Legal analysis of BBG merger plan pays minimal attention to political, legislative and journalistic pitfalls

Share: Logo. Washington, D.C – Truckee, CA, November 22, 2011 — Free Media Online Report and Commentary — While Free Media Online and BBG Watch do not expect the giant law firm of Baker & McKenzie to advise the Broadcasting Board of Governors on the journalistic pitfalls of centralization of news gathering and undermining the independence of the surrogate broadcasters and the Voice of America’s special role, its legal feasibility analysis of the proposed consolidation of private broadcasting grantees  –RFE/RL, Inc. (Radio Free Europe/Radio Liberty – RFE/RL), Middle East Broadcasting Networks, Inc. (MBN) and Asia Pacific Network (Radio Free Asia) (RFA) — understates to a large degree the role of Congress and other legislative and public policy issues in the decision making process. The analysis fails to address the expected opposition to to the BBG proposal in Congress, within the U.S. foreign policy community, and among supporters of U.S. international broadcasting at home and abroad.
Independence of surrogate broadcasters and their ability to concentrate their news gathering operations on specific countries with a focus on human rights abuses were the key elements of the U.S. international broadcasting model developed by such giant figures of American foreign policy and public life as General Dwight Eisenhower, the author of the policy of containment George Kennan, General Charles Douglas (C.D.) Jackson who later became President Eisenhower’s advisor on countering Soviet propaganda, the hero of the Berlin Airlift General Lucius Clay, former U.S. Ambassador to Japan and former Under Secretary of State Joseph C. Grew, U.S. intelligence specialist Frank Wisner,  CIA Director Allen W. Dulles and many other distinguished Americans. Even young Ronald Reagan was involved in helping to support Radio Free Europe’s independent journalistic activities in defense of freedom. Presidents Truman, Kennedy, Johnson, Nixon, Ford, Carter, and Clinton likewise supported the dual model of U.S. international broadcasting with the surrogate radios and the Voice of America operating under different rules and independently of each other, each having a distinct mission that served to advance U.S. interests and to support democracy abroad in different ways.
The current BBG plan to eliminate the independence of surrogate broadcasters, centralize news gathering  —  using centralized controls which made the Voice of America far less effective in Eastern Europe than RFE/RL until the Reagan Administration took office — and eventually to privatize the Voice of America and Radio and TV Marti was, by contrast with the earlier plan, developed by anonymous BBG bureaucrats.  They are clearly the only group that will benefit from their own proposal — not BBG members, not BBG journalists, not audiences abroad, not victims of human rights abuses, and certainly not the American people.  Keep in mind that these same bureaucrats proposed earlier this year to end all Voice of America radio and television broadcasts to China. Congress wisely rejected their proposal. They now want to do even greater damage to U.S. international broadcasting and public diplomacy abroad.
The BBG also plans to ask Congress to remove the Smith-Mundt Act’s restrictions on domestic distribution of its programs. This proposal is another reason behind the centralization of news gathering. When such a centralized system existed — but only at the Voice of America prior to the 1980s — VOA foreign language journalists literally had to beg the central VOA newsroom for coverage of country-specific and region specific news. The central newsroom at VOA wanted to operate like a newsroom at any domestic American media outfit. The  surrogate broadcasters, on the other hand, were providing much better, specialized news coverage due to the independence they enjoyed then but may soon lose. The BBG merger plan now threatens to destroy the ability of the surrogate broadcasters to specialize in certain topical and regional reporting.  The BBG proposal will also destroy the current special role of the Voice of America  — as it developed and improved over the years — as the voice of the American people and their public diplomacy messenger abroad. 
