Issue of the week: The meltdown at Tribune Co.

last updated 8 January 2015

Last week was a rocky one for Sam Zell, said Steven Church and Brett Pulley in Bloomberg BusinessWeek, but things could soon get even worse. Zell’s handpicked CEO at Tribune Co., Randy Michaels, departed last week under an ethical cloud, following Chief Innovation Officer Lee Abrams out the door. But Zell also learned that he can be personally sued for billions by Tribune’s unsecured creditors. Zell took the company—which owns the Chicago Tribune, the Los Angeles Times, and several television stations—private in 2007 for $8 billion, nearly all of which was borrowed. The company filed for bankruptcy protection in December 2008. An examiner appointed by the bankruptcy court now says that the company, with debts totaling $12 billion, was probably insolvent when the deal closed. If Zell was aware of that, as creditors contend, he and the banks that facilitated the sale may have committed fraud simply by completing the deal. The creditors “will sue as many entities involved in the buyout as possible, including Zell,” thereby prolonging Tribune’s knotty bankruptcy case just as it was approaching resolution.

Tribune brought its troubles on itself, said Bill Cromwell in Media Life Magazine. Or so says a group of media buyers surveyed by Media Life just before Michaels resigned in the wake of a damning New York Times exposé of “egregious abuses under Michaels’ leadership.” A stunning 70 percent of the buyers thought “the company’s biggest problem was out-of-control management,” not its bankruptcy. The management problems start at the very top, said Michael Miner in ChicagoReader.com. The Times story detailed a “frat-house” culture in which leering sexual innuendo was the norm among senior managers. “Where did Michaels get the idea this could possibly be acceptable?” From Zell, of course, whose wild birthday parties have included attractions like young women in gold body paint wearing only thong bikini bottoms. “There’s nothing like gold body paint” to suggest that degrading women is perfectly “acceptable behavior.”

In an earlier era, Michaels might have survived, said Phil Rosenthal in the Chicago Tribune. Nearly a century ago, Tribune founder Robert McCormick had an affair with his cousin’s wife and eventually married her. The unapologetic McCormick survived the “scorn among society’s elite” and presided over Tribune until his death in 1955. But in today’s media-saturated environment, there’s “an increased level of scrutiny on companies and those who lead them.” In the end, “it mattered not that Tribune Co.’s creditors have praised Michaels and his team for stabilizing the financials of the company.” Michaels failed to notice that the world had changed, and he paid the price.