The New York Times and Reality

Here's an incident that made me wonder about the New York Times.

Under the headline "The Boss Actually Said This: Pay Me Less," a lead story appeared in the business section a year ago lauding a CEO who turned down an offer of stock options. "After hearing the amount from my boss," the executive wrote in a letter to his board, recalling a sizeable bonus at an earlier job, "I immediately called my father with the news. The first words out of his mouth were 'don't ever feel that you are worth it.' I don't want him to say that to me again."

Now it happens that a well-meaning source had first shopped this story to me. Though the letter had some good ideas about compensation, the personal note struck me as regrettable, an impression only strengthened by lunch with the CEO, who seemed anguished that his income was bigger than his children's nanny's. Moreover, the company is privately held; the CEO is a founder with a big equity stake that will lead to a lucrative payday if the firm goes public or is sold. Stock options just don't have the same significance that they do in a public company where boards are effectively transferring wealth from public shareholders to the CEO.

I waved the story off--knowing the source's next stop was the Times--for another reason: The "father" not named or described in the letter was, in fact, a long-serving board member of Tyco, from 1967 to 2002, who mentored Dennis Kozlowski and was dragged through the legal mud in Kozlowski's downfall. Anyone in-the-know, as surely some of the son's board members were, would have seen in the letter an allusion to his father's searing Tyco experience (a fact the reader would have to be told too), which seemed an additional reason not to offer the letter to the world as an uncomplicated upwelling of revulsion against CEO pay.

Not a word about any of this made it into the Times's lengthy rendition, which simply quoted from the letter at length, treating it as a deus ex machina from the corporate world, a CEO spontaneously decrying the greed of his kind. "One Wall Street executive atop a fast-growing firm is saying no to the piles of pay that make corporate America's world spin so splendidly," said the piece.

It struck me then and strikes me now that the problem here wasn't just journalistic gullibility or a failure to ask the obvious question. It was a lack of any real feel for human beings or messy reality on the part of a reporter known for relentless but unanalytical execrations of CEO pay.

It was no surprise when the same byline turned up again a few weeks ago above a front-page story airing allegations that John Mack, now the head of Morgan Stanley, had helped a hedge fund engage in insider trading.

Many paragraphs down, the story acknowledged there was no evidence that Mr. Mack had possessed insider information, or that insider trading had occurred. Rather, the story was apparently justified simply because an ex-SEC attorney, positioning himself a "whistleblower," claimed he had lost his job because his superiors were afraid of antagonizing the prominent Mr. Mack by allowing the attorney to question him.

The attorney, the older brother of a rabblerousing San Diego politician and lawyer, had once achieved modest fame suing developers and contractors on behalf of homeowners. At the improbable age of 64, he sought a job as an SEC staff attorney enforcing the securities laws, from whence he brainstormed up the Mack allegations and then lost his job, all in 12 months.

Apply Occam's razor to these facts and a modicum of wariness about the accuser's motives might seem to be indicated. After all, one of the great and justified fears of any enforcement agency is of an employee using its powers to pursue a private agenda. The Times instead treated the lawyer's self-ascribed status as a "whistleblower" as if it were automatic proof of good faith.

The real question is why do Times editors allow such stuff into the paper? Do they wave it through because it might prove personally inconvenient to try to stop it? Do they believe they have more pressing things to worry about than what appears in the newspaper?

For this reason, it's hard to resist the urge to cheer on Hassan Elmasry. He's the mutual fund manager who last spring organized 28% of the shares to withhold their votes from Times directors at the company's annual meeting and last week proposed to put before the next annual meeting the question of whether to end the special voting rights that allow the Sulzberger family to control the company while owning less than 5% of the shares.

Mr. Elmasry is a fund manager associated with Morgan Stanley's Van Kampen outfit, but he's based in London and began his campaign long before the Mack allegations emerged (so forget the idea that his motive is anything but to rescue his fund's long investment in the New York Times Co.). The selling point of his fund is its disciplined focus on buying a handful of companies (no more than 40) with unique franchises, holding them for the long term and watching them carefully. The New York Times Co. has been in his portfolio for a decade.

This hasn't stopped the usual kibitzers from suggesting that his Times campaign is just a "typical" Wall Street effort to squeeze out short-term profits at the expense of journalism. But Mr. Elmasry actually has a record of taking a dim view of companies that don't protect and burnish the long-term franchises that attracted him to invest in the first place. Thus when he writes to Times shareholders that the company's voting-rights rules are "eroding the foundations of the enterprise which they were created to protect," it's worth considering, in light of all the accidents the Times has inflicted on itself lately, whether he might be right.