Hollinger Report Lays Blame on Audit Head

By: Dave Carpenter, AP Business Writer (AP) Former Illinois Gov. James Thompson, a lawyer at a prominent national firm and member of the Sept. 11 commission, was faulted in an internal report by Hollinger International Inc. for being passive and ineffectual in his role as head of the scandal-ridden newspaper company's audit committee.

Thompson declined to comment about specifics in the special committee's report but explained his decision to trust Hollinger top executives Conrad Black and David Radler by saying company directors never "start with the presumption that the CEO is a crook."

The report, filed Tuesday with the U.S. Securities and Exchange Commission, outlines how Black and Radler allegedly schemed to loot the parent company of the Chicago Sun-Times and other newspapers of more than $400 million over seven years, running a company in which "ethical corruption was a defining characteristic of the leadership team."

It also details Thompson's acceptance, as chairman of a compliant audit committee, of Black and Radler's annual proposals for "increasingly exorbitant" management fees with little or no challenge -- criticizing him among those who "failed to detect and prevent the looting of the company."

The audit panel's performance under Thompson's chairmanship was "ineffective and careless over a prolonged period of time," wrote the special Hollinger committee, accusing it of "somnolence."

The audit committee was repeatedly and deliberately misled by CEO Black, chief operating officer Radler, corporate counsel Mark Kipnis and other insiders, according to the report. But its ineffectiveness was "primarily a consequence of its inexplicable and nearly complete lack of initiative, diligence or independent thought."

While Thompson and the other audit committee members did not enrich themselves at the company's expense or derive improper personal benefits, their "inert behavior contributed to these events," the report said.

Before the committee met to approve the now-controversial annual management fees, Thompson would hold a perfunctory meeting with Radler over lunch or coffee and be told the dollar amount, according to the committee's account. The committee then would approve the amount with little discussion.

Thompson was said to never ask Radler for any analysis supporting the fee proposal, which more than tripled in 1997 to $26.5 million and then increased by 20% and 26% the next two years.

"In the time needed to consume a tuna sandwich, Radler would win as much as $40 million in Hollinger revenues for Ravelston (an Ontario corporation controlled by Black), and Hollinger would be locked into this patently unfair and exploitative relationship for another year," the report said.

"Unfortunately, Thompson seems to have trusted Black and Radler to honor their fiduciary duties when it turned out that he was dealing with individuals who had long since ceased to pay attention to those concerns," it said. "Thompson did not realize that Black and Radler might be regularly feeding inadequate or misleading information to the audit committee."

Thompson declined in a telephone interview to address specifics of the special committee's findings, saying he had not read the 513-page report and citing pending litigation.

"I did trust Black and Radler," he told The Associated Press from New York, where he is attending the Republican National Convention. "I've never been on a board where you start with the presumption that the CEO is a crook."

Thompson emphasized that the report had not found him guilty of wrongdoing.

"They did not say we violated our fiduciary duties, and we didn't," he said of the audit committee members. "Secondly, the committee repeatedly found that the board or the audit committee were either misled or kept in the dark on a lot of these transactions.

"Thirdly, since all this has become either public or known to the board, my duties on the Hollinger board have increased," he said. "With a lot of these facts known, the board chose to not only keep the chairmanships I had but add to them."

The former four-term governor runs the prominent law firm Winston & Strawn.