The Deal from Hell

by James O'Shea

  In my days at the Chicago Tribune, the Colonel’s former office on the twenty-fourth floor was hallowed ground; the Colonel’s massive Italian marble desk, his huge globe, and rare books all stood as symbols of the company’s legacy and of his dedication to the First Amendment. When he became CEO, Madigan opened up the twenty-fourth floor for use as a company conference center, but most of the time, the offices were as quiet as a church sanctuary.

  Michaels used the Colonel’s office for a poker party. “ We are in the office of the guy who ran the company from the 1920s to 1955,” wrote John Phillips, the Cincinnati traffic reporter Michaels had installed as building manager of Tribune Tower, on Facebook. “We pretty well desecrated it with gambling, booze and cigars. Good thing we know the guy that runs the building,” Phillips noted. His favorite trick in the poker room? Covering up the smoke detectors with Saran Wrap.

  A terrace on the twenty-second floor of Tribune Tower became Michaels’ coveted real estate. The space, with its expansive view of Lake Michigan, was big enough to host a small party. Michaels ordered picnic tables to be placed on the patio so he and his guests could enjoy the open area. But fresh air wasn’t the only thing that Michaels enjoyed on the terrace. Michaels had been warned not to leave the french doors leading outside ajar, because an open door would trigger an alarm at the security office downstairs. One warm day in 2008, a Tribune Tower security guard noticed something had triggered the alarm and sent a colleague up to the twenty-second floor to investigate. Seeing the door open, the guard stepped out onto the terrace and later reported to his superiors that he had stumbled onto Michaels, standing with his arms extended as if on a cross, receiving fellatio from a young female Tribune employee. The guard abruptly returned to the security office. But Randy Michaels was now the man at the top of the Tower and he could do as he damn well pleased.

  Michaels, who was married, compounded his boorish conduct at Tribune with open disregard toward Chicago Tribune journalists, so much so that one employee wrote anonymously to the company’s board: “I feel compelled to report on some things that speak to the competency and qualifications of senior management at Tribune and the potential litigation risk they pose to an already fragile balance sheet.” Michaels’ dalliance with the young woman on the balcony was, the employee wrote, a lawsuit waiting to happen. When Zell took over in 2007, he had replaced everyone on the board except for Osborn and Betsy Holden, a former Kraft Foods executive. Zell became chairman and installed a new board composed of William Pate; Brian L. Greenspun, president and editor of the Las Vegas Sun; Jeffrey S. Berg, chairman and CEO of International Creative Management, a talent and literary agency in Los Angeles; Mark Shapiro, a former CEO of Six Flags Entertainment; and Frank Wood, CEO of Secret Communications, a Cincinnati venture capital company. Michaels was also named to the board later. But the investigation of his behavior and the rampant cronyism at Tribune Tower went nowhere. The author determined that at least one member of the board became aware of the substance of the letter and that the board authorized the Jenner & Block law firm to investigate the allegations. But the lawyers said no one had complained to the human relations department, an office that Michaels had belittled in his hundred-day plan. Instead the board and senior management at the company and the newspaper tolerated Michaels and the fraternity house atmosphere he brought to Tribune Tower for more than two years until David Carr, a media reporter at the New York Times exposed the lurid conduct and cronyism in a front-page story that shamed the board into seeking Michaels’ resignation. He resigned on October 22, 2010. But many of the people he had placed in charge of the newspaper remain in their jobs and have collected more than $50 million in management bonuses.

  Kern and the board publicly expressed dismay at the conduct exposed by Carr and ordered his reporters to cover the situation aggressively. But as Robert Feder, a Chicago columnist pointed out, “not one of them spoke up about what was going on inside their own company until the New York Times slapped it on its front page twelve days ago.”

