I like LA Times' columnist Tim Rutten's media columns, even though I frequently disagree with his political spin. So I've been following with great interest his recent series of columns on the troubles at the Tribune media conglomerate, which owns the Times. In his latest column, Rutten writes:
No one can argue that Tribune or anyone who owns The Times is obliged to lose money. On the other hand, no one should argue that a newspaper's proprietor has no obligation except to make as much money as it can. Somewhere between those two extremes is a fulcrum called responsibility on which a balance must be struck. Doing so requires the recognition that, although stockholders certainly are stakeholders in this process, so — and just as surely — are a paper's readers.
Sorry, but I just don't buy it. The Tribune company is a corporation. Like all other corporations, its board of directors has very clear legal duties:
A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end and does not extend to a change in the end itself, to the reduction of profits or to the nondistribution of profits among stockholders in order to devote them to other purposes.
There is committed to the discretion of directors, a discretion to be exercised in good faith, the infinite details of business, including the wages which shall be paid to employees, the number of hours they shall work, the conditions under which labor shall be carried on, and the prices for which products shall be offered to the public. It is said by appellants that the motives of the board members are not material and will not be inquired into by the court so long as their acts are within their lawful powers. As we have pointed out, and the proposition does not require argument to sustain it, it is not within the lawful powers of a board of directors to shape and conduct the affairs of a corporation for the merely incidental benefit of shareholders and for the primary purpose of benefiting others, and no one will contend that if the avowed purpose of the defendant directors was to sacrifice the interests of shareholders it would not be the duty of the courts to interfere.
Dodge v. Ford Motor Co. (Mich. 1919). Although owners of newspapers often claim that their enterprise is a different one with unique social responsibilities, that's usually just a dodge for explaining sub-par performance. The law does not permit directors to strike the balance Rutten wants - to trade off shareholder and stakeholder interests.
If I were advising Rutten, I would offer the following advice: Make the case that what's good for readers is good for shareholders, if you can. Is there a rising tide that lifts all boats?
After all, no rational business person goes into business expecting to lose money. Some think the future of newspapers (at least of the Times) will look like a pro football team. Some billionaire playboy will buy the paper and let it run at a loss just for the sake of being able to say "I own it." I don't buy this model, however. First, I suspect owning a football team is a lot more fun than owning a newspaper whose circulation numbers keep dropping. Second, think about how owners like Jerry Jones or Dan Snyder meddle with the operational side of their teams. Imagine what the LA Times editors and journalists would say if their new billionaire owner started dictating editorial and reporting policy. Third, owning a football team turns out to be a very good investment. In contrast, owning a metro daily like the Times is starting to look like owning a wasting asset. People like David Geffen (an oft-mentioned likely buyer) didn't rich spending billions on wasting assets.
