The Deal from Hell

by James O'Shea

  But Madigan had three things going for him that many readers of the tea leaves didn’t appreciate. One was his age. By the time he became CEO, Brumback was sixty; to appease Wall Street, Tribune Company had to start succession planning from the day he got the job. Secondly, Madigan’s only credible rival, Jim Dowdle, was a television executive at Tribune, a newspaper company at heart and one that rarely went outside its ranks for top jobs. Finally, Madigan’s biggest advantage was that he was a savvy corporate politician and knew how to play the game, far better, in fact, than almost anyone would suspect.

  Taciturn, conservative, and aloof, Madigan grew up on Chicago’s North Shore, a tony strip of land adjacent to Lake Michigan populated by country clubs, wide lawns, and stately homes that scream, “A Republican Lives Here.” W. Clement Stone, the eccentric insurance tycoon who helped bankroll Richard Nixon, had a mansion on the lake. Donald Rumsfeld, the controversial U.S Defense Secretary, graduated from New Trier, the area’s well-known high school, four years before Madigan.

  The son of a corporate lawyer and big University of Michigan booster, Madigan towered over almost everyone in a room, but people tended to underestimate him, probably because of his meat-and-potatoes midwestern demeanor. His buttoned-down countenance obscured a huge ego and a fierce ambitious streak that rarely surfaced in public. Don Haider, a Northwestern University professor who grew up on the North Shore and was a friend of Madigan’s sister, recalled how confident Madigan was, even as a teenager. “Griff Williams,” Haider explained, “was a high-society band leader who had three beautiful daughters. They lived in a house on Forest Avenue [near Lake Michigan] with a broad, sprawling porch. You would always see boys on the front porch; everyone wanted to date the Williams girls, especially Holly.” The competitors for Holly’s hand didn’t consider Madigan a big threat. “He was cautious, easy to underestimate,” Haider said. A handsome, clean-cut young man, Madigan wore a plaid bow tie and a houndstooth jacket in his high school yearbook photo, but he was otherwise relatively undistinguished. When the time came for Holly to make a choice, she picked Madigan. “He was either lucky or determined,” Haider surmised.

  After graduating from University of Michigan with an MBA, Madigan joined Duff & Phelps, a small, midwestern investment banking firm, where he learned the newspaper business basics helping Lee Enterprises, a minor newspaper chain, sell its stock to the public. Next was a tour at Arthur Andersen, at the time, a blue-chip accounting firm based in Chicago. But Madigan’s real break came when he landed a job at the Chicago office of Salomon Brothers, led at the time by Ira Harris, a consummate wheeler-dealer whose struggles with an expansive waistline made as many headlines as his legendary deals. Harris knew Madigan from their days at the University of Michigan, and, although they hadn’t been close friends, the flashy deal maker needed someone adept at corporate finance for the investment banking division he was building at Salomon. Madigan, he soon determined, was his man. Although Harris never grafted his pizzazz onto his new student, he gave Madigan an opportunity to see investment banking through the eyes of one of its masters, and Madigan took notes. When Tribune CEO Cook sought Harris’ advice on the proper strategic direction for Tribune, a company then in private hands, Harris became a matchmaker of sorts. He put Madigan on the case to help determine whether Tribune should remain private or sell its stock to the public. Cook recalled:The problem with being a private company is if you wanted to grow, you almost become like [your own] banker. In those days, [Tribune stock] had become quite valuable. At one point, it was worth more than $100,000 a share.... To get those shares, either someone had to give them to you or you had to acquire them from someone who had been given the stock, and those of us who were high in the company had been given the stock.... As the [founding] family got bigger and old Joe had a son and then he had five sons and they started doling out these shares, people started saying, “Why am I holding on to this stuff? I’d rather get the money,” and you start playing bank [raising cash to buy or retire the stock].