What the architects of U.S. international broadcasting wanted to avoid at all cost, BBG bureaucrats want now to put in place for their own benefit and possibly to please the BBG Chairman Walter Issacson, a former CNN executive who has a vision of U.S. international broadcasting as a large CNN-like operation. Having just published a biography of Steve Jobs, he obviously had very little time to think through his idea, although to his credit he has attended all BBG public meetings unlike some of the other members of the part-time Board. The part-time nature of the bipartisan Board may also explain why the bureaucrats and not its members have been in charge of developing the strategic plan. Chairman Isaacson and the Board may also be facing legal issues of a different nature than those addressed in the Baker & McKenzie report. One of the top BBG executives, who until now enjoyed Chairman Isaacson’s full support and was one of the few who enthusiastically embraced the planned consolidation, reportedly wrote in an email that the part of the organization under his control could use getting rid of “old white guys.” Other executives are known to have reservations about the proposed merger but are afraid to voice them publicly. Much larger public policy issues, however, are at stake.
The Baker & McKenzie analysis does not address any of the public policy issues, and their lawyers would probably would not be qualified to do so.  However, they should have warned Chairman Isaacson and the BBG that any proposal to place essential government functions and public institutions under the control of private corporate bureaucrats will not be nearly as easy as the study seems to suggest from a purely legal point of view.
At their last meeting, the BBG promised to release the Baker & McKenzie analysis but so far has failed to do so.  We are making public parts of the report because of its significance for public policy. The analysis was paid for by U.S. taxpayers.
Interestingly and apparently without intending to do so, the Baker & McKenzie legal analysis gives BBG members, who also serve on the boards of directors of the surrogate broadcasters, very good legal reason not to support the proposed merger that would inevitably harm and diminish these entities. At least two and perhaps three of the eight BBG members, not counting the Secretary of State who is an ex officio member, seem to understand the dangers behind the proposal. Comments made at public BBG meetings suggest that Ambassador Victor Ashe who is a Republican, as well as two Democrats, Michael Meehan and Susan McCue, may have second thoughts about what the executive staff put forward for the Board’s approval. Perhaps after reading the legal analysis as well as the earlier study done by Deloitte, other BBG members will realize that what they are dealing with are not primarily management and legal issues but public policy issues of great importance for foreign affairs, America’s image and human rights.
This is what the legal analysis points out in the Director Fiduciary Duty section:
“Regardless of the ultimate transaction structure, the individual members of the Board of Broadcasting Governors, as corporate directors of each of the Private Grantees, owe fiduciary duties of care and loyalty to each Grantee. The duty of care requires a director to inform himself or herself of the available facts concerning a transaction and its alternatives, and being so informed, to then act with due care in the discharge of the director’s responsibilities. The duty of loyalty requires a director to act in the best interests of the corporation and avoid self-dealing.”
In the Federal Legal Authority Analysis, the study makes getting Congressional approval for the merger appear painless and easy when in fact — as the BBG found out with their China plan — Congress is not likely to accept an effort by bureaucrats to expand their power if important government functions and foreign policy interests are threatened:
“In our opinion, subject to the qualifications discussed below, the BBG may continue, without amendment to the International Broadcasting Act, to make grants to consolidated entity equivalent to the grants currently made to the three Private Grantees. This would constitute a reprogramming and the Appropriations Act requires that the Committees on Appropriations be notified 15 days in advance of such reprogramming of funds. It is our opinion that the reprogramming of funds to provide grant funds to one consolidated grantee would be permissible and consistent with the International Broadcasting Act so long as the consolidated grantee will continue to perform the broadcasting and related functions currently performed by each of the Private Grantees.”
The Labor and Employment section provides an equally upbeat analysis:
“It does not appear that the proposed Transaction would pose any significant legal issues from a labor and employment law perspective with regard to current employees. In the United States, as a general rule, compensation, healthcare, retirement, pension and other benefits currently provided by the Grantees to employees may be changed as long as “vested rights” of employees are respected and the terms of the RFA’s collective bargaining agreement (“CBA”) with the Newspaper Guild-Communication Workers of America (“CWA”) are taken into account as discussed below. To the extent any
individual employees or executives are subject to an employment contract, the contractual obligations may result in additional costs in completing the Transaction if the Transaction would trigger a ‘termination.'”
