Improper Investment Concentration in Chicago Tribune Stock?

The following excerpts are from  Steven R. Strahler, Tribune foundation catches AG’s eye, Chicago Business, March 7, 2007:

Illinois Attorney General Lisa Madigan has taken an interest in the Robert R. McCormick Tribune Foundation’s vulnerability to underperforming Tribune Co. stock and possible role in a management-led restructuring of the media company.

Representatives of the attorney general met with foundation officials in January to discuss the concentration of foundation assets in company stock. Now, as Chicago-based Tribune weighs a restructuring plan that could increase the foundation’s exposure to company fortunes, the attorney general’s office says it will closely watch the situation. * * *

The attorney general enforces laws governing Illinois charities and can sue to block transactions she deems harmful to charitable beneficiaries. No such action has been initiated with regard to the foundation, but the attorney general’s spokeswoman says, “We’ll continue to see how this plays out.” * * *

According to its latest state regulatory filing, the foundation’s portfolio at the end of 2005 was almost exclusively devoted to Tribune shares — as it has been for more than half a century since the foundation was formed out of Col. McCormick’s estate. That portion was shaved to 75% last summer when the foundation sold shares into a Tribune stock buyback plan, the initial company effort to deal with pressure from its biggest shareholder to sell or break up the company. * * *

Foundations with more diversified investments have fared much better. For example, the Chicago-based John D. and Catherine T. MacArthur Foundation’s assets climbed by nearly $1 billion during the two-year period ended in 2005 when McCormick’s were declining by nearly $1 billion. The MacArthur Foundation posted an 18% investment return last year, boosting its assets to more than $6 billion. * * *

“The idea that a charitable foundation with a heavy concentration in a publicly traded company would use a special dividend from that company to buy still more stock in the company is bad for the foundation and bad for society,” says Robert Sitkoff, a visiting professor at Harvard Law School who has studied consequences of a similar overlapping relationship between Hershey Co. and a founder’s trust.