  While I was at Harvard, I received reports of the off-putting atmosphere at the Tower from friends and former colleagues seeking recommendations for jobs in news organizations or, more frequently, jobs outside the industry. Midway through my fellowship, journalism jobs were disappearing all over the country, and the trend showed no signs of changing. I felt terrible for journalists who had to tolerate Michaels and his antics. But the Tribune and the Times were not the only victims of the economic carnage. I felt for several of the Nieman fellows I had befriended, including Dorothy Parvaz, a columnist and editorial writer at the Seattle Post Intelligencer. Soon after my talk, she had asked me to lunch to pick my brain about the future of journalism. I could see desperation in her eyes. She was smart, talented, dedicated, and committed to journalism, but suddenly she, like many other journalists I knew, faced something far worse than the prospect of losing a job. Critics of the so-called mainstream media, credible people and kooks alike, were saying what Parvaz, one of the best in her craft, had done for decades no longer had any value. She was like someone in the auto or steel industry whose plant had been shuttered. The pervasive mantra was “information is free.” In the new paradigm, information could be gathered by ordinary citizens and bloggers working for free, not just by professional journalists. Parvaz’s job had been outsourced to people who would work for little or nothing just to get a byline.

  A professor at the Harvard Business School invited me to a workshop on the problems facing the newspaper industry. At the workshop, I suddenly realized the role that I had played in the crisis roiling the industry. In our quest to remain above the fray and deliver the news objectively, journalists had become so remote that our readers didn’t appreciate the difference between reporting and simply gathering information. The seminar included some of the brightest students in America. Yet most of them clearly didn’t understand what reporting, the backbone of journalism, was all about. One student offered that anyone could be a reporter—all he had to do was hold up an iPhone, record an event, and put it on the Internet. When the professor asked me to comment, I pointed out that if all I had ever done as a journalist was tell people what had happened at some event or meeting, I would never have given anyone the real story. Reporting involved digging through records, interviewing numerous sources, double-checking facts, and learning about deals cut behind the scenes. After the class, the professor thanked me for giving his students the perspective that journalists assumed everyone understood. My defense of our craft didn’t help Parvaz, though. Before her fellowship ended, the Seattle Post Intelligencer folded its print edition to publish online. They offered Parvaz her job back at a far lower salary. She declined and moved to London.

  At Harvard, I began wrestling with the question of how news organizations under duress would be able to sustain public service journalism, the kind of stories that exposed perilous conditions at King/Drew Hospital in Los Angeles or abuses of laws governing the death penalty in Illinois. In a research study, Thomas E. Patterson, a professor of government and the press at the Shorenstein Center, had documented how news organizations faced with shrinking audiences often turn to soft news or superficial negative reports that rely on dubious sources rather than careful investigative journalism. The result, particularly for young adults, was the kind of diminished interest in public affairs and news that I had witnessed at the business school. But Patterson’s study was published in 2000 when newspapers were relatively healthy. Most newsrooms now faced steep cutbacks and had more to do as reporters and editors were called on to feed understaffed and underinvested websites trying to compensate for revenue drains. Public service journalism was hard and expensive work, and I wondered just how it would be done in the future and who would pay for it. In other words, while everyone offered their opinions and bloviated on the Internet for free, who was going to cover the courthouse?

  Midway through my fellowship, I gave a talk at the Harvard Crimson , the student newspaper. Afterward, the Crimson’s edi
tor told me that he wanted to be just like me, to do just what I’d done. I, of course, questioned his sanity. After all, almost everyone I knew had been—or worried that they soon would be—laid off, as the business model that journalists had relied on for decades crumbled. But the young editor told me that my remarks to his staff showed how I had spent my life providing people with information they needed, that I had made a difference, something that he, too, wanted to do. I was humbled but also sad that idealistic young men and women who wanted to be journalists faced a much bleaker future than I had at their age.

  A few weeks later, I went home to Chicago for the weekend and received a phone call from Peter Osnos, founder and editor-at-large of the house that published this book. I assumed he was checking on the progress of my work, but I was wrong. Osnos, who had a family retreat in Lakeside, Michigan, a small town across the lake from Chicago, and a group of neighbors alarmed at the decline of local media in Chicago wanted to start a public service news site online, and he asked if I could help. Osnos had two partners, Newton Minow, a former Tribune board member and leading civic figure in Chicago, and Martin (Mike) Koldyke, a businessman and education activist, both of whom were on the board of WTTW, the local public television station. Their plan was to piggyback on WTTW’s nonprofit status and start a news organization that could legally accept tax-deductible donations. We didn’t have any money, and we didn’t really have a journalism plan laying out exactly what we would do with the funds we would raise to get us off the ground. Frankly, the last thing I wanted to do was run another news organization, particularly one that would compete against my old newspaper where I still had many friends. I also pointed out that I still owed him a book. But I told Osnos I would think about it and get back to him.

