Dow Jones & Co., R.I.P.
Where the Bancrofts failed.
“Without the Wall Street Journal, we’re just another rich family,” a member of the Bancroft family once remarked.
For nearly 80 years, this seemingly admirable perception prevented Clarence Barron’s descendants from selling the Journal’s parent, Dow Jones & Co., even though they had little to do with running it. In the Bancrofts’ eyes, Dow Jones was not so much a business as a public trust, and they were its stewards.
So instead of operating Dow Jones themselves or meddling in its products, they hired respected journalists as managers and left these professionals to their own devices. When minority shareholders complained about poor re-turns on Dow Jones stock, the Bancrofts turned a deaf ear. They were willing to sacrifice their own wealth to protect the Journal’s integrity.
Thanks to four generations of this apparently enlightened stewardship, Dow Jones developed into one of the most trusted and valued brands in business. But this year the Bancroft family’s selfless ownership philosophy landed them in a seemingly impossible quandary.
Last April the multimedia baron Rupert Murdoch offered to buy Dow Jones for $5 billion—about 67% more than its market value. Like Dow Jones, Murdoch’s News Corp. is a family-controlled, publicly traded media company. But the resemblance ends there.
Murdoch inherited a respected Australian newspaper chain and expanded it into a vastly larger—but much less respected—global media combine. Even at 76, he’s a restless empire-builder who seems to buy, sell and assemble corporate pieces merely for the exercise. In pursuit of these activities, Murdoch has rarely hesitated to use his media properties to protect and promote his commercial, political and personal agendas.
(A Journal owned by Murdoch would be unlikely to publish, say, that paper’s 2000 profile of Murdoch’s third wife, Wendi Deng, which delved into her romantic history.)
In short, Murdoch epitomizes precisely the sort of down-market media swashbuckler that the cautious, respectable Bancrofts have spent the past eight decades protecting the Journal against.
Murdoch has long coveted the Journal for two good reasons. First, it might bring him the one item that has eluded him in his half-century of relentless acquisition: respectability.
Second, Murdoch believes—probably correctly—that the Journal’s future is worth much more, dollar-wise, under his aggressive ownership than under the passive Bancroft family’s. A generation ago (when I worked there, come to think of it), Dow Jones was the dominant player in the financial news world. Since then its lunch has been eaten by hungrier risk-taking upstarts like Bloomberg, Reuters and the Financial Times, some of which didn’t even exist 30 years ago.
In effect, Murdoch’s bid told the Bancrofts: You may be terrific stewards of the Journal’s reputation, but I’ll be a better steward of your shareholders’ assets.
In the past, the Bancrofts might have sent him on his way, declaring airily, “Integrity comes harder than money, and our priceless integrity isn’t for sale.” But the Bancrofts no longer enjoyed the option of rejecting Murdoch out of hand.
For one thing, they owed some kind of fiduciary duty to their minority shareholders, who actually owned a majority of the company’s equity, even if the Bancrofts owned 64% of the voting stock. Murdoch’s $5 billion bid offered such a huge premium that no responsible board of directors could ignore it. (The size of Murdoch’s bid was presumably calculated to scare away other more respectable potential bidders, like the Washington Post Co. or the New York Times Co.)
For another thing, the Bancrofts as a family lacked a clear leader or a clear consensus, nor were they bound by any requirement to vote alike; Murdoch could swing the deal by winning over just a few of the three dozen or so adult Bancrofts.
So this past spring the Bancrofts, for all their steadfastly noble intentions of the past century, faced a Hobson’s choice: Turn the family jewel over to a man they detest, or watch their jewel gradually lose its commercial viability. On July 31, much to their chagrin, they accepted Murdoch’s offer.
How did such an exemplary business family get maneuvered into such a bind? Where on earth did the Bancrofts go wrong?
My list suggests that even “doing the right thing” can go too far.
• They delegated too much authority. The Bancrofts refused to interfere with journalistic decisions, which was good. But they took no interest in business matters, either, which was bad. Because the Bancrofts lacked business acumen, they didn’t know what questions to ask of their managers—assuming they were inclined to ask questions, which they weren’t.
• Good journalists make poor CEOs. Dow Jones long prided itself on its identify as a company run by journalists. That tradition played a critical role in preserving the Journal’s independence from its news subjects and its advertisers, and consequently it enhanced the value of the product. But journalists are temperamentally observers, not players. They instinctively see both sides of every situation (which is good), but as a result they’re indecisive (which is bad). They lack the ability to take audacious risks. And they’re so dedicated to reporting the news that they’re less interested in seizing synergies with newer, more lucrative information technologies.
• Dow Jones CEOs lacked sufficient accountability. Dow Jones went public more than 40 years ago, with a two-class stock arrangement that enabled the Bancrofts to sell most of the company without giving up control. Many other newspaper companies—the New York Times Co., the Washington Post Co., even Murdoch’s News Corp.—have put this strategy to mostly good advantage. But given the Bancrofts’ timidity, this arrangement guaranteed that when Dow Jones CEOs fell asleep at the switch, nobody would rouse them. It also guaranteed that instead of growing the company, Dow Jones CEOs would invest much of their energies in placating the Bancrofts.
• They accepted excessively high dividends. Dow Jones CEOs thought high dividends would keep the Bancrofts happy. But those dividends prevented management from investing more in the company’s operations. (In recent years, Dow Jones used nearly all its net income to fund its annual dividend.) The trusting Bancrofts simply didn’t know enough to suggest reducing their dividends, nor did the trustees of their family trusts push for a reduction.
