Wednesday, April 04, 2007
Today's case in point: Washington Post business columnist Steven Pearlstein's column on the recent buyout of the Tribune Company, in which he rails that the Tribune's employees are being screwed through the use of an employee stock-ownership plan (ESOP).
Pearlstein is correct that ESOPs such as this do present some serious risks to the employees. Their 'pension' contributions will be used to pay down debt of the ESOP, which isn't, as Pearlstein points out, not exactly the 'kind of portfolio diversification that pension advisers recommend", and the company will have debt equal to about 10 times cash flow, high for a company whose revenue base is shrinking 5 percent a year. And Pearlstein is right that the employees might end up 'taking it on the chin'.
But what Pearlstein fails to address in any significant way is that the employees are screwed right now. They're already facing the loss of jobs. They're already facing serious cutbacks in their pension contributions and other benefits. This isn't a situation where a buyer is coming in and screwing up a wonderful business; major metropolitan newspaper business has been in decline - serious decline - for a number of years and have been cutting employees and the benefits provided to the remaining employees. The (now) former owners of the Tribune no longer saw any future in the business. Buyers weren't lined up out the door hoping to get a chance to pay $8 billion or so for the company.
Now maybe the ESOP approach is not the best approach. Maybe there were some other ways the owners of the Tribune could have off-loaded their holdings that left the employees facing a little less risk. But it's wrong for Pearlstein to rant against the ESOP structure without acknowledging that the employees are currently holding lemons.
Now... did Pearlstein do so because he isn't aware of the plight the current employees face? Or did he do so because acknowledging the situation would have taken some of the bite away from the points he was trying to make? Ignorance or misportrayal? I vote for the latter.