The New York Times Co.

Abstract

The Sulzberger family owns 20% of the New York Times Co. (NYT) but controls 70% of the board through a dual-class share structure. At the company's April 2006 annual shareholder meeting, Morgan Stanley Investment Management (MSIM) and other investors holding 28% of the company's stock altogether, withheld their votes for the 30% of directors that they could vote on, as a sign of protest against the management of Arthur Sulzberger, Jr. and the dual-class structure that protects him. MSIM later submitted a proposal urging the NYT to subject the dual-class structure to a vote. In evaluating the proposal, Sulzberger feels torn by his responsibilities to three different constituencies: his readers, his family, and all other NYT shareholders. The case introduces some of the mechanisms that founding families use to perpetuate their control of their firms over multiple generations in the context of the newspaper industry, where these mechanisms are widely used. Specifically, the combination of a series of trusts with a dual-class structure that entitles Class B to elect over two-thirds of the board gives the Sulzberger family control of NYT far in excess of the family's economic stake in the company, and shields NYT from potential changes in control - including hostile takeovers as well as activist shareholder attacks. The case features these mechanisms at work and their associated corporate governance problems. The teaching note contrasts NYT's situation and control structures with those that were in place at Dow Jones & Co., which ultimately enabled Rupert Murdoch to take over Dow Jones. The teaching note also provides background on other corporate governance issues that are at play in the NYT case, such as how decision-making powers are allocated between boards and shareholders, or how director elections work. The case can be used in a family business course to discuss governance, control, and family management issues. It can also be used in a corporate governance course to discuss conflicts of interest between controlling and minority shareholders and the governance mechanisms that can ameliorate (or exacerbate) these conflicts. This teaching note is intended to facilitate the use of the case in either context.

Keywords: Family firms, dual-class stock, board of directors, activist investors

JEL Classification: G32, G34, G3