How Punch protected The Times
In 1969, shares of The New York Times Co. began to be listed on the American Stock Exchange.
The driving force behind the listing was the company’s chief executive, Arthur Ochs Sulzberger, who was then 43 and had been at the helm for six years. Eager to expand the company, he needed a listed stock that the company could use to make deals. But a listed stock had to have voting rights. And that conflicted with another of Sulzberger’s goals: to ensure that his family, which had owned the paper since 1896, would remain in control of the company and its flagship newspaper.
Since the 1950s, the company had given stock to favored employees and others, stock that could be bought and sold but had no voting rights. The solution was to give that stock — Class A shares, they were called — some voting rights, but not enough to threaten the family’s control. The Class B shares, held largely in a family trust, still gave the Sulzbergers the power to elect around 70 percent of the board.
Sulzberger, who was known as Punch, died Saturday. In the encomiums that followed, much was made of his fierce dedication to the First Amendment and his overseeing the remaking of The Times, especially the addition of feature sections that brought new advertising, and new life, to “The Gray Lady.”
But that long-ago decision to issue two classes of stock has also had long-lasting ramifications. As someone who joined The Times right around the time the Internet was beginning to wreak havoc on the newspaper business, I have watched us tighten our belts, offer buyouts, sell off divisions and even, in 2009, borrow $250 million from Carlos Slim Helu, the Mexican billionaire. (The money was paid back in 2011.)
But I’ve never had to worry that The Times would go the way of so many other once-great papers, abandoning independent foreign reporting, for instance, or shrinking the news hole to the point where the paper could be read from cover to cover in 10 minutes. As many other well-known newspaper families have abandoned the business — most recently, the Bancrofts of Dow Jones and The Wall Street Journal — the Sulzbergers have remained steadfast in their belief that they were put on this earth to preserve and protect The New York Times.
In recent years, that dedication has been sorely tested. As advertising has gravitated away from the printed page and toward the Internet, Times Co. stock has been hit hard. Profits have declined. In 2009, the company eliminated the dividend, which had been a source of cash for family members. At Dow Jones & Co., the ruling Bancroft family decided to sell to Rupert Murdoch and News Corp. By all appearances, the Sulzbergers never flinched.
None of which would have mattered without the protection provided by the dual class of shares. Inevitably, as the newspaper business declined, financial engineers came knocking. In 2006, Hassan Elmasry, a fund manager at Morgan Stanley, which held around 7 percent of the Class A shares, began agitating for the company to abolish its dual-class structure. But, precisely because of that structure, he couldn’t gain any traction.
A few years later, a pair of hedge funds took a 19 percent stake in the Class A shares and began to mount a proxy fight. It ended with the company agreeing to put two of their representatives on the board. One of the two has since left the board.
As a red-blooded capitalist, I understand why dual classes of stock are frowned upon. They deprive ordinary shareholders of the chance to have any say in how a company is run or who sits on its board. A dual-class structure protects the bad along with the good. It is likely that Times Co. stock is lower than it would be if shareholders knew they could “put it in play,” as they say on Wall Street.
I also understand that the Sulzbergers have made their share of mistakes, such as the purchase of The Boston Globe for $1.1 billion in 1993. But there is something both straightforward and honest about their approach. If you buy New York Times stock, you are buying into the notion that you’ll let the family run the show, as it has done for more than a century. And the Sulzbergers will put The Times’ journalism ahead of all else, because that is what is in the family’s DNA.
The bet Punch Sulzberger made his whole career is that people wanted — and would pay for — great journalism. Today, despite an uncertain future, his heirs are making the same bet. The protection afforded them by the dual-class structure has allowed the current chairman, Arthur Sulzberger Jr., and the rest of the family to take the long view without worrying about corporate raiders or hedge fund managers.
“You can talk about the fact that a dual-class structure is unfair to shareholders,” said John Morton, a veteran newspaper analyst, “but I’m a sucker for good newspapers. I’m glad The Times is owned the way it is.”
Every reader should feel likewise.
Joe Nocera is a columnist for The New York Times.