Cashing In   

Amid budget woes, newspaper executives shed their stock.

After a weak economy and higher newsgathering costs took their toll on newspaper profits last year, corporate executives could expect to see reductions in their compensation packages. But all in all, 2001 was quite lucrative for newspaper managers and other insiders.

During the first half of the year, many of them fattened their bank accounts by exercising options and selling stock even as layoffs and budget cutbacks were sweeping through the industry. Total insider selling from January through June was $146.5 million, more than twice the level of activity in the previous six months, according to a study for AJR by Thomson Financial/Lancer Analytics.

In some cases in 2001, newspaper executives made six- or seven-figure profits in a single day. For example, W. Curtis Riddle, a Gannett senior group president and president and publisher of the News Journal in Wilmington, Delaware, exercised options for 11,020 shares on April 26 and over the next 24 hours sold these and some additional shares. The difference between the exercise price of $27.75 and the market value that day of about $64 per share netted him a gain of $400,000 on the options.

In a similar pair of transactions on February 13, 2001, Thomas Curley, president and publisher of USA Today, flipped options on 26,600 shares of Gannett for a one-day gain of $1 million, not counting taxes or transaction costs.

Last year, throughout the newspaper sector, insiders unloaded shares at a rapid rate--particularly in January and February, just before a wave of budget cutbacks and layoffs hit. For example:

• On January 29, 2001, Alan M. Horton, senior vice president for newspapers at E.W. Scripps Co., sold $2.5 million of company stock.

• That same day P. Anthony Ridder, chairman and CEO at Knight Ridder, sold $2.7 million of his firm's stock.

• Two days later John W. Madigan, chairman, president and CEO at Tribune Co., sold $10.1 million in company stock.

• Over the next two weeks Richard D. Gottlieb, who was in the process of retiring as CEO of Lee Enterprises Inc., sold $2.3 million of company stock.

• On February 27, Ridder sold $2.9 million more in Knight Ridder stock.

At 13 publicly held newspaper companies, insiders sold a total of $26 million in stock in January and $36 million more in February. These amounts came on top of $22.9 million in sales in December 2000.

Insiders, who include corporate officers, directors, major shareholders and others with a close business relationship to a company, are presumably in the best position to predict its future performance. There is nothing illegal about their transactions, but Wall Street analysts often interpret high volumes of insider sales as a sign of concern about the future.

Newspaper companies say last year's selling does not reflect a lack of confidence. "It would be a big mistake to make that interpretation," says Lee Ann Schlatter, director of corporate communications at Knight Ridder. In her view, the wave of stock selling is routine. "People who get shares periodically sell them."

At Gannett, insiders "were just doing general transactions based on personal financial situations," says Director of Public Affairs Tara Connell. Many officials held options that would have expired later in 2001, and they had just come off an unusually busy time, Connell says. In 2000, "we increased [the number of] our newspapers from 76 to 99 in a three-month period, and we almost went up by 50 percent in staff," she says. During the acquisition process, many executives "held off on making [personal] financial decisions." Unlike other shareholders, insiders face restrictions on when they can execute stock trades to prevent them from benefiting from nonpublic information.

The executives cited in this article declined to discuss their actions, but some of their spokesmen offered further context: Madigan's sale was his first in 26 years and left him holding more than $50 million in Tribune stock. Horton acted to diversify his portfolio, but most of his personal assets remain invested in Scripps. Ridder's selling followed the exercise of options.

Robert H. Giles, curator of the Nieman Foundation and a former Gannett executive, has said that publicly held companies put too much emphasis on business goals and not enough on journalistic quality in deciding how to compensate management. But he says it's unfair to criticize individual executives who cash in their stock options.

"As a former editor and publisher, I can say that I never made any decisions that had any influence on my portfolio. A single newspaper in a very large company [with many papers of similar size] couldn't reasonably be expected to make an impact on the company's stock performance," he says.

As far as stock options are concerned, "that's simply the way business is done in this country," he says. "Newspaper companies are not exempt, and the individuals who earn these stock awards should not be exempt from that simply because we are dealing with a product that is protected by the First Amendment."

Others are not so sure. Some critics go so far as to say that incentive compensation plans such as stock options undermine journalistic values, disrupt the ties between newspapers and their readers, and ultimately erode media credibility and effectiveness.

In the view of James M. Naughton, president of the Poynter Institute, executive compensation is a problem that both the newspaper industry and society as a whole need to examine. "It is fair to say [an option] is a form of compensation that is widely used in the business world, but it's also fair to point out that journalism is not just another business," says Naughton, who acknowledges that he was a beneficiary of incentive compensation during his years in top editorial posts at the Philadelphia Inquirer.

"Executive compensation generally in this country is totally out of hand. The issue isn't whether a 10-year-old option should be exercised but whether anyone deserves that level of compensation," he adds.

Publicly held newspapers reject such arguments. At the Tribune Co., nearly all workers have a direct stake in the company, thanks to an employee stock-ownership program.

Says Gannett's Connell: "Options and bonuses can be used to spur good journalism. And we do use them that way."