War at the Wall Street Journal Read online

  Even beyond the Hills, the goodwill that had extended to Kann immediately following the attacks of September 11 was dwindling. The dot-com bubble had deflated, and the flight of advertisers from newspapers hit the Journal harder than most; the paper had lost money for the past three years. Kann, ever unflappable, had come up with a reassuring refrain for investors, employees, and Bancrofts: these were cyclical problems, just part of the ups and downs of the economic cycle. The Internet had come and gone, he reasoned, and this scare, too, would pass. But this explanation was losing credibility.

  The company was desperately trying to dig itself out of the print medium's decline and move the paper itself beyond the technology and financial advertising on which it relied so heavily. In January of that year, at the urging of Zannino and Gordon Crovitz, president of Dow Jones's electronic publishing division, Dow Jones had bought the financial news site MarketWatch.com, to expose the company to what executives hoped would be a boom in online advertising. The Journal was planning to launch a weekend edition of the paper, covering "soft" topics such as food, fashion, and what Karen House called "the business of life," to attract a wider range of advertisers to the paper. The company was in need of rescue. Revenues at the Journal had fallen nearly 9 percent in the first quarter of the year.

  Michael Hill, the Hill clan's youngest brother, was a grown man living outside Boston. He was close to his older brothers Crawford, the high school teacher, and Tom, a documentary filmmaker and corporate videographer, and seemed the mildest and most patient of the bunch. The Cohasset house had served as a daycare center of sorts for him when his older siblings followed their parents on vacation out West, hiking the Sierra Mountains and the Grand Tetons. Mike, too young to hike, stayed home for many of these trips and amused himself on a small sand patch his grandmother Jessie had hauled in and dumped on the corner of her property for him. He spent so much time there the family called it "Michael's beach."

  With his high-pitched voice, Mike was often drowned out in conversations with his brothers, who talked over him and cut in when he seemed to meander in his explanations, which happened frequently. None of the Hills had worked for Dow Jones (save a brief stint for Leslie at Dow Jones's library and at one of the company's Ottaway community papers on Cape Cod). Mike seemed to regret his lack of involvement. With soft eyes and a round face topped with feathery brown hair, Mike thought his family should have been more caught up in Dow Jones's business, and was frustrated by the role Hemenway & Barnes played in keeping his family away from the company they owned.

  Kann was sixty-two at the time, and as his retirement age approached, Mike, his brothers, and their sister Leslie asked Hammer, and later Elefante, at every opportunity, "What is being done about Peter Kann's succession plan?" Their mother, who served as trustee for a large number of family trusts, asked the same thing. But Hemenway & Barnes seemed to barely listen and quickly dismissed the Hills.

  Leslie and her brother Mike were talking frequently in 2005 about the company. As a director bound by the confidentiality of the boardroom, Leslie knew a great deal she couldn't repeat to her brother. That frustrated Mike, who thought that if only the family could have more insight into the company, they could help improve it. One late-spring day that year, in one of their many conversations, Mike, after another failed attempt to get some information out of his sister, said, "You know what? A great Christmas present would be some change before the end of the year." He had no idea that the change was already under way.

  The momentum had started early in the year, when James H. Lowell 2nd, a money manager and professional trustee hired by Hemenway & Barnes to advise on the Bancrofts' investments, grew frustrated with what he saw as Hemenway's neglect of its client. Lowell, an outspoken Boston native, was spurred by a combination of chivalry and anger. In one of the family's regular meetings earlier that year at Hemenway & Barnes's antiseptic offices in downtown Boston, Lowell had watched as Hammer dismissed MacElree's questions. "He's treating her like shit," he thought. He had decided to take action.

  Lowell's job was to advise Hemenway & Barnes, not to deal directly with the Bancrofts outside of quarterly trustee meetings. But he had been talking to Hammer for years about how the family should take on more of a role at Dow Jones. Hammer ignored him, too. Lowell decided to go straight to the people he thought Hemenway was mistreating. The Bancrofts had to figure out what the hell they were going to do with the company. And Lowell wanted to help them. The first step was getting the Hemenway lawyers out of the way.

