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Wesley Edens attends a Press conference announcing Jason Kidd as the new Head Coach of the Milwaukee Bucks.
- Billionaire and Milwaukee Bucks co-owner Wes Edens did not show up to board and committee meetings as chair of the firm overseeing one of America's largest newspaper chains, even as his private-equity shop racked up a $115 million tab for its management of it, according to reports from a proxy advisory firm seen by Business Insider, as well as SEC filings.
- The influential shareholder advisory firm, Institutional Shareholder Services, issued reports to clients from May 2018 to November 2019 that described Edens' "poor attendance" at meetings. Though it did not specify how many meetings Edens missed, ISS said that he showed up to "less than 75 percent of total board and committee meetings on which he served" in 2018.
- In one May 2019 report, ISS wrote that Edens demonstrated a pattern of not showing up, pointing to "poor attendance during the last four consecutive years."
- Business Insider dug into SEC filings, as well as ISS reports, and spoke with people familiar with Edens management of the newspaper chain under his media investment firm New Media, which housed The Oklahoman and The Newport Daily News of Rhode Island, as well as dozens of other papers throughout the country.
- Risk factors highlighted in SEC filings and ISS reports about Fortress's management included "conflicts of interest" in the company's governance, a "costly" fee if the newspaper chain were to end its relationship with Fortress, and a lack of transparency into exec compensation.
- New Media's biggest shareholders, including BlackRock, Vanguard, and Leon Cooperman, did not comment to Business Insider about any concerns they may or may not have had with New Media's governance.
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Billionaire and Milwaukee Bucks co-owner Wes Edens did not show up to board and committee meetings as chair of the firm overseeing one of America's largest newspaper chains, even as his private-equity shop racked up a $115 million tab for its management of it, according to reports from a proxy advisory firm seen by Business Insider, as well as SEC filings.
Edens was the chair of the board of New Media - a public media investment firm spun out by his private-equity firm Fortress in 2013. In it, he placed a large group of newspapers, from small community publications to metro papers throughout New York, Illinois, Texas, Virginia, Arkansas, and other parts of the country. They were operated by a division within New Media called GateHouse.
The influential shareholder advisory firm Institutional Shareholder Services issued reports to clients from May 2018 to November 2019, calling out Edens' "poor attendance" at meetings. Though it did not specify how many meetings Edens missed, ISS said that for New Media he showed up to "less than 75 percent of total board and committee meetings on which he served" in 2018.
In one May 2019 report, ISS wrote that Edens demonstrated a pattern of not showing up, pointing to "poor attendance during the last four consecutive years."
As chair, Edens focused on overseeing the company's long-term strategy and "providing insight and guidance to" CEO Mike Reed, who was in charge of "day-to-day operations" of the newsroom or other parts of the print publishing business, according to SEC filings. Edens held the position from 2013 until he resigned in May 2019, according to SEC filings and an ISS report.
During the four years ISS said he had poor attendance, Edens' private equity firm charged the newspaper chain management and incentive fees, along with additional expenses, totalling $24.3 million in 2018; $23.9 million in 2017; $21.1 million in 2016; and $40.8 million in 2015, according to a review of SEC filings.
Counting a $5.7 million tab in 2014 - New Media's first year as a public company which required it to disclose the fees paid to the PE firm - Fortress charged New Media more than $115 million altogether, not counting 2019, which has not yet been reported.
In November, New Media completed a merger with Gannett, forming a newspaper behemoth with 263 daily media outlets throughout 47 states. As part of the deal, Edens's Fortress has agreed to stop managing the combined company, rebranded as Gannett, after Dec. 31 2021, and reduce its fees in the meantime, according to the merger agreement.
Still, a review of Fortress's role leading up to the merger provides a clearer picture of private equity's influence on and associated governance concerns for one of the country's largest local newspaper chains, during a time when the industry dealt with seismic changes including declining print ad sales as readers flocked to online news, and deep cuts to newsrooms.
A former Lehman Brothers managing director, Edens worked in BlackRock's private equity division in the 1990s until co-founding Fortress in 1998. Today, it has more than $41 billion in assets under management, owning an array of businesses, from an airline leaser to a group of senior living homes.
Business Insider presented Fortress, Edens, and Reed, with a list of questions about their management of New Media.
We asked why Edens didn't show up to meetings; why he stepped down as chair; and whether they were concerned Fortress's fees would challenge the newspaper business already grappling with systemic problems.
Through a spokesperson, they declined to comment.
$115 million tab
To put the fees Edens charged his newspaper companies into context, the $115 million would be enough to pay for one of New Media's more notable acquisitions.
For instance, in 2015, GateHouse bought Stephens Media, a major publisher in Arkansas and Nevada, for $102 million.
In the context of New Media's business overall, its latest proxy filing showed $1.5 billion in revenue for 2018, up 13.7 percent, or $184 million, from the previous year, while net income stood at $18.1 million.
The $115 million in fees were charged as a result of a so-called external management structure, which meant Fortress, acting as an outside service provider, employed the CEO of New Media to oversee the newspaper business, as well as its chief financial officer.
CEOs at other large newspaper companies have earned paychecks in the millions, SEC filings show. Mark Thompson, CEO of The New York Times Company, made $6.1 million in 2018, while Kevin Mowbray, CEO of Lee Enterprises, earned $1.4 million that year.
