Lord Conrad Black, who is the largest shareholder and chairman of the board of directors of Hollinger International, has stepped down as CEO of Hollinger in the wake of charges that he and cronies received payments that had neither been approved by the board nor disclosed to the shareholders (see here). Black also is the author of a recent biography of Franklin Delano Roosevelt. Interestingly, one of the charges against Black is that he caused Hollinger to spend $8 million to buy FDR historical papers, which he presumably then used in writing his FDR biography. For a critique of Black's analysis of FDR's economic policies, see Jim Powell's review, which Alex Tabarrok of Marginal Revolution strongly endorsed.
On to the good stuff, however; i.e., the corporate governance aspects. The WSJ (sub. req'd) is reporting that:
Mr. Black's continued role as chairman has angered some minority shareholders. "It's a disgrace," said Laura Jereski, an analyst with Tweedy Browne Co., the New York investment firm that prompted the Hollinger board to investigate fees paid to Lord Black and his associates. "This board has left a guy in place who has no recognition at all of the inappropriateness of taking money out of a public company."
To the extent Ms. Jereski is mad at the board for not removing Black from his position as chairman of the board, she has a point. Under Delaware law, the board may remove its chairman from that office. And, under these circumstances, they probably should have done so. To the extent Ms. Jereski is mad at the board for not removing Black from the board of directors, however, she has no case. According to Hollinger's 10-K, it is incorporated in Delaware. There is no provision under Delaware law for the board of directors to remove one of its members. Indeed, there is case law specifically holding that the board lacks power to remove one of its own members. See, e.g., Dillon v. Berg, 326 F. Supp. 1214 (D. Del. 1971). Under Delaware General Corporation Law § 141(k) only shareholders are authorized to remove a board member. Unfortunately for Ms. Jereski, Lord Black still controls 73% of Hollinger's voting stock. As the risk factors section of Hollinger's 10-K explains:
Lord Black currently controls a majority of the voting power of the Company. Other shareholders will be unable to affect the outcome of stockholder voting as long as Lord Black retains his controlling interest. ... As a result of this controlling interest, Lord Black will be able to determine the outcome of all matters that require shareholder approval, including the election of directors, amendment of the Company’s charter and approval of significant corporate transactions. Lord Black will also have a significant influence over decisions affecting our capital structure, including the incurrence of additional indebtedness and the declaration of dividends.
What then is to be done about Lord Black? The minority shareholders could try to remove him, but they’ll lose if he opposes it. (They'll probably also have a lot of trouble calling a special meeting and getting removal on the agenda, but set that aside). If they manage to hold a vote, and Black votes against his removal, they could try suing him for breach of the fiduciary duties owed by controlling shareholders, but that's a tough cause of action to win. (Unlike the Model Business Corporation Act, Delaware law has no provision for judicial removal of directors.) Under Securities Exchange Act § 21(d)(3), the SEC may seek to have Black barred from serving as a director or officer but only if Black is found to have violated Exchange Act § 10(b) (i.e., to have committed securities fraud). So the minority may well be stuck with Lord Black for quite a while.
