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20% of the New York Times Co. (NYT) is owned by the Sulzberger family. But the family controls 70% of the board through a dual-class share structure. During the annual shareholders' meeting in April 2006, some investors including Morgan Stanley Investment Management (MSIM), who holds 28% of the company's stock altogether, did not give in their votes for the 30% of directors that they could vote for. This they did purposely as a manifestation of their protest against the management of Arthur Sulzberger, Jr. and the dual-class share structure. MSIM also rendered a motion that the dual-class structure be subjected to voting. In consideration of the proposal, Sulzberger was faced with the dilemma of his responsibilities to his readers, his family, and all other NYT shareholders.
Belen Villalonga; Chris Hartman
Harvard Business Review (207113-PDF-ENG)
March 30, 2007
Case questions answered:
- Why is there so much family control in the newspaper industry?
- How did the Sulzberger family manage to retain control of the New York Times Co. after it went public?
- How does the company’s dual-class structure differ from the one Dow Jones & Co. had prior to its takeover by Rupert Murdoch’s News Corp.?
- What explains the behavior of the company’s institutional shareholders-not just Morgan Stanley Investment Management’s but also Private Capital Management, T. Rowe Price, Fidelity, and Vanguard?
- How should Arthur Sulzberger, Jr. respond to Morgan Stanley Investment Management’s proposal?
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Case answers for The New York Times Co.
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1. Why is there so much family control in the newspaper industry?
Historically, until the 1960s, the printing technology provided no opportunities for economies of scale or advantages of size. Hence, there were no efficiency gains involved in going public and aggressively expand with these funds.
Moreover, the families argued that in keeping the company family-controlled they would maintain the editorial independence and journalistic integrity free of any external influence acting in the best interest of the public.
2. How did the Sulzberger family manage to retain control of the New York Times Co. after it went public?
Already before going public, the Sulzberger family implemented a dual-class share system. It consisted of at first non-voting Class A shares and voting Class B shares (1 vote per share). The vast majority of Class B shares were owned by the family and its trust.
When going public, the Class A shares received one vote per share as well because of listing requirements. Only Class A shares were listed. An arrangement allowing Class B shareholders to elect 70% of the board members enabled the Sulzberger family to retain control. Such control enabled them to dictate the voting agenda, the company’s strategy, and management. This is in line with research findings that board control is more powerful than voting control.
The class B shares of the Sulzberger family were owned by the Ochs Trust, later the 1986 Trusts, and finally the 1997 Trust. The provisions of the trusts prohibited a direct sale of Class B shares. Rather, they could only be converted to Class A shares and sold thereafter in case…
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