AJR  Features
From AJR,   April/May 2009

A Dubious Benefactor   

When the New York Times Co. needed to borrow money, it turned to a controversial Mexican billionaire one of its own writers had described as a “robber baron.” Who is Carlos Slim Helú and what are the journalistic ramifications of the deal?

By Sherry Ricchiardi
Sherry Ricchiardi (sricchia@iupui.edu) is an AJR senior contributing writer.     

The voice that answered the telephone that February afternoon in the New York Times newsroom was cordial. That is, until the conversation turned to the reason for the call: Did the editorial writer have time to talk about a column he wrote in August 2007 about Mexico's "robber barons," a label he had pinned on the country's superrich? Suddenly, there was a chill on his end of the line.

"I'm not going to talk to you about that," said Eduardo Porter, abruptly ending the conversation. His refusal to comment was understandable. The article he had written 18 months earlier suddenly had come back to haunt him and his bosses.

When Porter wrote the opinion piece, he was responding to a seismic shift in the world's financial sector. Fortune magazine had just reported that Mexican business titan Carlos Slim Helú had catapulted over Microsoft founder Bill Gates to claim the title of richest man on the planet. Slim was then worth roughly $60 billion. At the time, the name didn't ring bells for most Americans, but Porter, who grew up in Mexico, knew the consequences of Slim's massive wealth. He responded with blistering criticism of the stranglehold Slim and other billionaires had on Mexico's struggling economy. It wasn't just the "momentous scale of Slim's riches" that appalled him. "There's the issue of theft," Porter wrote. "Mr. Slim's sin, if not technically criminal, is like that of [John D.] Rockefeller, the sin of the monopolist." Porter wrote that Slim was "a shrewd investor..buying up hundreds of Mexican companies and entering wireless markets across Latin America." In his August 27, 2007, piece, he likened the telecom mogul to a Russian oligarch or an Enron executive, hardly flattering comparisons.

Fast forward to January 2009.

Like other American firms that own newspapers, the venerable New York Times Co. faced plummeting advertising revenue and mounting debt. The cash-strapped company faced deadlines for paying back $1.1 billion over the next few years, with a $400 million credit line due to expire in May. On January 19, the Times Co. accepted a $250 million loan at 14 percent interest from a controversial billionaire who already owned a 6.9 percent stake in the company.

The benefactor: Carlos Slim Helú.

Immediately, questions swirled about the propriety of the nation's leading newspaper getting a bailout from a much-criticized subject of its own news coverage.

The New York Post blasted the headline "'Robber Baron' saves the Times." In a January 25 story, the Post reported that Slim's critics said he has "expanded his riches in a poor country, where the minimum wage is 50 cents an hour, by charging excessively high telephone rates with his near monopoly." (In March, Slim slipped to third place in the wealth sweepstakes, with Warren Buffett in second and Gates back at the top. Although Slim remains Latin America's richest man, his fortune has dropped to an estimated $35 billion, another victim of the global economic downturn.)

The industry was abuzz with the apparent conflict of interest. In a January 20 article for Slate, Andrés Martinez, who served on the Times editorial board from 2000 to 2004, asked, "Will Slim now be referred to as a 'robber patron?'"

"Slim's investment will be a factor, even if unspoken, in editorial decision-making" at the Times, predicted Martinez, who served as editorial page editor of the Los Angeles Times from 2004 to 2007. Later, he wondered "whether the New York Times will have the same credibility as it once had in reporting on excessive wealth created by politically connected monopolists at home and overseas."

"Second-guessers will ask why the paper of record doesn't take a closer look at what its white knight, Mr. Slim, is up to in Mexico," he wrote.

Even if the Times doesn't neglect coverage, there could be the appearance of a conflict and conspiracy theories, Martinez told AJR. "The Times would never strike this deal with Bill Gates or other American tycoons. They wouldn't do it with a Russian oligarch or a Chinese billionaire. Why Carlos Slim?"

On January 20, Time magazine pointed out that the Times press release about the loan didn't mention previous controversies over Slim's operations. "Having Slim come to the rescue may be a bit of an embarrassment to The Times. His past business practices may be pristine, but there have been reasonable observations that they have not been," wrote Time's Douglas McIntyre, who noted that Slim would be a "perfect target for investigative reporters" if he were in the United States.

