My tax practice centered on family owned business and I have always found the interpersonal dynamics fascinating.  That's because each family member sees the business differently: Legacy, protectorate, tool, cash cow, burden and even enemy are among the options I've seen.  A wise estate planner taught me that knowing how each family member sees the business is just as important as knowing the law.

Although the New York Times Company is a public company, it is still very much a family business. The election of  nine of the 14 members of  its Board of Directors is controlled by a trust established for the primary objective of maintaining the editorial independence and integrity of the New York Times. The (unlikely?) mechanism chosen to achieve this goal was to keep control with the descendent of Adolph S. Ochs via a complex arrangement of voting rights and transfer restrictions via a voting trust.

Looking at what I have read about the family in light of my own experiences, my advice to those looking for management changes at the New York Times is to chiefly watch the effect declining circulation has on cash flow.

It is cash flow, not publicly traded share price or even reputation that is likely to matter most to the aunts, uncles and cousins of the extended family. These are mostly people who aren't active in the management of the business and who probably consider their quarterly checks from the voting trust an entitlement, relying on it to maintain lifestyle. A threatened cut in the payout will make them feel the pinch and force the trustees to take action.

Share price isn't nearly as important.  While it is human nature for all the family members to keep an eye on price of  traded shares as a measure of psychic well being,  it doesn't put any money in their pocket when there are transfer restrictions.  Also, it's the dividend payout, not the stock value, that most effects ability to borrow.  Shares held in a voting trust can't usually serve as collateral. I've had a devil of a time trying to explain a beneficial interest in a voting trust to a mortgage officer when a clients, the fourth generation member of a family owned business, tried to buy a second home. In the end, the lender finally grasped it was a dividend stream and counted income only towards the ability to make loan payments.

It should be noted, too, that when the overall goal is to keep a business in the family, a high price is not automatically desirable. I've seen siblings forced into huge debt to send a black sheep packing after they inherited equal interests.  To trustees' charged with keeping the NY Times in the family, a low price per share can be a good thing.  The four children of Iphigenia Ochs Sulzberger who created the current ownership arrangement are of advanced years. I doubt the issue of estate tax on the beneficial interests of these four is ever far from the trustees' minds.

Of course, a healthy share price is of interest to the corporate directors with their duty to current shareholders as well as to the future expansion/diversification of the business. This leads to an interesting observation. Five of those eight trustees are also among the 14 corporate directors, including both Pinch Sulzberger and the man some see as his rival for control, Michael Golden. As much as I do not like the editorial policies of the NY Times, I do not envy these people the task of balancing far from coterminous duties to family, outside shareholders and employees.

I don't think that sideway glances at cocktail parties will amount to much, either. After all, few of the extended family work at the paper.  Many also do not have surnames immediately associated with The Times and its recent fall from grace.  In fact, as a group, most of them seem a pretty anonymous lot compared to other famous families.

As for those named Sulzberger, it is almost a given that Punch has to be distressed by the declining reputation of the paper he ran for so long. If the family were smaller and intact, that certainly might matter.   Often it is the wife and mother who insists upon change in the name of family unity. For example, Clara Ford was instrumental in getting Henry to finally step down in favor of his grandson. Is there any such a person in this extended family with its record of divorce?  I don't know, but some of a psychological bent have speculated it's lack of family stability that made Pinch a bit of a loose cannon in the first place.

In conclusion, there is an old saying that one should always follow the cash.  In 20 years of working with family owned businesses, I have found that cash flow is king over earning per shares, stock market prices and even the accolade of peers. I think it will be ultimately be the same at the New York Times.

Rosslyn Smith   10 05 05