  After an exhaustive review of the company, Salomon determined that it was in Tribune Company’s best interest to go public. During the evaluative process, Cook liked what he saw in the tall, presentable Madigan, and when Tribune needed a chief financial officer, Cook floated the idea by Harris. On the first day of the year in 1975, Madigan joined the Tribune as its new CFO. Madigan later recalled:We weren’t ready to go public when I got here. Our margins were well below the industry average. We had Bob Salomon make a presentation to our management team about how we stacked up against public companies in the industry. It was one of the first times we opened up to ourselves, [to see] where we stood. Our margins were at the 5 percent level, and the Los Angeles Times was at 15 percent. I remember at the time I thought if we could ever get there it would be totally great.

  He installed a system of procedures and accounts that allowed the company to accurately measure its results, dismantling antiquated financial yardsticks that fostered the gridlock, infighting, and misinformation that had plagued the company. Cook and Madigan shelved Kirkpatrick’s journalistic expansion plans to make the Tribune a midwestern powerhouse and shifted the company’s emphasis to improving productivity.

  Companies convert to stockholder-owned institutions for lots of reasons. Over the years, Madigan would often talk about the importance of remaining an independent company, one controlled by local people rather than a faraway board of directors. Properly run, a newspaper is a strong instrument of local power, one that sets the agenda in a community, focuses public attention on crucial issues, and gives a community its voice. When owners know the local community and encounter the subjects of stories they publish at the local grocery store or bank, the newspaper shows it has a stake in the community and gains credibility. Cook and Madigan both felt strongly that going public would actually help Tribune remain locally controlled and independent. “Several of the private companies [had] imploded,” Madigan noted, “when big shareholders wanted [to cash in their stock holdings] it would force sales like in Louisville,” where descendants of the Bingham family sold the Louisville Courier-Journal, a respected state paper, to Allen Neuharth’s Gannett Corporation. “We had [these] big shareholders around, the descendants of the original investors in the company [the Medills, the McCormicks, the Cowles family, the Lloyds of Chicago], and some of them wanted out.... We were afraid if we didn’t provide them liquidity [or cash for their stock], they would force a sale,” a posture that would inevitably mean a loss of independence and control by Cook and his team.

  Becoming a publicly held company also creates stock certificates, stock options, and lucrative benefits for corporate officers and for underwriters like Salomon Brothers, who make a bundle helping a company ready itself for sale. In his days putting together deals, Madigan had learned how to make people like Cook, Brumback, and big shareholders, including him, incredibly wealthy. By the time Cook stepped down as chairman of the company in 1993, his reported stock holdings were worth about $47 million. Madigan’s were worth about $25 million, and he had learned the game well by the time Cook moved him into the publisher’s office at the Chicago Tribune.

  One of the first things Madigan did as publisher was to get rid of people loyal to Jim Squires. A year into settling into the publisher’s office, Madigan accepted Squires’ offer to step down. In his place, he installed Jack Fuller, a Yale-educated lawyer, novelist, editorialist, and second-generation Tribune loyalist who couldn’t have been more different from Squires.

  Professorial in demeanor, Fuller wore a beret to work, spoke softly, and looked like he’d be more at home with a glass of sherry in a university club than with a shot at the Billy Goat, the Chicago newspapermen’s watering hole. He quoted Voltaire when he talked to reporters. Madigan jokingly referred to Fuller as “the professor,” and newsroom scuttlebutt painted Fuller as “too intellectual” or “brainy” to be editor of the brawny Chicago Tribune. But Fuller’s professorial pedigree obscured his ambition and skill. Together, Ful
ler and Madigan formed a team that was to make the company that wasn’t “big enough” much, much bigger.

  Soon after he was named editor, Fuller brought me back to Chicago from Washington to run the paper’s foreign and national news operation, a great job that put me in charge of the main news section of the Tribune, which included most of the foreign and national news. I was thrilled. I’d had a great run in Washington where I’d won some honors and accolades, and where my coverage of the savings and loan scandal had landed me a book contract. I’d also had a couple of spats with my friend Nick Horrock, whom Squires had installed as the Washington bureau chief, and I decided it was time to move on. Putting me in charge of foreign and national news gave me a major voice in how the big news stories of the day would be played, a bigger staff, and more influence than the Washington bureau chief.