A January 26 editorial in the Seattle Times said what many in the industry were thinking: "The New York Times is not just a company, but an institution. It is a major player in American democracy. It should not fall into the hands of a capitalist with loyalties to a foreign state."

The Times Co. declined requests for an interview about the company's connection to the Mexican billionaire. Catherine Mathis, senior vice president of corporate communications, wrote in an e-mail to AJR: "Our journalistic and business operations are independent of one another. No institutional shareholders have a say in the journalism of the New York Times." Slim's son-in-law and spokesman, Arturo Elias Ayub, declined a request for an interview with Slim or a family member for this story.

Warren Buffett and Bill Gates are the superstars of the global financial scene, drawing crowds and publicity wherever they tread. Until recently, the name "Carlos Slim" was not well-known in the United States.

Slim is the descendant of Lebanese emigrants who cast their lot in Mexico. His mother, whose parents arrived in the late 19th century, was born in Mexico. His father, Julian Slim Haddad, moved to Mexico in 1902 and made a fortune as a merchant and in real estate. When he died, Julian Slim left his six children well heeled.

Carlos Slim operated under the radar until he entered the telecom business in 1990 during Mexico's push to privatize state monopolies. That year, he won voting control of the state-owned phone company, Teléfonos de México, which he renamed Telmex, for $1.7 billion. Slim had a knack for being in the right place at the right time with the right powerful friends.

In his August 2007 Times column, Porter noted that in 1990, the government of President Carlos Salinas de Gortari sold Slim the national phone company, "along with a de facto commitment to maintain its monopoly for years." Then the government awarded him the only nationwide cell phone license, Porter wrote.

Only a handful of American journalists have spent time with the 69-year-old Slim. On August 4, 2007, the Wall Street Journal published a highly detailed profile under the headline "The Secrets of the World's Richest Man," by Latin America bureau chief David Luhnow. The piece outlined the economic impact Slim had on his overty-stricken homeland and noted that between 2005 and 2007, he made an unimaginable $27 million a day while a fifth of Mexico's population got by on less than $2 a day.

Luhnow reported that Slim's fortune grew "faster than any in the world" during those two years, swelling from more than $20 billion to about $60 billion. His companies account for 7 percent of Mexico's annual economic output, Luhnow said.

In February, Luhnow talked about his impressions of Slim after four or five interviews over the years. "He is a genius monopolist. He is an incredibly smart, hard-working, driven guy who wants every bit of money he can get. The problem is, he was doing it in a country where the state wasn't strong enough to stop him. I admire the guy on one hand, but totally disapprove of what he's done."

In his story, Luhnow describes a chatty, friendly man with a quick temper and strict sense of thrift. Slim is "an insomniac who stays up late reading history" and likes to study "[Genghis] Khan and his deceptive military strategies." He is a business tycoon who prefers pen and paper to computers and doesn't travel widely. An avid New York Yankees fan who could build palaces anywhere in the world, Slim "proudly says he owns no homes outside of Mexico."

So, what does Slim own? According to Luhnow's piece, "it's hard to spend a day in Mexico and not put money in [Slim's] pocket." Beyond his iron grip on telecommunications, he controls more than 200 companies — he told Luhnow he had lost count — in several areas. Across the border, he has bought an interest in Citigroup and in the luxury retailer Saks Fifth Avenue, among other holdings.

The day after the Journal profile ran, Luhnow was summoned to Slim's office. He found the billionaire sitting with the article in front of him heavily underlined in red. Slim insisted they go through it line by line so he could point out what he considered to be unfair, incorrect or based on misunderstandings.

"This took around two hours; he was very thorough. When he finished, he said in Spanish, 'You harbor ill will against me,' and he wanted to know why I had it in for him," Luhnow recalls. "I said, 'Honestly, I don't. But you're a monopolist, and I think all monopolies are bad.'" Slim appeared unfazed by Luhnow's comments.

"I genuinely can't figure out whether he's incredibly cynical or genuinely believes what he says. He will defend it to the hilt," says the bureau chief, who was born in Mexico and has been with the Journal since 2000.

Journalists invited into the inner sanctum often are struck by what Stephanie Mehta, an assistant managing editor at Fortune, called the "juxtaposition of austerity and wealth."

