Emmis structure is good for city: CEO's clout helps avert buyout

April 30, 2007

It's easy to understand why investors are grumbling about Emmis Communications Corp. CEO Jeff Smulyan.

The company's stock has tumbled in recent years, and some of the ways Smulyan has been choosing to use the company's capital look misguided.

Last year, for instance, Wall Street booed when Emmis helped back Smulyan's ultimately unsuccessful bid to buy the Washington Nationals baseball team.

And, with the benefit of hindsight, the company in 2005 woefully overpaid when it spent $395 million to buy back shares for $19.50 apiece-a rich premium to where the stock now trades.

Even so, we're not on the side of those who assail Smulyan for refusing to ditch the company's dual-class share structure.

Under the arrangement, only Smulyan holds Class B shares, which have 10 votes apiece. All other shares have just one vote. The upshot: He controls 60 percent of the votes despite holding just 17 percent of the stock.

While the arrangement is common among media companies, critics blast it as bad corporate governance. They say executives who use the dual-class structure to maintain control are less accountable to outside investors and to company boards, since they, in effect, can do as they wish.

There's a good counter to that argument, however. Emmis has had the structure since it went public in 1994. Investors who don't like it can put their money elsewhere.

And it's worth noting where the hue and cry for dropping dual-class structures usually comes from-it's the big-money investors who want to maximize the value of their shares at almost any price. The formula usually involves selling a business in whole or in parts.

Which brings us back to Smulyan, a civic leader who's proved through the years that he's interested in more than fattening his bank account.

After all, this is a guy who made a bold bet on downtown in the mid-1990s, agreeing to build the company's $15 million headquarters on Monument Circle. At the time, downtown's renaissance was far from assured; Circle Centre mall had been open only a few months.

So if the structure helps keep one of our marquee companies under local control, we're OK with it. We're all for capitalism; but issues beyond the bottom line matter, too.

Quality of life takes center stage

Issues like infrastructure and taxes are important to making central Indiana an attractive locale for business in the 21st Century. But so is quality of life.

That's a reality top companies here seem to be embracing like never before. We were heartened to see corporate leaders step up this spring to bat down legislation in the General Assembly that could have led to an amendment to the state constitution banning same-sex marriage.

Opponents like Eli Lilly and Co., WellPoint Inc. and Emmis recognize that Indiana needs to be a welcoming, tolerant place that values equal treatment for all.

And we're pleased to see Eli Lilly taking such a prominent role in the Indianapolis Cultural Trail, a $50 million project linking six cultural districts downtown.

In conjunction with the April 25 ground breaking, the Eli Lilly and Co. Foundation announced a $1 million contribution to the project, and the drug company announced it would pay to extend the trail to its corporate campus.

To comment on this editorial, write to ibjedit@ibj.com.
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