Revenge of the Nerds: Goo-Goos Target Hollinger

By: Mark Fitzgerald There was no mention in any of this morning's papers about the lawsuit filed here by the Teachers Retirement System of Louisiana (TRSL) against Hollinger International Inc. The pension plan suffered the PR misfortune of bringing their suit in the same news cycle that Conrad Black chose to unleash his own chutzpah-laden legal counterattack upon his former buddies on the Hollinger board of directors.

When The Lord Black of Crossharbour, PC (Can), OC, KCSG, accuses such formerly compliant luminaries on the board as Henry Kissinger or Richard Perle of "blatant thievery," well, any business editor is going to go with that story over a lawsuit that at first blush might seem like just more legal piling-on.

So you read it here first: This lawsuit from the Louisiana pensioners is a sleeper that could end up having a far greater impact on Hollinger's corporate structure than any of the sexier legal fireworks between Black and Hollinger International.

While Black and his board call each other names and try to block each other from selling such assets as The Daily Telegraph of London and the Chicago Sun-Times, the pension plan is coming after everybody connected with the Hollinger mess. And its lawsuit serves notice that if TRSL gets its way, what it calls the "Byzantine" corporate structure -- which, among other things, allows Black to control 73% of Hollinger International's publishing empire with just 30% of its stock -- will be one of the first things to go.

TRSL is coming off a big victory in its battle against the abuses and corruption by the board of the formerly high-flying hospital operator HealthSouth and its former CEO Richard Scrushy. The allegations against Scrushy -- that he ordered massive financial fraud to conceal the company's true condition and to finance a lavish personal lifestyle -- certainly echo the charges against Conrad Black. Last December's settlement of TRSL's class-action lawsuit got the pension plan a seat on the HealthSouth board, led to the wholesale dumping of other directors, and imposed a more transparent system of corporate governance.

Further, the teachers are represented by a Delaware law firm, Grant & Eisenhofer, that has racked up other recent victories on behalf of shareholders. It was among the lead counsels in the $300 million settlement of the suit institutional shareholders brought against Oxford Health Systems last March and another $300 million settlement with DaimlerChrysler Corp in August. The law firm and TRSL were also both involved in the settlement with the big software provider Siebel Systems that included canceling the huge stock options issued to CEO Thomas Siebel without shareholder approval.

TRSL pursues good corporate governance. Perhaps that, too, is why their lawsuit has received practically no play in Chicago, which takes a perverse pride in its history of resisting reform in any guise. Around here the good government types are still derided as "goo-goos." And corporate good governance? That sounds doubly suspicious.

But TRSL is a goo-goo that fights back when bullies kick sand in its face.

Beth Young is an expert on governance at The Corporate Library who has seen TRSL in action. "They have a track record of really aggressively pursuing corporate governance through litigation," she said by phone from Portland, Maine. That simply wasn't done before, Young noted: "For a long time there was sort of a general predisposition against pursuing litigation for corporate governance ... In the Siebel case, (TRSL) were kind of out-front on that."

If the TRSL lawsuit isn't getting much media attention, it's certainly not for lack of good copy. The 114-page lawsuit filed in U.S. District Court in Chicago reads at times more like any angry editorial than a stockholder lawsuit. (The suit is available online at Grant & Eisenhofer's Web site, www.gelaw.com.)

One part is headlined, "Lord Black the King," and gets right to the point: "To understand this case, it is necessary to understand Lord Black. For Lord Black, wealth and extravagance are a birthright to be continued in the fashion of Citizen Kane, that is, before the mythical figure's downfall. Not even Dennis Kozlowski, the disgraced head of Tyco Ltd., who became famous for spending $6,000 on a shower curtain on Tyco's tab, can match Black when it comes to a taste for the finer things." The suit then goes on to list Black's possessions from his Palm Beach mansion to his 1954 Rolls Royce Silver Wraith.

Even with their earnest goals, the goo-goos, it seems, are going to make the Hollinger spectacle more interesting still.