Yet despite New Media being a public company, neither Reed, nor the CFO, had to disclose how much they were paid from the fees Fortress charged, given that they were not employees of New Media, but of Fortress.
The ISS reports in 2018 and 2019 flagged this arrangement.
It stated in the May 2019 report that the company "does not provide any information regarding the portion of the management fee allocated to the executives employed by [Fortress]... the breakdown of fixed vs. variable compensation, or metrics utilized to measure performance underlying the portion of the fee allocated to compensation."
It continued: "There is insufficient disclosure of the compensation paid to the executives by [Fortress] and, as such, shareholders are unable to evaluate the pay program."
ISS advises hedge funds, mutual funds, and other large shareholders in companies. It acts as an adviser during proxy votes, researching public companies and making recommendations about anything from whether to re-elect board members or whether to vote in favor of a merger.
In the case of New Media, the reports were issued to clients in coordination with New Media's annual investor meeting, as well as in light of what was then a possible merger with Gannett.
In one May 2019 report, ISS recommended that shareholders vote against ratifying executive officers' compensation, though the vote was advisory in nature and not binding, according to SEC filings. Plus, it recommended withholding votes to re-elect multiple directors, including a governance committee member, citing the "continued service" of Edens who failed to show up more than 75 percent of the time.
Read more: How private equity can write paychecks to public-company CEOs and not have to disclose it
Biggest shareholders split on advisory votes
The biggest shareholders of New Media's common stock were BlackRock and Vanguard, two titans of the passive investing revolution, according to the ISS reports.
Both declined to comment on any conversations they had with New Media over the lack of disclosure around executive pay and the board tenure of Wes Edens, but SEC filings show that BlackRock and Vanguard had different reactions to the governance practices ISS flagged.
BlackRock voted against the executive compensation proposal that allowed Reed and his CFO to keep their salaries private, while Vanguard voted with the company. The proposal only barely broke 50%.
The role of index funds, though, is not to make selections between companies, but instead own huge pieces of a whole market.
But more selective hedge funds like Lee Ainslie's Maverick and stock-pickers like Leon Cooperman are also among New Media's big shareholders, also declined to comment on the governance risks that ISS flagged.
Norges Bank Investment Management, another large shareholder and the manager of Norway's pension fund with a goal to "safeguard the long-term financial interests of Norway's future generations through active management and active ownership," also declined to comment.
It is unknown how these active managers voted on the proposal.
To be sure, investors have made above-average returns if they've been with New Media since the start. An investor presentation from 2019 shows that firm's share price has increased more than 50% from inception to end of February of last year, when the presentation was given.
Reed explained to Bloomberg News in May 2018 that the company cut highly paid but under-productive reporters. It had also eliminated local copy editors and designers, moving those jobs to a central hub in Austin, Texas, where New Media hired more than 300 people, he told Bloomberg.
The 2019 investor presentation compared New Media to the stock prices of fellow newspaper companies like Tribune, Lee Enterprises, and Gannett, which on average lost money over the same time period.
Ties between Fortress investments
SEC filings from New Media disclose risks inherent in Fortress's managing the company, including conflicts of interest and a provision in the contract that would make it "costly" to terminate the PE shop's services.
Public companies are required by law to disclose risks material to investors and New Media laid out numerous factors about its relationship with its manager.
According to Fortress's management services agreement, if New Media were to terminate its contract, it would be responsible for paying a termination fee equal to the full year's worth of management fees before the termination date. This sum could reach as high as $10.7 million, as it did in 2018.
Separately, SEC filings disclosed "conflicts of interest," given that Fortress executives may have investments in other companies with which New Media may do business.
Edens, for instance, was not independent in his role as chair of the New Media board.
ISS wrote that in January 2019, New Media invested about $400,000 in healthcare concierge service, TouchCare Holdings LLC - a company Edens co-founded and where he serves as a director.
The ISS report also stated that GateHouse contracted with TouchCare to provide "consumer-driven medical offerings" and paid it about $100,000 a year. According to the TouchCare website, Edens continues to serve as a director, as does Fortress co-founder Randal Nardone and New Media CEO Mike Reed.
What TouchCare actually did for GateHouse is not detailed in the ISS report.
But a case study published by TouchCare about its work for the newspaper chain stated that it cut healthcare costs for GateHouse, while also helping employees navigate the healthcare system, which they said reduced emergency room visits and out-of-network claims.
An attempt to reach TouchCare representatives for comment about Edens' involvement in the company was unsuccessful.
Nancy May, CEO of BoardBench, a corporate governance consultancy, said that the dual responsibilities - of Fortress employee and New Media manager - can bring questions about the allegiance, loyalty and duty of Edens and other executives overseeing the newspaper chain.
Being in a position where the board faces questions about such a possibility is not desirable, said May.
"Many outsiders can perceive that as an indicator of less than robust corporate governance practices," May said.
In terms of the matter of poor attendance, May said that a chair might not show up sometimes because of health or other personal issues, but if there is a pattern of low attendance, the expectation would be that the board would take actions to address it.
When Edens resigned from the board in May, ISS said that he didn't provide any reason why he didn't show up to meetings.
"Directors who do not attend their board and committee meetings cannot be effective representatives of shareholders," the ISS report said.