Canada.com , 27 April 2007

Conrad Black was told to exercise humility when telling shareholders that he would appoint a special committee to probe Hollinger International’s business dealings, the media baron’s fraud trial heard Friday.

“My advice to Mr. Black was to be a little bit more humble,” said Quebec-born economist Marie-Josee Kravis, a former Hollinger director and wife of billionaire investment banker Henry Kravis. “I suggested he take a more quiet tone. I thought it was in the best interest of the company.”

CREDIT: AP Conrad Black

“He listened,” Kravis said. “And he thanked me for my call.”

The testimony comes after jurors were shown e-mails this week in which Black promised Kravis and her colleagues on Hollinger’s audit committee — former Illinois governor Jim Thompson and U.S. diplomat Richard Burt — that he’d “hose down” investors who were complaining about millions of dollars worth of fees paid to himself and other company executives.

In a series of 2003 e-mails, shortly before Kravis spoke with Black, he called the growing controversy a “public relations Pearl Harbor” and described New York City stock analyst Laura Jereski — who was leading a shareholder revolt against the executives’ compensation — as a “beastly” woman and “belligerent robot.”

Prosecutors allege Black, Peter Atkinson, Jack Boultbee and Mark Kipnis — who have all pleaded not guilty — conspired to pocket $60 million US_in non-compete fees that belonged to the Chicago newspaper publisher and its shareholders because their annual income was about to be slashed after the company sold off its small-town newspapers in the United States.

Non-compete fees are paid to prevent sellers from jumping back into a market where a buyer purchased its assets, such as newspapers. Prosecutors allege the defendants improperly inserted themselves into the agreements.

Kravis, who served on the board of Ford Motor Co. and the Canadian Imperial Bank of Commerce, painted a system of lax corporate governance at Hollinger, testifying that audit committee members weren’t told about the fees paid to company executives.

Committee members were handed financial statements to sign that incorrectly stated the fees were board-approved, she added.

“If I had known this was common practice, I think I would have looked differently at those individuals’ (the defendants) relationship with the company,” Kravis said, adding that, “it did not diminish my trust in management.”

Kravis’s testimony largely mirrored that of audit committee colleague Burt earlier this week.

Both witnesses testified that a $60,000 star-studded birthday party Black threw for his wife wasn’t a business expense.

Prosecutors allege Black charged the bash at a New York City restaurant to Hollinger, an event attended by Donald Trump, Barbara Walters and designer Oscar de Laurenta.

“I didn’t observe it to be a business event,” Kravis said. “It was a birthday celebration.”

Burt, the former U.S. ambassador to Germany, and Kravis disputed defence suggestions that Black and David Radler — who is testifying against his former colleagues in exchange for a 29-month prison sentence — weren’t close business partners.

Kravis also confirmed that Hollinger had no policy allowing executives to use Hollinger’s jets for personal use — the trial has heard Black charged Hollinger for a $565,000 flight he took with his wife to the South Pacific island of Bora Bora.

Under cross examination, Kravis said she “missed” references to the non-compete payments in financial statements that she and her board colleagues were charged with approving.

Patrick Tuite, Boultbee’s lawyer, grilled Kravis about how she failed to see references concerning executives being paid non-compete fees when they appeared in the financial statement’s table of contents.

“When you sign something, you assume it’s accurate?” Tuite asked.

“I do,” the witness replied.

“And you’re saying (the board approving the fees) was wrong?” the lawyer pressed.

“I am,” replied Kravis, who earlier confirmed that Black never asked her to be his “rubber stamp.”

“Tell this jury how you read the first page here and not the next,” Tuite said.

“It could be that I focused attention on recent transactions ... not on transactions from a year or 15 months before,” Kravis offered. “But I can only surmise.”

“Are your reading habits similar to most people, front to back?” Tuite said.

“Not necessarily,” Kravis replied. “I might read parts and the other parts later. A document like this I doubt I’d read it from front to back in one sitting.”

Radler could take the stand as early as next week.