Reuters: the price of greed

Geoffrey Robertson and Alexander Chancellor

'It is extremely unfair to the Newspaper Proprietors Association to regard them as a lot of greedy bandits.' — Brendan Bracken, Minister of Information, speaking in a House of Commons Debate on the future of Reuters news agency on 22 October 1941.

'Reuters auditors are preparing a report related to the possible issue of more shares in the Company to raise cash for future investment.' — Reuters World, the house magazine of Reuters, August 1983.

Let us consider the second of these two quotations. It was the means by which the staff of Reuters, the London-based in- ternational news agency, officially learnt this year that there might be a change in the ownership of their company. As an announcement of what may be about to happen to Reuters it left a lot to be desired. One might even go so far as to say that it fell below the usual standards of a news agency which, since it was founded 132 years ago, has prided itself on the accuracy and impartiality of its reporting. The wor- ding exuded an atmosphere of shiftiness. For what in reality is being planned for Reuters? It is something altogether more momentous than the raising of a bit of cash for future investment' in the company. It is the floating of Reuters as a public company for the principal purpose of enriching its owners, who are the newspaper proprietors of Great Britain, Australia and New Zealand. There may be some investment in Reuters as well. It would be surprising if there were not. But the main beneficiaries of the company's flotation will be the press barons of Fleet Street who are licking their lips in anticipation of the most extra- ordinary financial windfall in the history of the British press. To the layman who does not study Fleet Street's financial pages, the full significance of the proposed Reuters flotation was first brought home a month ago by Mr Michael Davie in his excellent Observer Notebook. He pointed out that Reuters is now general- ly valued by stockbrokers at around £1,000 million — some even suggest that it could be worth £1,500 million. But taking the figure of £1,000 million as accurate, this is What certain Fleet Street proprietors would stand to gain if they were allowed to sell their shares in Reuters on the stock market: Lord Matthews (Daily Express etc) £120 million; Lord Rothermere (Daily Mail etc) £120 million; Mr Rupert Murdoch (Sun, News of the World, Times etc) £90 million, (plus £24 million from his Australian holdings). In anticipation of the Reuters flotation, the shares in the companies over which these gentlemen preside have already risen in value dramatically. Meanwhile, Reed International has decided to sell off the Daily Mirror and its sister newspapers to the public, with unforeseeable conse- quences. It is doing so because the Mirror's share in Reuters is valued at some £80 million — more than double the estimated value of the Mirror Group itself — and it wants to cash in while the going is good. There have been rumours that, for the same reasons, the Pearson Longman group may decide to sell off the Financial Times. This is all in expectation of a bonanza that has yet to take place. The purpose of this article is to enquire into the likely effects on Reuters of the proposed flotation; also into its morality and — most importantly of all — into its legality. For these are questions which the Fleet Street newspapers have studiously avoided.

Fleet Street's silence is easily explained by the fact that there is hardly a newspaper in the country which does not stand to make enormous financial gains if the flotation goes ahead. For Reuters is a private com- pany whose shares are held almost entirely by newspapers in the following propor- tions: 41 per cent the Newspaper Publishers Association (representing the Fleet Street barons), 41 per cent the Press Association (representing the British provincial news- papers), and 16.4 per cent similar news- paper associations in Australia and New Zealand. The remainder of the shares are held by a handful of executives of the com- pany, three of whom, incidentally, stand to become millionaires if Reuters goes public. The Managing Director, Mr Glen Renfrew, holds, for example, 545 shares (issued in 1981), which — if the City's estimates of 'I suppose it's something that our unemployed have the highest IQs in the world.' about £10,000 each on the market.

To understand the present ownership structure of Reuters it is necessary to go back to the beginnings. In 1851 a rabbi's son from Cassel in Germany, who — on becoming a Christian — had changed his name from Israel Beer Josaphat to Paul Julius Reuter, emigrated to London and set up a 'telegraphic office' near to the Stock Exchange. Starting as a mere purveyor of stock exchange prices to business clients in Paris and London, making use of the newly opened telegraphic cable under the English Channel, Mr Reuter soon became a great force in British journalism, supplying the press with a service of foreign political news which was both faster and cheaper than the news they could obtain from any other source. He achieved this position by brilliant exploitation of what was then the rapidly expanding new technology — cable communications. He sustained and con- solidated it by applying to his news agency certain principles on which Reuters' great international reputation was based — and still rests today. If his news service was to command the confidence of his customers, he decided, it would have to be both ac- curate and objective. In any war, for exam- ple, he would have correspondents repor- ting from both sides. The telegrams he sent to the newspapers were terse and limited to the verifiable facts. To avoid rows, he ar- ranged that all his customers should receive the same news telegrams at the same time. And he insisted that they were published in the form received and attributed to him by name. Reuters abides today by the same principles. Whenever during its long history it has departed from them, it has always got into trouble.