  My career hadn’t ended on the best note. Overall, though, I had had a great ride. The Tribune Company and the newspaper industry had been good to me. A scruffy kid from north St. Louis, I got the opportunity to see the world, tell stories, and run the newsrooms of two great newspapers. Perhaps it was time for some payback. I called Osnos back and said I would be a catalyst by helping his group get something started. I told him I would work up to a year for no pay and that I would get him someone to run the effort long term, but that I didn’t want to run another news organization.

  Back at Harvard, I racked my brain about what to do. By now it was clear that the newspaper industry’s problems were not about to go away. No matter what, the infrastructure of the newspaper couldn’t ditch the significant expense of delivering its product to the doors of customers for far less than it cost. Many younger readers got their news on the Internet, where newspapers and a new breed of news aggregators offered it up for free in a desperate bid to win advertising dollars. Why would any rational person pay for a newspaper subscription when they could get the same thing online for free?

  It doesn’t take a genius to figure out the situation might not end well. Newspapers remain the backbone of the news. Although many newspaper staffs have been thinned, a dwindling core of journalists still file into courthouses, police stations, legislatures, and government agencies to report on the people’s business. While news aggregators on the Internet boast snazzy websites and fresh content, if you peel back the surface, you’ll find that most—if not all—of their content is based on a newspaper report. The Pew Research Center’s Project for Excellence in Journalism did just that in a weeklong 2009 study on news in Baltimore, Maryland, generated by fifty-three news outlets that ranged from newspapers to bloggers and talk radio. The investigation winnowed the reports studied down to six major narrative threads that dominated the news, and tracked down the actual source for the six narratives. Even though the city had more news outlets than in previous years, eight of ten stories produced relied on information picked up from other sources. Indeed, 95 percent of the stories came from traditional media, mainly newspapers. The Baltimore Sun, a Tribune Company newspaper, accounted for nearly half of the stories. But over the last six years, the Sun has cut its newsroom by about 60 percent, a staggering reduction. And, the project discovered, the Sun produced 32 percent fewer stories on any subject than it had ten years earlier, in 1999. Few have grappled with the consequences of what will happen if this trend continues, or if the Sun and other newspapers like it can no longer afford to be the backbone of the news, which is not as far-fetched as some would like to believe.

  I struggled to come up with an idea of what we should do with our proposed venture in Chicago. One night I went to bed thinking about the problem and woke up around 3 a.m. with a brainstorm: We should start a news cooperative dedicated to public service journalism that could be financed by contributions from readers. I had covered agricultural cooperatives early in my career at the Des Moines Register, and I suppose I summoned the idea from my journalistic subconscious. I got up, headed to the Internet, and began researching cooperatives. By the next morning, I had produced a memo for Osnos that became the foundation for the Chicago News Cooperative (CNC), where I am now editor.

  As a journalist and someone who cares deeply about the future of my craft, I wish I could say I’ve figured out just where the news is headed. But I haven’t, and neither has anyone else. We organized the CNC as a nonprofit that relies on tax-deductible donations. The idea was to raise enough money from foundations and individuals to start a website that would provide in-depth local coverage of civic and cultural institutions and fill in the gap created by cutbacks at struggling major media organizations in the city. With a website creating unique content, we would seek a small membership fee to join the coop, which would give access to our news reports and a voice in the news through interactive features. I figured if we could raise enough money to get 40,000 to 50,000 members over five years, or about one-half of 1 percent of the population of the Chicago metropolitan area, we would have enough money to create a self-sustaining news organization that could employ thirty to forty journalists to cover the city and provide true public service journalism created by skilled journalists and informed by readers.

