FINANCIAL DIRECTOR

Sam Stone became a member of the board of directors of Minute Publishing six years ago, buying a 12% of shares: the company's CEO and old university friend of Sam, Neil Harkam, that time turned to him in search of a "white knight". For all six years, Sam attended meetings every three months, hearing and approving the company's reports on ever-increasing profits.

But recently, the media has begun to bring bad news. Minute Publishing's national newspaper, America Today, was losing money, big money. Newspapers were happy to write about the difficulties of America Today, but as it turned out, things were even worse than Sam expected.

When Sam came to the meeting, he saw Harkam and the company's CFO, Peter Rawson, they clumsily "circling" around the boardroom, trying to hide their obvious hostility behind external mutual courtesy. The members of the Board of Directors looked excited and concerned. Rawson approached the podium and began his presentation:

As you know, yesterday several investment analysts excluded shares of our company from the list of "buy". Losses that we will have to report tomorrow may provoke rating agencies to downgrade our loans. I'm not talking about this to blame the company's management. I'm here to just report the numbers.

Tomorrow we will report an annual loss of $ 15 million. This is the company's first loss in 20 years. The amount is not so large compared to the profit of 2 billion dollars, but still significant. Most of the damage is due to the effectiveness of America Today. The newspaper incurs losses of $ 100 million. per year - and this is a conservative estimate. As you know, in trying to support the newspaper, we "worked" with internal reporting and attributed most of America Today's spending (part of the printing and payroll costs) to our regional publishers. This is "technically" legal, but in fact only artificially decorates the real situation. Without the reported "tricks", next year's losses will amount to 60 million dollars, and in a year - 35 million. This is twice as much as we planned

The tragedy is that the newspaper has fallen victim to its success. Despite the fact that the circulation has increased from 300 thousand to 1.5 million, advertisers are in no hurry to increase advertising. Despite the large number of journalistic awards received recently, reader surveys show that the format of the newspaper attracts, above all, fans of tabloids. Less than 25% of the newspaper's readers are professionals and less than half have a profit of more than $ 25,000. for a year. This is not an attractive reader base for advertisers. In addition, a number of retailers, which we relied on as advertisers, have recently gone bankrupt. At the same time, production costs increased significantly due to an increase in the cost of printing services.

It's not just my opinion, it's financial facts. As CFO, I'm sure it's time to cut our losses. Shareholders need to think that America Today is not the best investment. Such investments run counter to our desire to create value for shareholders.

Contrary to what you can read in the newspapers, I am not the enemy of this project. I respect and understand the CEO's point of view. I've spent the last three years trying to contain the "bleeding". Contrary to popular belief, I do not want to "torpedo" someone's "favorite child" for my own career goals. I'm just doing my job.

The Supervisory Board listened in silence to the CFO's speech. Rawson smiled broadly as he returned to his seat. Neil Harkam came to the podium:

I came to this company as the editor of the Waukegan Daily in 1952, when Mr. Rawson was just born. And over the years, I've learned a few important things. Then we had three newspapers. We now own 69. I became CEO as a result of the success of Sports Daily. With the introduction of color printing and creative approach to articles, this newspaper has become a model for the whole industry and our most profitable newspaper. I did it then, and I will do it now with America Today.

No need to remind, Sports Daily wasn't all right either. That project also had opponents. But now there is no one who would not want to change their mind in favor of the project. And now we need courage to make decisions. Yes, America Today is losing a lot of money today. Yes, these losses are greater than we expected. But a more solid company, Minute, can afford to invest in its future. America Today has won three Pulitzer Prizes in its three years of existence - more than any other newspaper in our country. Quality journalism attracts readers. It took the Wall Street Journal 80 years to get a million readers. We did it in three years. I do not believe that advertisers do not understand this and will not come to us.

Everyone in our business knows about the success of CNN and MTV, as well as the declining level of education in this country. Everyone listens to "experts" who say that no one will read newspapers anymore. Did you hear? They are wrong, and I will prove it.

Today, there is still no meaningful source of news other than daily newspapers. By printing America Today, we created something that did not exist before - a national newspaper of the highest quality, which at the same time gives the reader local news. National Pulitzer Prize-level articles along with local sports news, criminal statistics, obituaries and election results. In short - everything the reader needs. Together with quality printing and satellite technology, we have created a new and impressive product that meets the needs of society. If we seek to gain the loyalty of the reader, we cannot remain in place; when he moves, we have to follow him.

America Today is the product of the future. But the question remains - can it be financially attractive? The answer is yes. In this case, we are not fighting for the lion's share of the market, which already exists. America Today is creating a new market. We can engage national advertisers in a national newspaper by providing full-color advertising that was previously only available in magazines. And we can combine this product with local advertisements in the same edition. We have everything to make this project a reality - and we just need mutual understanding to achieve this.

Before I finish, I would like to say the following. If we were in Japan, a question like this simply could not arise. Because the Japanese are thinking about how to get victory, not quarterly profits. No financial calculations could give the Japanese a clue that they could conquer the American car market, but they did it, and they did it quite successfully. No analysis of discounted cash flows will help to form a vision - how to manage a company with a turnover of 2 billion dollars.

We cannot allow our "counters" to determine policy. We can't let the Wall Street Wise Men make us focus on short-term financial results. Maintaining our vision for future development and continuing to be America's best newspaper company is, above all, in the interests of our shareholders. We do this every day, combining the best journalism with the best advertisers. This is what Minute is and should be, and what America Today really does.

Although Mr. Rawson and I are members of the Board of Directors, we will now leave this room. The decision, ladies and gentlemen, is yours...

Questions:

1. Who convinced you more that he was right? (Argue your answer_)

2. Analyze the performances of two opponents. Identify the advantages and disadvantages of each presentation.

Peter Rawson

and

Neil Harkam

3. What decision would you make? Leave the newspaper or refuse it? (Give reasons for your answer)