Paul Julius Reuter died in 1899, a rich and respected British citizen with a German barony that had been formally recognised by Queen Victoria, It was, so he once declared, 'our character for impartiality on which we mainly depend for success'. But his financial success owed nothing directly to the news service he sold to the news- papers. Another lesson of the history of Reuters is that general news is not a pro- fitable commodity. Baron Reuter made his money by supplying commercial informa- tion to private subscribers and by operating a private telegram service over his world- wide network of communications. These were sensible ways of financing the news agency. Other news agencies of the period — and many since — resorted to ways which seriously threatened their integrity. The German agency Wolff, for example, accepted support from the Prussian govern- ment. The French news agency Havas com- bined its news service with a profitable advertising agency.

Quite early on, Reuters became a public company, quoted on the London stock ex- change. But this did not matter so long as the redoubtable Baron Reuter remained in charge. The company's first major crisis came in 1915, when Baron Reuter's son Herbert, who succeeded him as head of the company, committed suicide. Reuters was already by then a great national institution with a world-wide reputation. Britain was at war with Germany. What if Reuters' shares were to be bought up by enemy in- terests? A group was therefore formed to buy out all the 1,200 holders of Reuters shares and turn it back into a private com- pany with an explicitly patriotic role. It became so patriotic that its chief share- holder, Sir Roderick Jones, combined the job of Managing Director with that of Director of Propaganda for the British Government. It was a situation which harmed Reuters' reputation and was remembered when the next world war came along.

In 1925 Sir Roderick Jones tried to sell the company. He wanted it to become the property of its present owners — the Press Association and the Newspaper Proprietors (now 'Publishers') Association — but the NPA refused his offer, and in the event the PA, representing the provincial press, became the sole proprietor. Sixteen years later, Sir Roderick wrote a letter to the Times explaining his decision as follows: 'I could have allowed the agency with its solid corpus and its world-wide reputation to be floated very advantageously as a public company. But that would have revived the danger: a free market in the shares would have exposed Reuters to the menace of undesirable influence and perhaps control.' This menace is precisely what could be facing the news agency today.

With the outbreak of the Second World War, Reuters faced its second great crisis. It lost its markets in the Axis countries and at the same time needed more money to meet the costs of covering the war. The PA could not continue to support it adequately without public subscription — which would expose it to Sir Roderick's 'menace' — or government subsidy, which would have laid it open to accusations of being a front for British war-time propaganda. The NPA, representing the Fleet Street press barons, therefore offered their support and agreed to pay £170,000 for 50 per cent of the company — a share now reduced to 41 per cent but valued at more than £400 million.

The decision caused much anxiety in Parliament. During a debate held on 22 October 1941 as 'a matter of extreme public importance and urgency', deep suspicions were expressed of the press barons who, it was suggested, might somehow manipulate the news service for their own nefarious purposes. Proposals amounting to nation- alisation of Reuters were put forward. At least, it was suggested, there should be a Trust of independent patriots to protect the integrity of such a vital national institution — the principal supplier of news not only to the press, but to the BBC and to the British Empire and to other newspapers and agen- cies throughout the world. Brendan Bracken, as Minister of Information, quite rightly rejected any idea of nationalisation — 'If a news agency were regarded throughout the world as being the property of the British Government, its news value would be very small.' He also gallantly defended the press barons against accusa- tions of villainy and lack of patriotism. But it is likely that Parliament would have taken legislative action — perhaps to set Reuters up as a statutory corporation like the BBC — if it had felt that the press could not itself guarantee the independence and viability of the news agency.

Under threat of another Parliamentary debate, the press immediately produc- ed that guarantee, in the form of what is known as the 'Reuters Trust'. This 'Agree- ment of Trust', which was solemnly endors- ed by each shareholder, became — and has remained until now — the foundation of the agency's international reputation for in- dependence and impartialilty. By its terms, the parties are pledged to 'regard their respective shareholdings of shares in Reuters as in the nature of a trust rather than an investment'. They undertake to en- sure that Reuters 'shall at no time pass into the hands of any one interest group or fac- tion': to preserve fully its 'integrity, in- dependence and freedom from bias', and to exert every effort to expand Reuters 'in order to maintain in every event its position as the leading world news agency'. Com- pliance with objectives is secured by the trust agreement in two ways. The first is by appointment of trustees, charged with upholding the principles of the Trust. Their position as advisers to the company's board and their duty `to act in accordance with the principles enunciated in the Trust Agreement' is enshrined in Article 72 of the Company's Articles of Association.

