Looting is good for shareholders

by philg

According to this NYT story, the management of Hollinger International took home 95 percent of the company’s profits for themselves over the last 6 years.  I.e., these guys were looters par excellance.  Yet graphing the price of HLR versus the S&P 500 shows that the company’s stock has outperformed the market as a whole.  How to explain this phenomenon?  Could it be that HLR has extraordinarily high profits and therefore 5 percent for the shareholders is still pretty good?  Or that the rest of the S&P 500 has managements that are looting more than 95 percent?


Let’s hear from some MBAs who can explain this to us.  You’d think this would make a great B-school case study.


[Addendum: It looks as though if we go back just a few years more the stock has underperformed the S&P: http://finance.yahoo.com/q/bc?s=HLR&t=my&l=on&z=m&q=l&c=^GSPC]

6 thoughts on “Looting is good for shareholders”

  1. Philip,

    I’m not an MBA, but here’s a couple of thoughts.

    First, charting the stock’s historical performance during the time these fiduciary breaches were ongoing is meaningless unless the public (at least the segment of the public that trades in Hollinger securities) was aware of the breaches. If you buy into even a weak version of the Efficient Market Theory, you’d believe that the information available about the company would result in a stock price that reflects all known information: if it’s not known, the stock price doesn’t reflect it. That’s why (illegal) trading on inside information is beneficial to the insider traders (if they don’t get caught).

    Second, it is arguably the case that past pilfering doesn’t impact today’s price for a security. Theoretically, shares prices today are determined with reference to FUTURE, not past value. So in other words, if something bad in the past of a company is discovered, it shouldn’t move the stock price downward unless that information tells you something material about what the future of that company is. Skimming off the top, though inefficient (and a breach of fiduciary duty and just plain wrong) doesn’t tell you anything about the company’s future prospects, as it’s money already spent (though admittedly the line becomes blurry if the funds were expected to be used on something revenue/value generating and the revenue/value generator is now not going to be there).

    Finally, on Richard himself: I have personal experience (though not in the context that is related to anything addressed in the article or, to my knowledge, the suit). I will not comment on him due to his penchant for suing people from far off jurisdictions (see threatened suit against Hersch in Slate Magazine). I will say, however, that I will not cry in my beer if he is added as a party to that suit. At all. Ever.

    Regards,

    – Jeff

  2. The looting was felt. The graphed results are skewed by the increase in Hollinger’s stock price subsequent to Lord Black’s removal from management. They also fail to address the out-performance of the newpaper publishing sector vis-a-vis the general market. Whereas Hollinger in the first quarter of 2003 had zero appreciation since 1997, The Washington Post and the New York Times were up 125 to 200% in the same period.

  3. Maybe the shareholders just don’t care as long as the stock price goes up? Nowdays stocks are glorified lottery tickets anyway–you buy one and if you’re lucky it will soon be worth significantly more than you paid for it, for reasons that have little or nothing to do with anything the company does…

  5. Apparently looting is good for your image as well. Jack Welch, who looted GE of a legendary amount of money, is continually lionized as a great American CEO.

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