  Over the past year and a half, I’ve learned that achieving our goals is not as easy as it might sound. We’ve had some breaks. Editors at the New York Times got wind of our idea when the paper was exploring the possibility of setting up local partnerships to produce Chicago news for its Midwest edition. Impressed with our goals and the quality of the journalists we could attract to the CNC, the Times made a modest contribution to help us get started and signed a deal under which it would pay us to produce two pages of Chicago news for the Times twice a week. But the Times’ financial contribution wasn’t enough to get us off the ground until the MacArthur Foundation approved an expedited $500,000 grant. We started producing content for the Times in November 2009 and have been at it ever since.

  We’ve also had some setbacks. When my fellowship ended and I was driving back to Chicago in July 2009, Osnos called to tell me that Minow had set up a meeting with a major foundation in Chicago to make a presentation for funding for the CNC. Minow was leaving town July 4 for the rest of the summer and wanted me to attend the presentation. I had to come up with a formal outline of our plans within a few days. From the road, I called a trusted, creative, and talented colleague from my days at the Tribune, Bill Parker, and asked for his help. He enlisted another Tribune colleague, Tony Majeri, and we all went to work on my idea and a presentation. I arrived in Chicago on a Friday and by the following Monday I found myself making my presentation to the McCormick Foundation and its newly minted CEO—David Hiller, who’d been hired by a board comprising Dennis FitzSimons, Scott Smith, Jim Dowdle, and John Madigan. The foundation denied our request.

  Although I told Osnos the last thing I wanted to do was run another news organization, I remain the editor of the CNC. Over the last two years, I’ve had to learn lots of new things—about the world of fund-raising, about running a news organization with a far smaller staff, about the incredible allure and power of technology to resolve one problem and create another, and about a new e
conomics that seems to create billionaires overnight.

  Some of what I’ve learned gives me hope that the next generation will enjoy the same opportunities that I have enjoyed. When I first walked into the Des Moines Register in 1971, you had to be a multi-millionaire to buy the plants and equipment needed to start a newspaper. We did it at the CNC with little money. But some of what I’ve seen in the inexorable march of technology and economics makes me wonder what kind of world my children will inherit. Capitalism built the American newspaper industry, but it was the sort of capitalism embraced by men and women who wanted to build something that would endure, employ people, and make the founders rich by providing a vital service. I don’t know that the kind of capitalism evolving in America holds the same promise. Many of today’s capitalists seem more interested in creating companies with baked-in exit strategies designed to get their ventures up and running so they can be sold for billions to global investors far more interested in earning profits than serving the public. The citizens in a democracy need to base their decisions on good, solid information. The exit strategy for a democracy isn’t exactly a pretty picture.

  Reporting the news remains a struggle, not only for the CNC but also for many major media organizations. Unlike many other cities, Chicago still has two daily newspapers, the Chicago Sun-Times and the Chicago Tribune. The Sun-Times emerged from bankruptcy a little over a year ago, but it is still hanging on by a thread. The parent company of the Tribune and the Los Angeles Times is struggling to emerge from bankruptcy, but its plight has been complicated by controversy. In seeking an advantaged status as a creditor, one group owed money by Tribune alleged that its claims should take precedence over others because fraud played a hand in the Zell transaction. Bankruptcy Court Judge Kevin J. Carey appointed Kenneth N. Klee, a California law professor and bankruptcy expert, to examine the charges. Klee issued an expert opinion that concluded that a “fraudulent conveyance” charge could stick if the case went to court. Klee’s investigation found that Donald Grenesko and Chandler Bigelow, Tribune’s former and current chief financial officers, had provided information that suggested Tribune Company would be solvent after phase two of the Zell deal when, in fact, the opposite was true. Grenesko and Bigelow have denied the allegations. Klee’s voluminous report exposes that almost every party involved in making sure the deal closed was rewarded with staggering fees and bonuses. His report has sparked litigation that also will make many lawyers rich. A cloud of doubt continues to loom over the Tribune Company, its newspapers and, most significantly, the employees who have already or might still lose their jobs. The bankruptcy even has spawned a raft of lawsuits against employees who had nothing to do with the details of the Zell deal, including Lipinski and me.