The second method is more dramatic, and a clear response to Parliament's anx- ieties. Under Clause 12 of the Trust, no par- ty to it can transfer 'any stock or shares in Reuters held by it' without destroying the entire Trust. This cannot happen, and nor can the Trust be amended, unless the pro- posals have been submitted to and approv- ed by the Lord Chief Justice of England. He can only approve the dissolution of the Trust if he is 'satisfied that by reason of the circumstances then existing, it is imprac- ticable to secure the objects of the Agree- ment by continuing its operations in its then existing or any amended form'. Bankruptcy or nuclear war might make it 'imprac- ticable' to secure the purposes of the Trust, but not the company's present enormous and embarrassing prosperity which has made some parties to the Agreement so eager to sell.

It should be said immediately that the press barons of 1941 were wholly honourable in their intentions. It occurred to no one then that Reuters might one day become so profitable. Their aim in taking a share in the news agency was to keep it go- ing and secure its independence. The form of ownership adopted was modelled on the Associated Press of the United States, which had been successfully run as a non- profit-making newspaper cooperative since 1848. Reuters trumpeted its new status to the world as proof of its integrity, and, when the war was over, persuaded several foreign news agencies to. adopt the same ownership model. It was Reuters' view that it had found the ideal form of news agency control — one in which the agency was owned by its principal customers, the newspapers, who alone had a real interest in the quality and objectivity of the service. But Reuters is different from the Associated Press. AP's owners comprise some 1,400 American newspapers. The resources of the British press are infinitely smaller. In order to survive, Reuters needed — and still needs — other sources of in- come. It has sought them, as Baron Reuter did, in the area of commercial information. And it has done so with such stunning suc- cess that the future of the news agency itself is now, ironically, at risk.

The source of Reuters' astounding pro- fits — more than £30 million last year and certainly more than £50 million this year — is a device called a Monitor. This is a little television screen which, at the press of the right buttons, displays whatever informa- tion the international businessman needs — share prices, commodity prices, exchange rates, etc in any of the world's markets. Reuters started investing 20 year ago in these lucrative video games. Now they ac- count for 90 per cent of the company's business. So a venture designed to support the news agency has ended up by engulfing it.

Under these -circumstances it is not sur- prising that some of the shareholders in Reuters have become rather over-excited. Although they have bound themselves, in the Reuters Trust, to hold their shares 'in the nature of a trust rather than an invest- ment', they are aware that they are sitting on a gold mine. And their behaviour sug- gests that they may now view their holdings more as an investment to be realised rather than hs a trust to be honoured. Last years for the first time since the Trust was established in 1941, a dividend was paid. It was worth £2,500,000 — rather a lot of

money for shareholdings which are not regarded principally as investments. The dividend was presumably approved by the trustees. The trustees are people appointed by the shareholders from among their own ranks, and at present they include Lords Matthews and Rothermere, whose organi- sations profited from the dividend and are expected to profit massively from the public flotation.

The terms of that flotation have not yet been announced, but the provisions of the Trust seem on the face of it to place con- siderable obstacles in its path. How, for ex- ample, to avoid the danger that Reuters may 'pass into the hands of any one interest group or faction' when its shares are traded on public markets? Shares could be issued without voting rights, or subject to restric- tions, but this would make them less valuable, and certainly less attractive to in- stitutional investors. Clause 12 is another problem, because the Trust is terminated if a party to the agreement transfers 'any share or stock in Reuters held by it'. This would seem to indicate that public participation will have to come from unissued capital: a less attractive investment prospect if the ex- isting shares remain in place. The place they are in, of course, is the NPA and the Press Association. The NPA holds its Reuters shares on trust, on behalf of those publishers who initially advanced the money. How it can put these shares in the hands of its newspaper beneficiaries, and how they could then sell them to the public, without some form of 'transfer' which would require the approval of the Lord Chief Justice pursuant to Clause 12, is not very clear. The Lord Chief Justice has to approve any amendment to the Trust. But it is not certain whether Sir Geoffrey Lane would accept the role allotted to him in this private Trust agreement, or if indeed he has even been made aware of it.

Questions of the morality of the Reuters float cannot entirely be separated from the legal complexities — the nature of a 'trust' is, in law as in life, predominantly ethical. But is the 'Reuters Trust', the Agency's guarantee of independence for the last 42 years, really a 'trust' at all? There is a strong possibility that the courts would characterise it merely as a 'shareholders' agreement', which can be amended or ig-

nored at will, sb long as all parties to it con- sent. In that event, Reuters can be floated without insuperable problems — except for its reputation and its future credibility as a news service.

A properly constituted, valid trust im- poses grave duties upon its trustees, and is subject to supervision by the courts. But the legal questions involved in deciding when a trust is not a trust are among the most arcane and upredictable in British law. The mere fact that the document is drawn up in legal form, bearing the legend 'Reuters Trust' and the description 'Agree- ment of Trust', is not decisive, nor are the intentions of the parties who signed it at the time. A person entitled to shares may of course declare himself a trustee, but whether he actually creates a trust will largely depend on the form of words used. A court may find that a declaration to regard shares 'as in the nature of trust' is in- sufficiently precise. But even if the Reuters Trust is in fact a trust, is it valid? It may fail further tests, both as a purpose trust and as a charitable trust.

