—fire enough people and earnings improve and stock creeps up and that takes immediate pressure off management. (It's already begun: "There's no money here," hissed a reporter to me recently in what had been a little gossip about expense accounts.)

The New York Times is an ineffecient family business that's listed on the NYSE.The marketplace isn't too much impressed with current management.Look at this chart.The New York Times makes a new multi-year low while the S&P 500 makes a 65 day high.You might say Pinch underperforms the market like clockwork.