• The Bancroft family itself has fragmented with each succeeding generation. The ownership circle in a family firm inevitably spreads as the business passes from founder to children to cousins. But the controlling family usually has a recognized leader—especially if the family remains active in the business. No one in the Bancroft family’s fourth and fifth generations appears to play such a role. One consequence: A generational rift was said to have broken out between the family’s younger members (who were more receptive to Murdoch’s offer) and the older ones.
To sum up: In their obsession with tending their legacy, the Bancrofts neglected to tend their legacy.
To be sure, no business enterprise lasts forever, and Dow Jones at age 125 was still healthy enough to command a $5 billion price tag. The Bancrofts deserve plenty of credit for nurturing it as long as they have.
Still, I urge you to reconsider the quote in my first paragraph above: “Without the Wall Street Journal, we’re just another rich family.” The flaw in that logic was perceived nearly two centuries ago when the 19th-century Scottish essayist Thomas Carlyle observed, “Everywhere in life the true question is, not what we have gained, but what we do.” Ultimately, the Bancrofts lost Dow Jones because they identified themselves by what they owned, not what they did.
There’s life in the Sainsburys yet
This struggling supermarket dynasty has outlasted the Bancrofts of Dow Jones. What did they do right?
Like Dow Jones (above), the 138-year-old British supermarket chain J. Sainsbury enjoys aristocratic status within its business (more than 600 stores in the U.K. and the U.S.); its performance over the past generation hasn’t been up to snuff (it’s dropped from first to second place in the U.K.); and its controlling fourth generation has displayed many familiar symptoms of tired blood.
Cousins John and David Sainsbury are both retired CEOs who years ago moved on to careers in public service. John, 79, is so old-fashioned that he does not even have a telephone extension for outside callers at the House of Lords. His shy and private 66-year-old cousin David left management in 1998 to spend eight years as Britain’s science minister. The fifth generation of Sainsburys has displayed no passion for retailing; their careers include sculpting and operating trendy country hotels.
What’s more, David and John don’t get along all that well with each other, and they’re political opposites, too. With J. Sainsbury undergoing a shakeup (under its first outside management) and the family’s stake having dwindled to about 18%, most observers assumed that these two caretakers would sell out eventually.
Didn’t happen. This past spring John and David successfully thwarted an attempted leveraged buyout by four of the world’s largest private equity houses: CVC, Kohlberg Kravis Roberts, Texas Pacific Group and Blackstone. The price bid was almost $23 billion, a 40% premium above the company’s value in the marketplace.
Like the Bancrofts, John and David Sainsbury love their company and couldn’t care less about making more money. So what happened? Where did these fading Sainsburys find the gumption to fight off some of the sharpest sharks in the private equity world, while the Bancrofts were helpless to defend the independence of Dow Jones?
Several factors doomed the assault on J. Sainsbury. Key shareholders (as well as British public opinion) were uncomfortable about all those recent acquisitions by private equity groups. Board members were queasy about dismantling J. Sainbury’s unique pension plan. For both these reasons, the bidders themselves had insisted on the Sainsbury family’s blessing, which the Sainsburys declined to give.
Ultimately the difference between the Sainsburys and the Bancrofts is this: John and David Sainsbury, shy as they may be, actually ran the company, one after the other, for 29 years all told. They didn’t merely love their company, they understood it intimately. Many shareholders and board members were their former employees. John and David’s potent combination of corporate and public service endowed them with such tremendous prestige— both in public and among their own relatives—that no one would sell the company (and no buyer would want it) over their objection. The Bancrofts, who spent generations as docile owners of Dow Jones, lack family leaders of comparable stature.
“It was a culture clash,” a Sainsbury adviser told the Financial Times. “One side was about accumulating capital and the other side was more about principles and beliefs.” But the critical point to me is that the Sainsburys (unlike the Bancrofts) possessed the necessary tools to defend their principles.
Take that, Wal-Mart!
Publix demonstrates the hidden value of employee ownership.
Is there a lesson here for some family firm?
Wal-Mart’s rise has struck terror among smaller competing supermarkets across the U.S. But Florida-based Publix Supermarkets recently opened its 900th store and is actually taking business away from Wal-Mart as Publix expands into Alabama, Georgia, Tennessee and South Carolina. Revenues at Publix rose in 2006 by 5% to $21.7 billion (largest among America’s privately owned grocery chains), and its net profits jumped by 11%.
Few retailers can compete price-wise against the bargaining power of a $345 billion behemoth like Wal-Mart. But Publix is said to make 40% more profit on groceries than Wal-Mart does.
The reason: Publix enjoys a competitive edge in other areas where Wal-Mart is more vulnerable, like customer service.
While Wal-Mart has become known for cutting prices at its gloomy employees’ expense, Publix has cultivated a reputation for eager-to-please employees who go out of their way to serve customers. They’re known for bagging your purchases and carrying the bags to your car—and they usually refuse tips for doing so.
The key motivator appears to be employee ownership. Publix employees own 31% of the company through an employee share-ownership plan. The remaining 69% of Publix is largely owned by the family of founder George W. Jenkins, which still runs the firm.
Hmm. A retail business owned and operated by a family in partnership with its employees, without public shareholders. Sounds like a formula more companies ought to try.