A valid 'purpose trust' requires a purpose which is clearly for the benefit of ascer- tainable individuals. There are quaint ex- ceptions: courts have in the past permitted trusts for animals and grave-stones, but the Court of Appeal has indicated that these ex- tensions should go no further. It might be argued that the Trust is really for the benefit of the newspapers and agencies which subscribe to the Reuters' service: were this accepted, the court might still find that the trust failed for uncertainty. That was, after all, the legal fate of the Astor trust in 1952: its objects ('improve- merit of good understanding between na- tions . . . preservation of the independence and integrity of newspapers. . . promotion of the freedom, independence and integrity of the press') were too uncertain: the courts could not assume the task of administering it in the event of default by the trustees. The Reuter Trust is rather more definite in its objectives than the Astor settlement, and courts have been prepared to uphold trusts for the promotion of other general objec- tives (fox-hunting, for example) where there are beneficaries to enforce them. It is doubtful whether Reuters would qualify as a valid private trust, although the question

'These 12 wonderful teenagers have all found you guilty of being 50 years old.'

is open to argument.

If not a private trust, the declaration might be viewed as a public charitable trust. Charitable trusts cannot fail for uncertain- ty, and do not require ascertainable beneficiaries to enforce them — this is the duty of the Attorney-General. The ques- tion, however, falls to be determined by principles extrapolated from centuries of case law, based upon the interpretation of a statute passed in the reign of Queen Elizabeth 1. It might, according to these principles, be upheld as a trust for the ad- vancement of education, or for the com- munity benefit of receiving unbiased foreign news. Recently a trust for the publication of law reports was deemed 'charitable' on these grounds, and the ad- vancement of knowledge about foreign events would seem at least as beneficial to the community as the advancement of knowledge about judicial decisions. There are, as always in such cases, contrary arguments, and it would seem that Reuters itself has never regarded its trust as charitable, because it has not registered it with the Charity Commissioners. Reuters is probably right, but there is sufficient doubt about the matter to require the attention of the Attorney-General, who has the con- stitutional duty, as guardian of the public interest, to enforce the execution of charitable trusts.

If the Reuters Trust is not a valid trust at all, but merely a 'shareholders' agreement', the greatest legal difficulties of floating Reuters become those of finding ways to avoid or reduce capital gains tax. The Trust declaration that the shareholders will eschew profiteering from their invest- ment is not enforceable once they all agree to take their profits, and the trustees they appoint have no duties of stewardship for which they are accountable to the courts. The role of the Chief Justice, however, would remain a problem.

But legalities aside, one must not forget the importance of the Reuters Trust to the agency's credibility. Reuters has boasted about it for more than 40 years. It has asked its customers all over the world to believe in it as a guarantee of the agency's in- dependence and impartiality. Can it now claim that the commitment to regard shares as 'in the nature of a trust rather than an in- vestment' does not mean that they cannot be held as an investment? In other words, Reuters cannot have it both ways. Does it consider the Trust legally binding, or are its shares encumbered only by a well-meaning declaration of pious principles which can give way to expediency? This the dilemma which the Reuters board must face when it meets on 9 November to decide whether, and if so how, to float the organisation as a public company.

In view of the uncertainty about the status of the Reuter's Trust, it would be desirable for the company to seek a declaration in the courts as to its meaning and effect, and to clarify the role of the Chief Justice which is written into Clause

12. If it fails to take this course, the matter requires consideration by the Attorney General, as guardian of the public interest in the conduct of public trusts. If, as seems most likely, the Reuters Trust is no more than a shareholders' agreement, any deci- sion to float the company deserves the at- tention of Parliament, which would pro- bably have acted, 40 years ago, to secure the independence of Reuters by statutory means had the declaration of Trust not seemed, at the time, to bellegally.invincibile.

They could get round the whole problem by splitting Reuters into two companies. They could float off the profitable Monitor service as a public company, while reserving a substantial body of its stock to the news agency. This solution would enable the press barons to lay their hands on a lot of money while saving Reuters, the news agency, both from ruin and from falling into undesirable hands. But, so we hear, the management of Reuters is opposed to this. They say it is impracticable. By that they mean, perhaps that the reputation of the poor old news agency is fundamental to the company's success. Without it, Monitor might never have got off the ground.

In the meantime, investors should be warned. By conveniently ignoring all the legal, moral and political difficulties of ex- ploiting the Reuters gold mine, Fleet Street newspapers may be substantially overvalu- ing it. And the flotation, which could leave Reuters both unloved and inadequately protected, may even now fail to take place.