"Just by looking at him, you would never know he is a billionaire," says Tim Padgett, Time magazine's Miami and Latin America bureau chief. Forbes reporter Helen Coster had a similar reaction when she spent time interviewing Slim for a lengthy profile.

In her March 26, 2007, story, Coster said Slim's office has a bookshelf with works about other billionaire superstars — Buffett, Rockefeller and J. Paul Getty, to name a few. On that same shelf, Slim kept five ledgers from his childhood. Each Sunday, his father would give his son a 5-peso allowance, requiring him to meticulously record each expenditure.

Here is how Coster describes the scene: "He pulls one [of the ledgers] down and opens it. 'This was exactly 52 years ago,' he says, turning to a page split into two columns. 'Here I bought a soft drink for 70 centavos. Here I bought two tortas, two albums, two doughnuts.' Today, he still has a weakness for sweets."

Coster began working the Mexico beat for Forbes in 2005. For two years, she prodded sources to get her an interview with Slim, with no luck. Then suddenly, through what she describes as "some very roundabout channels," he agreed to meet.

"I had a sense that he knew he would soon be in the international spotlight and wanted to tell his story," says Coster, who spent four hours with Slim and his family in his Mexico City office.

She found him "incredibly gracious, very unassuming and personable." During the interview, Slim made a point of telling the reporter he was unaffected by what his critics were saying. "When you live for others' opinions, you are dead. I don't want to live thinking about how I'll be remembered," he told her.

Coster's instincts about why he finally agreed to an interview appeared on target. Slim was named the world's richest man a few months after her story ran, setting off a media explosion. Mehta was already pursuing a story about the Slim family when he dethroned Gates. Like Coster, she wrote about his lack of self-aggrandizement.

During a visit to the headquarters of Inbursa, Slim's financial business, Mehta was led to a room that was "a bit shabby... poorly lit and [smelling] faintly of cigarettes" but also filled with valuable art. There was an ordinary folding table in the middle. "Mr. Slim sometimes likes to eat his lunch here," son-in-law Elias told her.

In her August 2007 piece, Mehta wrote that "anyone expecting to find monuments to the Slim financial empire in Mexico City — a gleaming TelMex tower jutting out of the skyline or an América Móvil stadium — would leave disappointed. In fact, América Móvil, Latin America's largest provider of wireless services, is housed in a converted tire factory."

"He's a very thrifty guy," says Mehta, who spent time with one of his sons but interviewed Slim only by telephone.

One of Mehta's sources was George W. Grayson, a Latin America expert at the College of William and Mary, who she said "coined the term 'Slimlandia' to describe how entrenched the Slim family's companies are in the daily life of Mexicans." How did he come up with that label?

"There was no epiphany," Grayson told AJR. "It's just that one can eat meals in a restaurant owned by Slim, make calls via his phone company, purchase insurance sold by his company, bank at a facility that he owns, go to work in a building that belongs to him, etc. In other words, you can spend your life in a Slim bubble."

That could explain why not all Mexicans are cheerleaders for Carlos Slim. Time magazine's Tim Padgett reported in an April 14, 2007, article that Mexico's "archaic system of monopolies and oligopolies" helps to keep nearly half its population in poverty. How does that happen?

"By choking oxygen away from the rest of the economy," Padgett wrote. In his story, he noted that while U.S. authorities have "thwarted Gates' subjugation of the PC software business in recent years, Mexico has done precious little to rein in ubiquitous business empires like Slim's," which control industries from "telecom to tobacco."

A review of Slim's holdings over the years shows that he became rich by being a good bargain hunter, buying up weak companies. He has a gift for spotting undervalued investments and making them profitable. Case in point: The Wall Street Journal reported that from 2002 to 2004, he amassed a 13 percent stake in bankrupt carrier MCI, later selling it to Verizon Communications Inc. for a stunning $1.3 billion. Reuters reported that Slim stood to gain as much as $900 million from the deal.

"His sense for foreseeing where markets are going is uncanny," Padgett says. "He knows where to put his money and when. That's one reason he's created so much wealth from his enterprises. He has a phenomenal confidence in his own ability to control losses."

For the past two-and-a-half years, Mexican business writer Eduardo Garcia has produced a quarterly feature called Slim Watch, tracking the tycoon's fortune and business practices. He posts the column on his online financial publication Sentido Común.