  Lowell wrote to Jane MacElree in February. "Dear Jane," he began, "I am asking for your help in trying to build a family consensus ... Why start with you? Simply because your family has perhaps been most critical (deservedly), yet individual complaints are easily dismissed by an arrogant Board of Directors." Lowell went on to say that Kann needed desperately to reduce the company's debt and explain in detail to the family how he planned to fix Dow Jones. He closed by writing that he was making this unusual overture to her not because he wanted to be paid—"I am not looking for any compensation for my efforts"—but because his legacy, as well as the Bancrofts' legacy, was on the line.

  Lowell sent a copy of the letter in March to MacElree's brother, William Cox Jr., who was as close a thing as the family had to a patriarch but who, as his son Billy frequently pointed out, couldn't rally the family. Cox, ever loyal to Dow Jones, didn't respond to Lowell. All the while, Lowell kept talking to Mike Hill, who seemed one of the most receptive of the Bancrofts.

  Mike, whose nagging tone had begun to irritate Kann, Hammer, and his second cousins in the Cook branch of the family, thought he had found a soul mate in Lowell. "So I'm not crazy," he thought, as he listened to Lowell's ideas about reducing the company's debt and installing the Bancrofts as more active stewards of Dow Jones. Getting more involved in the company seemed appealing; he thought it could be a new life passion.

  Mike sat down in April and penned a letter of his own, this one to Peter Kann himself: "When I was growing up," he began, "Dow Jones was one of the most admired companies in the world ... Unfortunately, the experience for the sixth generation of my family ... is the opposite." He asked for the family, the company's management, and shareholders to "move from being bystanders to 'upstanders'" and take a more active role at Dow Jones. He asked (echoing Lowell's re quest) that Dow Jones disclose its three-year business plan to all the members of the Bancroft family and allow them to participate in its revision.

  Kann wasn't about to allow a younger member of the Bancroft family to force Dow Jones into revealing its business plan; the request seemed naive. Kann knew from his rounds with Elisabeth and Billy that the family had its weak links, and he knew the Hills had been campaigning against him. He did what he could to keep the family informed about the great journalism they were protecting at Dow Jones, but Dow Jones's business was a different matter. Over the years, Kann had grown close to several members of the family, namely, William Cox Jr., shy Jane Cook, and her three daughters in New England—Martha Robes, Jean Stevenson, and Lisa Steele. He praised and courted the Bancrofts, invited them to his home, and socialized occasionally at their summer houses. He introduced them to the paper's Pulitzer Prize winners every year at the company's annual meeting and talked about how a company could have "values and value." He made them feel proud of the paper they controlled and told them that what they were doing—keeping the Journal safe from outside encroachments—was important.

  Deflecting complaints from the younger generation of Bancrofts was something Kann had grown accustomed to with Elisabeth and Billy. He answered questions with hypothetical responses and never responded to the family's concerns in writing. After he received Mike Hill's letter, he invited him in to meet with two members of Dow Jones's board of directors, Irv Hockaday and Frank Newman. Kann knew they would shoot down what Mike Hill was asking—opening up the company's strategic plan to a thirty-five-member family with a history of talking to the press. He never discussed the letter with Mike but cor
dially set up the meeting and promised not to attend, to allow a free and frank discussion between this young heir and two distinguished company directors.

  Hockaday's wise and steady demeanor had helped persuade many of those whom he encountered of his sagacity and professionalism. A native midwesterner with a flat plains twang, he had previously been CEO of Hallmark, the long-successful family greeting-card company founded by J. C. Hall in 1910. Hockaday also served on the boards of the Estée Lauder Company and the Ford Motor Company, also family controlled and grappling with the modern-day tensions attendant to those situations. Compared to the Fords and the Lauders, the Bancrofts' much discussed "hands-off" approach was notable. Hockaday, who had taken in and learned from the situations and difficulties in all the corporations where he had served, almost certainly considered their distance—dissatisfied as it was—counterproductive. But he was a Princeton man, well bred and disciplined in the patriarchal fashion of old-school companies with familial constituencies. He was effective but rarely ruffled feathers. Frank Newman, the former president and CEO of Bankers Trust and the deputy treasury secretary under President Clinton, had been named to Dow Jones's board to appease the architects of Elisabeth Goth's rebellion eight years before. His résumé was unparalleled, and he was one of the heaviest hitters on the company's board.

