Andrew Sullivan, writing in “The Daily Dish” on July 18, thinks he has found a devastating “gotcha” on his arch nemesis and current pathological obsession, Howell Raines of the New York Times, a “gotcha” Sullivan picked up by way of a piece about stock options and the media written by his hero, Howard “Howie” Kurtz of the Washington Post.

Here’s the bitter Brit’s take:

“[Kurtz] also reveals that -- oh joy! -- the Times has practised [sic] exactly the same stock options maneuver that it has so piously attacked others for. Arthur Sulzberger Jr., the mega-rich kid who finances Howell Raines’ [sic] diatribes against corporate executives, has almost $2 million worth of stock options that are not counted as expenses and Times president Russell Lewis says the Times has no plans to alter its policies. Don’t you think the Times should practise [sic] what it preaches in this respect?”

Sounds sharp. Wounding. A possible high-fiver.

Too bad he has it all wrong.

Let’s walk through this slowly.

The New York Times is a newspaper.

The New York Times has an editorial board and a group of editorial writers that draft the paper’s editorials, which appear on the penultimate verso of the first section of the paper. The editorialists are free to write about whatever they would like.

The New York Times has columnists whose essays appear on the page opposite the editorial page (on the last recto of the first section). The columnists are free to write about whatever they would like.

The New York Times Co., however, is a publicly traded corporation.

The assets of the New York Times Co. (hereafter NYT) include: the New York Times; the Boston Globe; the Worcester (Mass.) Telegram & Gazette; a one-half interest in the International Herald Tribune; 15 other newspapers in Alabama, California, Florida, Louisiana, North Carolina and South Carolina; eight TV stations and two radio stations; newspaper distributors in the New York and Boston metropolitan areas; and minority interests in a Canadian newsprint company.

So, you see there’s more to NYT than just the New York Times and certainly much more than the dreaded Howell Raines.

Compensation of executives

The compensation of NYT executives, including Sulzberger, is established by the compensation committee of the corporation’s board of directors. The compensation committee is comprised of five non-employee (or “outside”) members of the board. It is currently chaired by Brenda C. Barnes, and also includes John F. Akers, David E. Liddle, Henry B. Schacht, and Donald M. Stewart.

This committee, not the editorial board nor the editors of the New York Times, establishes the compensation of both Sulzberger and Lewis, and that compensation includes a base salary, annual at-risk bonuses, and stock option grants based on the performance of NYT.

Accounting for stock options

Not even the compensation committee decides the accounting treatment of stock options, nor does the editorial board of the New York Times, nor the paper’s editors.

The accounting treatment of stock options is determined as part of a larger endeavor called corporate finance that encompasses the corporation’s accounting procedures and practices, financial reporting policies, budgeting, forecasting, tax strategies, and so forth.

These policies are established by the corporation’s top executives, including Sulzberger (chairman of the board), Lewis (chief executive officer and president), Leonard Forman (chief financial officer), James Lessersohn (vice president of finance and corporate development), Stuart Stoller (vice president and corporate controller), and R. Anthony Benton (treasurer).

Normally this is done with at least some consultation with the firm’s auditor, in this case Deloitte & Touche L.L.P., and the board of directors, most notably with the audit committee. At NYT, the audit committee is chaired by Ellen R. Marram and includes Raul E. Cesan, Charles H. Price II, and the aforementioned Liddle.

The separation of powers

So, you see, there is the New York Times, the newspaper, and there is the New York Times, the corporation. As has become customary in the American publishing business, albeit gradually, over the past century, the editorial and business operations of newspapers and magazines have become separated, and such is the case here. (This is why one rarely finds an individual holding the titles of both editor and publisher at a single publication. Martin Peretz, while allowing for a publisher on the masthead, may have misled Sullivan on this point.)

The editors and editorial writers and columnists at the Times can hold and express whatever opinions they would like with respect to the various methods of corporate accounting for employee stock options or any other matter whatsoever.

Ultimately, decisions regarding accounting policies and the preparation of financial statements reside in the business or corporate side of the operation. And their decisions are made, appropriately, in the interest of the corporation and its shareholders, i.e., the owners, and to a lesser degree the employees, and to a de minimus extent, outside “critics.”

As a result, the New York Times, the newspaper, the collection of editors and reporters, cannot “practice what it preaches” because the task of practicing is not in its hands.

[Republished from Saturday, July 20, 2002.]