"Nobody knows this subject better than Eduardo," Padgett says.

Mexicans have mixed feelings about Slim. On one hand, they take pride that one of their own has become such a standout in the international financial arena. At the same time, they are painfully aware that his wealth comes from monopolistic practices. They know they pay a lot more for the basics, such as telephone service, because of Slim.

"They are frustrated that one man can amass such a large fortune at the expense of the rest," says Garcia, who was bureau chief in Mexico City for Bloomberg News before striking out on his own seven years ago.

Garcia says experts believe Slim's companies account for one-third of all advertising dollars spent in Mexico, effectively silencing many detractors who fear the repercussions of tossing pebbles at a giant. His companies are major advertisers in both print and broadcast media in Mexico. "It is not healthy for a nation to have someone with that much power," Garcia says.

He explains that Mexican consumers during the past 15 years have paid some of the highest telephone rates in the world, for both fixed-line and mobile calls, transferring vast amounts of wealth to Slim. Businesses pay large telecom fees, leaving them with fewer resources to plow back into their companies. "When companies invest, there is more job creation and there is more economic growth. Monopolies [like Slim's] often cap the growth potential of their industries and their country's economy," Garcia says.

Exactly how did Carlos Slim amass his fortune?

According to an Associated Press story, Slim's critics accuse him of running "ruthless monopolies that illegally block competitors." Rivals or regulators who dare take him on find themselves lavishly outspent, facing a barrage of legal hurdles that can drag on for years in court.

Over the years, he has been dogged by criticism for chumming up to political elites like former Mexican President Salinas de Gortari, a family friend, to grease the skids for business deals.

By 26, Slim had already accumulated $400,000 in wealth from his business ventures and from his mother (his father died when Slim was 13). Forbes' Coster reported that Slim obtained a degree in civil engineering and had a keen eye for "unloved assets." He took a scattershot approach to buying businesses. "There was no overarching strategy except to make a profit," Coster wrote in March 2007.

Today, he profits from the goods and services basic to the daily lives of Mexicans. In his April 2007 story, Time's Padgett asserts that Bill Gates' "fortune is part of an engine that creates jobs; Slim's, say critics, is part of [what] sends Mexican migrants across the U.S. border looking for them."

Denise Dresser, a political science professor at the Autonomous Technological Institute of Mexico — and one of Slim's staunchest critics — repeatedly points out how his dominant position in the telecommunications market has sapped economic growth from her country.

"There are so few outspoken critics of him in Mexico, I can count them on one hand. His critics are portrayed as grumpy, strident people who just don't get that he's a nice guy," Dresser says. "The issue is not whether he's evil or good. The issue is the way what he's doing is holding Mexico back" by blocking healthy competition.

Dresser says one of his companies has interfered with her work. She co-authored a satire on Mexican politics that was published in April 2006. Dresser says Sanborns, a retail chain Slim owns, asked the publisher to send page proofs referring to Slim before it came out. The critical passages, Dresser says, kept the book out of Sanborns until a boycott convinced the company to carry it.

"It's an example of how [Slim] operates in Mexico," Dresser says. "I don't know if he would want to or be capable of doing the same thing in the United States."

She doesn't place all the blame on Slim. She views him as the product of a Mexican governmental system that paved the way for monopolies like Telmex and other fiefdoms run by the country's superrich at the expense of average citizens. She reasons that the state helped create his monopoly and allows him to keep control of a key area of the economy without forcing him to compete fairly.

"It's the Mexican government's fault out of weakness, out of corruption, complicity, and lately out of fear because he's become so powerful," Dresser says. "When you talk to government regulators here, they will say things like, 'Oh well, we'll have to wait until he dies, then maybe we can regulate his sons.'"

Slim has recently turned much of his business operation over to his three sons and increased his philanthropic efforts, including contributing $100 million to former President Bill Clinton's charitable foundation to fight poverty in Latin America.

The New York Times' Elisabeth Malkin reported in June 2007 that Slim pledged to increase the endowments of his companies' foundation from $4 billion to $10 billion over the next four years. Slim told her there would be no ceiling on his donations.

"He has granted several interviews in his office, which is tucked above a branch of his bank and down the hall from a gallery showing works from his collection of European and Mexican art," Malkin wrote. "The interviews, and a four-hour news conference in March, seem to be part of an effort to soften his robber baron reputation."

