Defending Arianna Huffington from the shareholder value police
By Maureen Tkacik
The views expressed are her own.
A few weeks ago I read an astonishing story about an army of lobbyists who had stormed Capitol Hill bent on repealing a law passed last year, thanks largely to the energies of a rival battalion of lobbyists. The dueling industries had spent tens of millions enlisting 242 former legislative officials to badger their replacements over a single vote.
Hanging in the balance was $50 billion in profits one industry was extracting each year from, inter alia, the other. But the real cost of the dispute, the authors insisted, was the incalculable one borne by the public when its ostensibly democratic government is entirely preoccupied, in the words of one dismayed senator, â€śtrying to divide up the spoils between various economic interests.â€ť
Which is what was so astonishing about the story: its aggressive and unabashed pursuit of the â€śpublic interest.â€ť I was pretty sure this concept was extinct; Washington has become so thoroughly infested with paid promoters of some industry or anotherâ€™s shareholdersâ€™ interests that itâ€™s impolite to display anything more than passing contempt for the â€śpublic.â€ť More puzzling still, the media outlet that published this extravagant display of public interest journalism was the Huffington Post, a site famous for many forms of content, most of which are pretty much the antithesis of 8,000-word corruption investigations.
Investigative journalism doesn’t happen much these days because it doesnâ€™t serve anyoneâ€™s (i.e., the shareholders’) interests. That does not mean there is no demand for it, or that it cannot be cultivated into a profitable enterprise, but other forms of content are so much more profitable that there is almost no incentive to bother. In this way it is a bit like antibiotics, a class of pharmaceutical the industry has largely abandoned as a focus of research and investment despite the hundred thousand Americans who die every year from bacteria that have developed resistances to all the antibiotics in the existing arsenal. The fact is: they only die once. And developing and testing (and testing, and testing again) drugs is so expensive, it makes little economic sense to go through the costly motions on a class of drugs that “cure” the source of their own demand. Oxycontinâ€”now there is a cash cow. â€śThe Most Famous Cock Shots of All Timeâ€ťâ€”that is what the rational media market demands. (Outside of banking, the only surer cash cows involve defrauding the government or charging old folks to use email.)
I bring up this obvious truth about the rules of â€śvalue creationâ€ť because Arianna Huffington has come under attack from the shareholder value police in the business media since she orchestrated the sale of her site to AOL for $315 million earlier this year and began investing conspicuously in the production of serious journalism. And taken on their own terms, many of their criticisms seem absolutely validâ€”which is just one of many reasons the smear campaign is so insidious.
Fred Harman, the venture capitalist who injected $25 million into the business in late 2008, more than tripled his investment in just over two yearsâ€”but he is probably right to believe, as he told Forbes’ Jeff Bercovici, that he might have been able to cash out with a tenfold gain if Arianna had done things his way and avoided the serious journalism stuff until the company had been safely taken public. Instead, she “repeatedly jousted with board members, whom she saw as stifling her ambitions to build a news operation to rival the New York Times,” Bercovici writes, and goes on to provide ample evidence that she indeed “saw” the situation very accurately.
Huffingtonâ€™s lofty ambitions are not assessed as anything other than a drag on her websiteâ€™s profit margins. The old Huffpo only achieved profitability last year, Harman tells Bercovici, because â€śwe were careful not to allow our expense run rate to get too far ahead of revenues.â€ť By contrast, he explains, selling out to AOL “represented a platform and partner for Arianna to greatly accelerate her ambitions of industry dominance for The Huffington Post,” a plan he opposed, he says, â€śout of the belief that The Huffington Post could continue to rapidly scale and be the dominant social news company on the Web.” But the board gave in, according to the former chief revenue officer, out of a “belief that the brand was not going to scale.” Indeed, Bercovici points out: “having backed a company built on Huffingtonâ€™s social connections and personal brand, they were at her mercy.” But having so keenly “demonstrated that she puts her own interests ahead of those of her partners,” Huffington threatens, in Bercovici’s sobering estimation, to “be AOLâ€™s eventual undoing.”