  As head of the Tribune’s eighteen foreign and national news bureaus and more than forty correspondents, I presided over the highly visible network that Squires had built, one that had the potential to turn heads in the world of journalism, where stature was measured by heft. More important, I gained control of the news pages where stories from the bureaus would run, including those from Washington. It was a heady experience, until I learned the truth about my little empire.

  Years later, as editor of the Los Angeles Times, I would see how a professional foreign and national news staff should be organized. Working within Tribune confines and Brumback’s relentless push for the higher profits that the company promised Wall Street, Squires had built the bureaus but not the support system needed to service the growing cadre of foreign and national news reporters. If anything, he eliminated the infrastructure of supporting editors to finance the paper’s expansion, creating a team of star hitters and pitchers, while skimping on hitting and pitching coaches. From an accountant’s perspective, the staff looked incredibly productive, grinding out an admirable foreign and national news report with far fewer people or—as Brumback called them—FTEs (full-time equivalents) than papers like the New York Times or the Los Angeles Times. But in reality, the system wasn’t really that productive. Instead of spending our time crafting a journalistic strategy to capitalize on an incredible stable of talent to distinguish Tribune content from other papers and wire services, overburdened editors scrambled to edit stories rolling in from correspondents who operated without adequate guidance and feedback from the editors closest to the readers. When journalists stationed in faraway places can’t brainstorm with editors to develop customized stories, they fail to create journalistic value in their stories and fall victim to a sense of sameness. Although reporters may generate high story counts with staff bylines, economic downturns make them seem like luxuries that can be replaced by cheaper wire services (ones that pay their reporters less for stories on the same subjects).

  Despite its limitations, the Tribune’s foreign and national staff worked hard for me. But the anemic support system made everyone feel like copy processors instead of editors. We always had too much to do, and someone would inevitably come along and ask us to do more. Early in my tenure, Fuller summoned me to his office to ask me to stretch myself a little thinner, to “educate” Madigan about what journalists did. Instead of waiting for the economy to tank and allow the budget cutters to diminish expensive foreign and national staff, Fuller wisely made a preemptive move by building support with friends in high places and promoting the value of Tribune journalism.

  My new student knew as much about the inner workings of my newsroom as I knew about the machinations of his boardroom. At one point, Squires had banned Madigan from even entering the fourth floor, arguing that his efforts to get obituaries written about friends and relatives and his contacts with correspondents stationed in countries he was about to visit amounted to interference in the editorial process, a penetration of the wall. “All he ever cared about was his seat on the dais,” Squires later recalled. “He was always a power guy.”

  But I saw a complex, contradictory man, someone who seemed dreadfully risk adverse and seemed reliably predictable, until he did something totally out of character. Madigan could be amusing, blunt, and irreverent in private, but cautious and restrained in a crowd. He would complain about stories in the paper, but encourage editors to stand up to him because he knew editors were supposed to defend their reporters. Unlike Brumback, he rarely insulted subordinates in public; he delivered his harsh words behind closed doors with a silent, steelyeyed glare as cold as Lake Michigan. He seemed genuinely interested in what journalists did and liked the irreverent newsroom more than the reverential Tribune corporate offices. Eager to learn about the political, social, and economic issues that journalists encountered on the job, he nevertheless labored under an insecure, almost irrational fear of looking foolish in public. When consul generals representing foreign countries in Chicago would call on the new publisher to talk about issues, he would summon me, or one of my staff, to attend, with the understanding that we would intervene if the conversation wandered onto unfamiliar turf. When Madigan wanted a session to end, he would speak with his eyes, giving me that “get him out of here” look, and I would show the visitor the door.