During the interview, Slim was unabashed about his fortune. Instead, he told Malkin, wealth is "like an orchard, a fruit tree. You have to distribute the fruit, not the branch. You have to plant more seeds to create more wealth."

Slim's rescue of the Times Co. invests some of that fortune in both his business and his image. "It gets him respect, prestige, and it is a very cheap way for him to get a foothold in an arena that interests him," Dresser says.

But what does his investment really mean? Does his $250 million foothold plus the 6.9 percent he already owned in the Times Co. signal that Slim has designs on arguably the world's most important newspaper?

No one can say for sure, but should Slim decide he wants a world-class media jewel in his crown, former newspaper editor Alan Mutter offers a formula for how it might happen.

In a January 20 entry on his Reflections of a Newsosaur blog, he explained that the loan to the Times Co. not only nets Slim the hefty 14 percent annual interest rate but also enables him to buy enough stock in the company to more than double his stake to 17 percent of its common shares. Slim has earned the right to "a detailed view of the company's finances" and "to put the screws" to the newspaper "the minute it violates any of the terms of the loan," wrote Mutter, former deputy editor of the San Francisco Chronicle.

He reported that "after the company's operating profits fell by 38% in the first nine months of 2008, NYT was forced ... to cut its dividend by three-quarters," a huge blow to the "Ochs-Sulzberger family members who own the super-voting shares that control the company." Their collective annual stipend was trimmed to less than $7 million from $28 million.

Mutter paints this scenario: "If the newspaper business continues to deteriorate, NYT would be forced to choose between making further cuts in the dividend or making substantial reductions in the ample resources still afforded the flagship newspaper." That could lead to a fight "between the family members who want to preserve what's left of their dividends and those who want to maximize resources" to keep the Times a world-class newspaper.

The Times has stressed in news articles that Slim would have no representation on the company's board or any shares with special voting rights. But if Slim exercises the warrants he holds from the loan, he will be among the largest single shareholders in the Times Co., owning up to 17 percent of the common shares outstanding; family members hold a total equity stake of 19 percent and wield control through special voting shares, reported Times writer Eric Dash.

Veteran Slim watchers like Eduardo Garcia don't see him in the role of media mogul. According to Garcia, Slim's investment in the Times fits neatly the business model he has practiced for many years. He spots a company in financial trouble, analyzes it and recognizes profit potential. He buys shares on the market to own a stake, and then lends resources to get the company back on its feet. His share prices then go up, he makes money off the interest on the loan and can sell at a profit.

"I see this totally as a business deal," Garcia says. "I don't think his motivation is to own the newspaper. With him, investments come first, reputation second."

Arturo Elias Ayub has been quoted in news reports saying his father-in-law is not interested in meddling in the world-renowned newspaper's coverage. Slim called his investment in the Times Co. a good business move, not a foray into journalism, according to the AP.

But questions of journalism are at the heart of this move for the New York Times.

Kelly McBride, ethics group leader for the Poynter Institute, says the Times newsroom must set policies that make clear Slim is going to be covered just like anybody else and that protect editors and reporters from outside influence.

McBride says she would be more concerned about a Times Latin America correspondent who is working in a much more isolated environment, pitching stories and finding sources. "But that is fairly easily remedied. Most stories don't pop up in a vacuum... Other journalists are involved every step of the way. When you get that kind of collaborative environment, they are more likely to raise the specter should there be a problem."

All media companies have to "reconcile conflicts of interest" when they cover their owners or investors, McBride says.

But she warns that unspoken pressure can lead to an insidious, subconscious self-censorship. The Times flagged that concern as well in a widely analyzed piece on Slim called "The Reticent Media Baron," which ran shortly after the bailout. "His vast resources often translate into less-than-critical coverage," the story said, noting Slim's "complex relationship with the news media."

For the Times, which must cover its own savior while the world carefully watches, the complexities are just beginning.

Sherry Ricchiardi (sricchia@iupui.edu) is an AJR senior contributing writer. She wrote about newspapers' content-sharing arrangements in AJR's February/March issue. Will Skowronski (wskowronski@ajr.umd.edu), an AJR editorial assistant, contributed research to this story.