Charity Begins at Home

It appears that Tribune Co. management is using the Tribune Foundation -- to the detriment of shareholders and foundation beneficiaries -- to protect Tribune Co. management.

From Crain's:

A steep plunge in Tribune Co. stock has exacerbated the conflict between the dual roles Dennis FitzSimons plays as CEO of the media conglomerate and chairman of the Robert R. McCormick Tribune Foundation. ***

With Tribune shares down 47% since early 2004, the foundation's portfolio is shrinking fast. Assets dropped 19% in 2004 to $1.66 billion, and have almost certainly fallen further since.

"This is a conflict of interest," says Daniel Borochoff, president of the Chicago-based charity watchdog American Institute of Philanthropy. "Nobody would advise a charity to put all their money in one thing. It's just not smart."

Indeed, the broadly diversified Standard & Poor's 500 rose 9.6% while Tribune shares were plunging from their February 2004 peak. ***

Says William Josephson, who regulated charities for New York Attorney General Eliot Spitzer from 1999 to 2004, "Obviously, where the Tribune controls the board of the Tribune foundation, the Tribune foundation is not going to exercise its rights (as a shareholder) in a meaningful way."

Concentrating assets in a single stock contravenes widely accepted investing principles that emphasize diversification of portfolio assets.

"I would never advise institutional clients to have a single asset in their portfolio, because of the risk," says Eric McKissack, chief investment officer of Channing Capital Management LLC, which owns 607,000 Tribune shares, a 0.2% stake in the Chicago-based company. "It's the kind of thing that can come back to haunt trustees in a downturn. The real victims could be beneficiaries of the trust in the form of community groups and social service agencies that depend on the generosity of the foundation." ***

Doling out $95.0 million, the McCormick Tribune Foundation disbursed more than any local charity in 2004 except the John D. and Catherine T. MacArthur Foundation, which gave $214.7 million.

McCormick grants in 2004 included $3 million to Rush University Medical Center, $2.1 million to Northwestern University's Medill School of Journalism and $1.2 million to the University of Chicago. Tribune-sponsored and sports-team charities got $14 million.

Since 1999, grants have declined 15%, while giving by corporate foundations nationwide rose 22%, according to the Foundation Center in New York. ***

Since Mr. FitzSimons became CEO in January 2003, Tribune shares posted an annualized 11.7% decline in total returns, compared with a 14.1% annualized gain for the S&P 500. ***

"The issue you bring up is the one that frustrated us," [Diane Jaffe of mutual fund company TCW Group Inc.] says. "It was a very self-serving situation. Instead of serving the interests of shareholders, they were serving the interests of management."

Despite the plunge in Tribune stock value under his reign, a committee of the Tribune Co.’s board approved a 3.1% raise for FitzSimons in February, bringing his salary to $985,000 and his post-bonus pay to $1,235,000.

With business judgment like that, it is no wonder the Trib board is propping itself up with the McCormick Foundation.