  Mike Hill came to town that April for the company's annual shareholder meeting, which was open to any and all Dow Jones shareholders and attended by many of the Bancroft cousins. Mike sat in the audience in the World Financial Center tower adjacent to Dow Jones headquarters, where the meeting was held in the American Express Company's auditorium. He watched as Roy Hammer, who had reached the mandatory retirement age of seventy, relinquished his position on Dow Jones's board to the younger Michael B. Elefante, a transition Mike welcomed. He watched as the shareholders approved a measure that would allow his family to sell more Dow Jones stock—thereby raising cash—and still maintain control of the company. Under the previous bylaws, once the family's holdings of super-voting Class B shares fell under 12 million, all of their shares would convert to the regular common stock, and the family would lose control of the company. Under the new measure, officially proposed by the company but actually proposed months earlier by Hammer, in need of a measure to keep the Bancrofts happy, the level down to which the Bancrofts could sell their shares fell to 7.5 million. Such a move flew in the face of modern shareholder democracy, but for the moment, everyone was willing to overlook it in order to keep the Bancroft family happy and in charge.

  After the meeting, Mike walked through the breezeway with Hockaday and Newman to Dow Jones's headquarters, and the men made their way up to the company's executive eleventh floor, where the beige carpets were plusher than the soiled blue ones in the newsroom a floor below. In one of the small conference rooms, Mike sat down nervously with Hockaday and Newman. He was looking forward to his audience and felt the weight of his family responsibility. "Maybe we're finally making progress," he thought.

  Hockaday and Newman were friendly but standoffish. They didn't reveal anything to Mike. Hockaday led the conversation; through his many years on Dow Jones's board he had become the de facto lead director. "It was our impression that the Bancroft family was happy with the way things have been going at Dow Jones," Hockaday said. "That's not the case," Mike Hill responded. "We're very concerned about succession," he continued. "It will be difficult for the family to go through another twenty-year period of poor stock performance." Hockaday and Newman assured him that they were dealing with the issue of succession; in fact, the two of them were on a subcommittee of the board to select the company's next CEO, a tidbit they didn't share with Mike, who left the meeting that day disappointed.

  Not long after the meeting, Roy Hammer gave a short interview to Fortune magazine. In defense of the family's decision to sell down stock and still remain in control of the company (a privilege denied the rest of the company's common shareholders), he said it wasn't such a good deal for the Bancrofts to sell their Dow Jones stock at the measly price of $33 a share, down 44 percent from five years earlier. "We'd rather sell at $60 a share," he quipped. "If you know any buyers, send them my way." By then, even Hammer was caving a bit under the pressure of the Bancrofts' dissatisfaction. (Murdoch noted the piece and had begun making renewed inquiries into the Bancrofts' stance toward the company.)

  Despite his rebuff from Kann and the board, Mike Hill didn't give up. He continued talking regularly with Lowell, who, aggravated by what he saw as Hemenway's inert stewardship, decided to write a letter directly to the Bancrofts to shake them out of their torpor. Weeks after Mike Hill's letter to Kann, Lowell addressed the following to the Hemenway lawyers and the Bancroft family:

  It is our belief that your company is hemorrhaging and will not survive the onslaught of Google and Yahoo. If the family wishes to save the company, it must unite and make some drastically painful decisions.

  For some time, we believe the Bancroft family has taken an apathetic stance towards the direction of the company. They have allowed the firm's moral compass to wander as their financial interests have diverged from those of the talented staff. They have become absentee landlords, looking to diversify their holdings into more promising opportunities.

  To save the company under its current ownership, we believe the family needs to begin acting like owners again in order to counteract the destructive image fostered at the company's recent annual meeting. We advocate the creation of an Oversight Committee that will begin to set a new agenda—an ethical, ownership agenda—for Dow Jones. The Committee would be made up of Lowell, Elefante, and eight (8) family members representing the two classes at interest—the current senior members and the remaindermen. Only family members would vote on issues.