  Famed newspaper publishers like Joseph Pulitzer and William Randolph Hearst got their hands dirty using garish headlines, fake interviews, and lavish photo spreads to win readers in the fabled New York City newspaper wars known as “yellow journalism.” But Madigan and most publishers of his era were as far removed from journalism as Chicago is from New York. The fine print that really interested Madigan and his contemporaries rested in a stock prospectus. The financial guys, lawyers and MBAs from the nation’s elite business schools, didn’t get ink on their fingers. The “journalism” they practiced wasn’t yellow, it was green, the color of money.

  Across America, most papers had been gobbled up by big media companies like Tribune Company. For better or worse, the industry had started another wave of consolidation. The conventional wisdom was to buy or be bought. Most papers had started to see their share of advertising (particularly classified advertising) slip as competitors penetrated their markets. Businesses, meanwhile, had discovered they could target their commercial messages much more effectively through direct mail. Newspaper subscriptions had for the most part held up, but single copies of the paper sold on newsstands had started a permanent decline in the 1990s. Meanwhile, the Internet had emerged on the scene as a threat, not only to the business side but also to editorial departments forced to compete with a new breed of news more concerned with speed and less interested in journalistic accuracy. Newspapers were becoming the medium of choice for older readers—a group that was largely anathema to advertisers. Far more so than their predecessors, executives like Madigan faced a new host of threats to the bread and butter of newspaper journalism.

  A controlling person who insisted on punctuality, Madigan prized stability and discretion and, like Willes, actually seemed amazed that anyone would repeat something from a private business meeting to one of his reporters. Like the Colonel, he seemed to think he belonged to a privileged society that was exempt from the rules that govern the rest of us; he loathed waiting in line for anything, and he loved to travel the world, rubbing shoulders with world leaders, particularly if he was in the Tribune’s Falcon jet. Madigan would come to know by name almost all of the seven hundred or so reporters in the newsroom, and he sympathized with their frustration at being the Rodney Dangerfields of journalism—toiling as they did at a paper that didn’t get the respect bestowed on the newspapers on the coasts.

  As they rose through the ranks, Fuller and Madigan acted as if they didn’t care about the slights. When thinking about potentially controversial policies at the Tribune, Fuller would often half jokingly wonder how a move would play with “the gods of journalism,” a reference to East Coast editors like Gene Roberts, the Philadelphia Inquirer editor famed for long-form investigative reporting. But in truth, we all resented the insolence toward our paper. When Madigan traveled to Washington to attend th
e fabled Gridiron dinner just after he’d been named publisher, he couldn’t get over how journalists and dignitaries fawned over Arthur Sulzberger and Katharine Graham in the drawing-room parties that preceded the dinner. Riding the elevator together after the show, Madigan expressed his frustration to Tribune bureau chief Nick Horrock, wondering aloud why Sulzberger and Graham got so much attention while he got so little. “I explained to him that they came from famed newspaper families and were not just people who ran corporations. He took it pretty well,” Horrock recalled. When asked about reasons for the shabby treatment years later, Madigan would say, “I think it’s a coast issue. I think New York and Los Angeles look down on Chicago. We’re not as good as they are. I think it is just a feeling of superiority.”

  But Wall Street, for one, was not giving Tribune the cold shoulder, not in the least. By the early 1990s, Brumback’s pressure on publishers to increase their contributions to Tribune Company’s bottom line had paid off with double-digit cash flow increases. The company’s successful earnings allowed Tribune to capitalize on opportunities. Never mind the growth of the Internet, cable television had robustly expanded its reach, and the federal government had started relaxing regulations that governed who could own broadcast properties, igniting a public backlash that both the government and Tribune Company would dramatically underestimate. But Brumback, bolstered by his belief in technology, put the company squarely in the game. He started CLTV, Chicago’s twenty-four-hour local news cable channel, acquired several local television stations across the country, and placed his $5 million bet on America Online. Brumback scaled back the Tribune’s publishing division, divesting smaller newspaper properties so he could focus on his most profitable papers in Chicago and Florida.