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WSJ and Murdoch : shades
Of Amex and McGraw-Hill
By MICHAEL JOHNSON
of TheColumnists.com
As Columbia Journalism Review might put it: Laurel to the Wall Street Journal reporters who refused to show up for work one day last week to protest Rupert Murdoch’s attempts to take over their paper. Dart to Murdoch for even thinking about it.
Murdoch is trouble, as his long record of editorial interference in London and New York shows. In any crunch, the business side wins out. This man is no absentee owner.
The Murdoch/Dow Jones takeover saga reminded me of the run on that other pillar of business and economic reporting, Business Week, in the 1970s.
Business Week under late editor Lew Young carried great weight in U.S. boardrooms, an era when print ruled. American Express nearly won a takeover battle for BW parent company McGraw-Hill Inc. in 1979.
As Murdoch waves dollars at the Dow Jones Bancroft family, those of us who worked at McGraw-Hill during this period get a strong sense of déjà vu. There are lessons here for the current disputants:
-- Both publications are leaders in business
reporting.
-- Editorial staffs of both publications have opposed the takeover
attempts.
-- Both companies are controlled by old-line wealthy families
with a history of feuds among the several branches.
-- Both companies came under pressure for an unfriendly takeover
by larger, richer entities.
-- Both families are divided over whether to sell out or protect
the institutions they have nurtured for decades.
-- The financial community expected the predators to win in both
cases because they almost always do.
I was at McGraw-Hill in New York in 1979 running World News, the in-house news service for 32 of the magazines. I watched with horror as the slick Amex chairman, James D. Robinson III (Jimmy Three-Sticks), a mere 43 years old, made a play for Chairman Harold McGraw’s publishing empire.
At first, Harold seemed no match for the Amex pros. He was a lovable, approachable chairman who knew hundreds of his loyal employees by name and was always addressed simply as “Harold” by us.
He looked the paternalistic part. He was short, jowly, overweight and an off-the-rack dresser. You might mistake him for a bank teller. As a manager, he favored conservative continuity and ignored the 1970s takeover fever as long as he could.
Harold was a bit of a joke on Wall Street. He had recently been bamboozled by Clifford Irving over an “authorized” autobiography of Howard Hughes. Irving was in fact merely cobbling together a manuscript from the Time Inc. morgue when he managed to convince Harold that Hughes was cooperating. On the strength of his pitch, Irving managed to get himself an advance for $600,000 from Harold. That was a handsome sum in the 1970s. Irving was eventually exposed and went to jail, but Harold was pegged as naïve.
I found that working for a somewhat sleepy family-controlled company, even in a 50-story skyscraper in Manhattan, can be a cozy choice. It can also be a mixed blessing. I always liked the family atmosphere but occasionally one of the McGraw cousins, not particularly bright, would be placed in a key job, forcing career staffers to move on. These young McGraws sometimes tried too hard to make themselves accepted by staff who actually knew their jobs. One of them insisted of calling several of us “big guy.” Most of them disappeared after a few years on the job.
But Harold’s non-family employees were worried that he would not have what it takes to fend off Amex. Even Business Week’s Young was discreetly preparing for what seemed the inevitable. The company asked me to consult The Economist to try to replicate its insulated corporate structure to keep Amex management out of the editorial process. I dutifully prepared a plan.
Further clouding the issue, Business Week had recently run a laudatory cover story on Robinson’s management of Amex. To some inside and outside the company, this takeover bid was beginning to look like destiny.
McGraw family disagreements, so similar to those of the Dow Jones Bancroft family, also worried us. As with the Bancrofts, too many of the McGraws wanted to take the cash and walk away. Board meetings during this period were reported as stormy affairs and Harold seemed outnumbered.
A pallor spread over the company, involving
everyone down to the lowest echelon.
Harold had an admirable policy of hiring slightly retarded young
men for the mail room and other lesser positions. But the mail
clerk who served Harold’s office was alert enough to know
about the Amex bid. Facing Harold at his 49th floor desk a few
days after the bid was made, he blurted out, “Some crisis,
huh Harold? Heads are gonna roll…”
Harold glared at the mail boy but said
nothing. He asked for a replacement immediately, however, and
this one was relegated to the lower floors.
What we didn’t know at the time was that Harold had no intention
of seeing the firm founded by his grandfather become an anonymous
division of a financial services giant.
Harold approached one of the two leading New York law firms specializing in takeover defense. He specifically wanted to talk to Marty Lipton, the star litigator in this area. Lipton had monitored the bid, however, and knew enough about Harold’s soft reputation to keep his distance. He declined to take Harold’s calls.
In one of the more poignant footnotes to this battle, Harold personally walked a few blocks across Manhattan to Lipton’s offices and asked to see him. Lipton was still showing no interest in playing for the losing team, and was unavailable.
Swallowing any pride he had left, Harold sat alone in Lipton’s waiting room for an afternoon hoping to be received.
When Lipton finally ushered him in, something quite unexpected happened. Harold’s passion to save his company swayed Lipton, and he was on board by dinner time. Over the next few days we watched with fascination as a daring takeover defense emerged.
Lipton and Harold devised a plan so aggressive that New York talked of little else for several weeks. McGraw-Hill placed full-page ads in the Wall Street Journal and the New York Times rejecting the bid and accusing American Express of lacking “integrity and corporate morality.” The main ad charged that Amex was sitting on billions of dollars of Travelers’ Check customers’ cash and paying no interest. Robinson personally was accused of an “unprecedented breach of trust.” Amex countered with a libel suit.
But the Lipton strategy created too much heat, and soon the American Express board told Robinson to back off. This was Robinson’s second major failure. He had attempted to take over Disney the previous year. After the McGraw-Hill failure, he was eased out of Amex.
I was speaking at a businessmen’s luncheon club at Windows on the World the day after Amex ran away. When I broke the news that we had defeated the takeover attempt, the room erupted in applause. I then realized that despite expectations of an Amex victory, New York had been rooting for us all along.
A day later, Harold met with a group of about a hundred managers to thank us for sticking with him. He got a standing ovation when he told staff, “American Express will have to leave home without us.” He then introduced the legendary Lipton, a small, squinting, unpleasant-looking New Yorker. Lipton stood slouching before us and spoke in angry, flinty tones as he reviewed the previous few weeks. Watching him, words like “human wolverine” and “rotweiler” sprang to mind. The employees sat riveted, eventually giving Lipton another standing ovation.
May Dow Jones be so lucky as to have a Marty Lipton and Harold McGraw on their side.
©2007 by Michael Johnson. The cartoon is from IMSI's Master Clips Collection, 1895 Francisco Blvd. E., San Rafael, CA, 94901-5506, USA. This column first posted July 9, 2007.
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