  If the family is serious, the following issues must be resolved:

  No further sale of Class B shares over the next two years except for unusual circumstances.

  Cut the B Stock dividend by at least 50 percent with that savings used to cover over half of the annual interest on the debt. (Interest savings to go to reward staff.)

  Earmark half of cash flow to debt reduction.

  All of the above implemented by the end of July.

  Well, in the Bancroft family, people just didn't talk that way.

  "It's time to stop pointing the finger and making comments that inflame and hurt Dow Jones board members, management and family members," Martha Robes wrote to Hill, in an e-mail copied to the entire family. Robes and her sisters were soft-spoken and cringed at the direct Hills. "Your approach is so negative and divisive that it's almost impossible to get beyond the venom to come up with something we can all support," she said.

  Mike's oldest brother, Crawford, the high school biology teacher, outspoken and opinionated, came to his defense: "How dare anyone accuse Mike Hill of being divisive," he wrote in a response to Martha. "Being blind to reality is divisive—how could it not be?"

  Elefante didn't appreciate the turmoil the Hills were stirring up; he was furious with Lowell. It was suddenly very clear that the dissatisfaction in the Bancroft family was no longer limited to Billy and Elisabeth. Even the Cook branch needed to free up funds for their philanthropic efforts that relied on gifting Dow Jones stock; the declining stock price had made it difficult to keep up with their commitments. Mike knew Hemenway & Barnes was going to have to make some kind of move to keep the family happy, and the most obvious problem was Peter Kann.

  Unlike at News Corporation, the issue of succession would not be decided by the imperial CEO. The board had, in typical Dow Jones fashion, formed a committee to study the situation. The board was looking at its options and had been discussing the situation ad nauseam. The committee, made up of Bill Steere, James Ottaway Jr., Hockaday, Newman, Harvey Golub, and Elefante, had identified the three obvious internal candidates: Rich Zannino, who was chief operating officer, and two of his direct reports, Gordon Crovitz, who ran the company's electronic publishing division, and Karen Ell
iott House, the publisher of the Journal and Peter Kann's wife.

  Dow Jones's board committee had started interviewing the potential CEO candidates early in 2005, and Zannino was offended that he was competing for the job with two people who worked for him. Hockaday, who knew how perilous CEO searches could be, had pulled Zannino aside to assure him that he had the edge in the three-way horserace. Hockaday didn't want Zannino becoming so frustrated that he started looking for other jobs or, worse, left the company out of impatience with the process.

  Hockaday knew Zannino was ambitious; he had left his previous job at Liz Claiborne after just a year and a half as chief financial officer at the apparel maker. Hired at Dow Jones as chief financial officer in February 2001, by early 2002 Zannino had been met with passive aggression by some veteran Dow Jones executives, who bristled at Zannino's presence and simply ignored his requests. He was, at the time, one of many executives reporting to Peter Kann. Zannino wanted the other executives to report to him, and then he, in turn, would report to Kann. He had ideas for how the business side of the company could run better, and he thought he was smarter than he was getting credit for. The media world was getting under his skin and he wanted to be a part of it.

  One afternoon in the winter of 2002, he told Kann he wanted to go out to dinner to talk about his future at the company. The two left Dow Jones's soulless New Jersey campus and drove to Lorenzo's, an Italian restaurant Kann frequented. Not long after they sat down, Zannino launched into the purpose of the dinner: "I don't think things are working out," he said. "I'm not happy." He explained he wanted a bigger job and more authority within the company. Kann listened patiently to his request, smiling and nodding when appropriate. It was a perfect Peter Kann moment. When he was faced with a dissatisfied employee, his job was to defuse the situation and make Zannino, who seemed smart and savvy and who had been helpful in his first year at the company, stay on board. Kann praised Zannino's performance and enlisted him in trying to figure out a job that would make Zannino happy. Given that Zannino was already the chief financial officer of the company, there was only one promotion Kann could really offer him without relinquishing the chairman or CEO title. "We could make you the chief operating officer of the company," Kann said. Top executives at the company would then report to Zannino, who in turn would report to Kann. Zannino breathed a sigh of relief. This was what he wanted. He would stay.