The supreme logical bankruptcy of this argument is hinted at in an anonymous quote about the dilemma posed by AOL’s outlandish near-billion dollar annual internet service provider profits: “As a public company, if you don’t spend that money, the shareholder base is going to ask you to start paying dividends.” But the market did not read that far: as one short-selling commenter noted giddily a bit later in the week: “Since this article was posted, AOLâ€™s stock value has plummeted, in two days, from $21 to $19.50, and at moment I am watching it fall like a stone.”
One of the most pernicious side effects of the great American outsourcing of all its value systems to â€śshareholdersâ€ť is the poisoning of the business press, the one realm of journalism situated to make sense of the current malaise. Instead journalists like Bercovici are encouraged to play the role of Â amateur stock pickers, and report on issues from the hopelessly myopic perspective of the theoretical â€śmom and pop investor,â€ť pursuing a â€śbuy and holdâ€ť investment strategyâ€”put another way, the â€śgreater foolâ€ť a.k.a. the â€śsucker.â€ť The sucker mindset, while always a presence in the business press, rose to dominance during the last big internet bubbleâ€”an experience that taught my own mom and dad the lesson about â€śbuying and holdingâ€ť AOL stock, alasâ€”and is largely responsible for the egregious failure of the business press to prepare the worldâ€™s mothers and fathers for a financial crisis in which the individual investor bore virtually no responsibility.
But purporting to deliver sound financial advice to individual investors in such a demonstrably unsound and exploitative enterprise as the American stock market is itself an unsound enterprise, and the insidious way Harman has used Bercovici hereâ€”he is ostensibly a media industry reporter, remember, not Jim Cramerâ€”to promote his ludicrously craven agenda is proof.
I mean: here is a guy who invested in a growing but formidable company six quarters from profitability during a lucky (horrifying) period in which the entire financial system happened to be in free fall, apparently hellbent on smearing its founder for only netting him a 315% return on the two-year investment. He couches his grievances in terms of “cautioning” AOL’s shareholders, advising them to watch out for the new boss’s ruthless “extravagance” and her uncontrollable “ambitions of industry dominance,” in a tone so emphatic you almost forget the fact that this clueless big-spending socialite is better-known among the general public as the lady who introduced slave labor to search engine optimization. And Bercovici buys into him because he awards himself a comical amount of credit for the company’s â€śsuccessâ€ť and bludgeons all reason out of the conversation with empty discourse-pollutants like “scalable.” (And also, probably, because a lot of other people seem to hate Arianna, too.)
I don’t know much about Arianna Huffington personally. I think that when you are a woman of a certain age you begin to tune out negative gossip you hear about powerful women. As a writer/pundit sheâ€™s a superficial hack, and pathological social climbers always creep me out a bit. Actually I have quite a few reasons to dislike her, from one of her bloggers using the site to shame me for some pretty benign jokes I made at a comedy show a few years back, to the dismissal earlier this year of an unpaid friend of mine for the horrendous crime of using his press pass to help a union protester get into a meeting of a mortgage banker trade association.
All of which is to say, I was never particularly inclined to rally to the defense of the Huffington Post until its remarkable tour de force on the lobbyist showdown. But notion that money had been spent to fund the truly extravagant amount of legwork reporters Ryan Grim and Zach Carter had to endure to elucidate the issue that might otherwise be sitting in one of
Frank Fred Harman’s tax shelters was just too compelling a story to pass up.
And it turns out there is an even happier ending: while I was writing, our elected officials were finally casting a vote on the issue in question, a “swipe card” bill that would have overturned a law passed as part of financial reform designed to curb the $50 billion in credit and debit card fees banks collect from you, me and the retailers at which we use them every year. The bill failed to pass, in a victory for the retail lobbyâ€”and also for most Americans, who spend an average of $230 a year per household on hidden debit fees. (As with overdraft fees, the burden falls disproportionately on poorer consumers; wealthier ones get reimbursed and in some cases subsidized by rewards programs.) Whatever the long-term effect of its muckraking energies on the AOL stock price, your grandmother probably couldn’t think of a better way to invest her $9.95 this year.
CORRECTED: An earlier version of this column incorrectly referred, on second reference, to Fred Harman as “Frank” Harman.
Photo: Arianna Huffington, President and editor-in-chief of the Huffington Post Media Group, receives an honorary doctorate degree of Humane Letters during the 243rd Brown University Commencement Exercises in Providence, Rhode Island May 29, 2011. REUTERS/Adam Hunger