In Transaction Structure section, the law firm gives the BBG various options for executing the merger but without going into any public policy concerns or possible difficulties:
“There are three basic ways that individual legal entities can structure a transaction to consolidate their operations under a single entity. First, one or more of the entities can merge into another existing entity, with that entity surviving; the non-surviving entities cease to exist at the effective date of the merger. Second, the entities can consolidate by each merging into a separate, newly created entity; in such a consolidation, the separate legal existence of each individual entity ends upon the effectiveness of the transaction and the newly created entity inherits the rights and obligations of each entity party to the consolidation. Third, one or more of the entities can transfer some or all of their assets to a single designated entity, either newly created or already in existence; following the sale, each seller entity then dissolves or continues to exist with minimal assets.
It is also possible to use a combination of the techniques described above. For example, one entity might transfer most of its assets to a second entity (while keeping title to an asset that is difficult or time-consuming to transfer), while the third entity is merged into the second entity. Once the first entity’s final asset is able to be transferred to the second entity, the first entity can dissolve.
These structuring considerations are routine and are typically addressed once due diligence has been performed on each participating entity’s assets and liabilities. In
determining the appropriate structure for the Transaction the BBG should consider
(i) the corporate governance implications for the surviving entity in its state of incorporation,
(ii) the difficulty of transferring any important assets held by any of the Grantees,
(iii) the preservation of the brands and individual culture at each Grantee and
(iv) any statutory considerations raised by the relevant Grantee authorizing statutes. We note that, as discussed above, the International Broadcasting Act does not dictate one transaction structure over another. We note that a consolidation structure – one where there is a newly created consolidated entity – is sometimes used to reinforce the collaborative nature of a transaction and avoid the perception that one entity is absorbing another and being favored over another.
Following a merger or consolidation, many companies opt to operate the constituent business operations as distinct divisions within one legal entity. This structure often allows companies to maximize the desired efficiencies while minimizing the impact of the transaction on brand value and operating culture. Thus, there could be a newly created entity with a broader, non-regional name and with three separate operating divisions named RFE/RL, RFA and MBN.”
The law firm does deserve some credit for advising the BBG that it “should carefully consider which transaction structure allows maximum efficiencies while preserving the brand and operating culture of each Grantee.”
Of course, the legal analysis does not address the question whether the whole proposal would be good for American taxpayers and American interests abroad. Keep in mind that the BBG has not said how much the implementation of its five year strategic plan will cost. A separate study done by Deloitte indicated only minor savings from the merger itself but did not address any additional spending that BBG executives may be planning, as they most certainly do.
There is very little doubt that the BBG merger and privatization plan will be in the long run far more costly for U.S. taxpayers than the current arrangement. Turning the BBG into another NPR-like structure will not only shortchange foreign audiences and human rights victims abroad, it will also create yet another area of political controversy at home. The Administration and the Congress would be wise to put a stop to this proposal before it even gets off the ground. If, upon further reflection, the BBG would withdraw its plan, it would be even better. If they are politically smart, all BBG members should take that action and save themselves and the American people a lot of headaches and unnecessary expenses such the legal costs involved and the $1.3 Deloitte consulting contract, which includes $150,000 for travel. That money could be better spent on producing radio and TV broadcasts to countries like China and Russia.
Free Media Online president Ted Lipien who had worked for the Voice of America and U.S. international broadcasting for over 30 years in various journalistic, managerial, marketing and executive positions, provided and BBG Watch websites with the following analysis:
“The decentralized model of U.S. international broadcasting with independent surrogate broadcasters and the Voice of America, each having a different mission and operating under different rules, served well the needs of the United States Government, the American people and radio listeners behind the Iron Curtain, as it now also serves information needs in countries like Iran, Iraq and Afghanistan. It worked initially much better for Radio Free Europe and Radio Liberty, but once the Voice of America’s editorial independence was protected by law in 1976 and VOA news reporting decentralized during the Reagan Administration, the dual arrangement became even more effective in promoting human rights, media freedom and understanding of America. After the United States Information Agency was abolished and the Broadcasting Board of Governors was created, this successful model was first weakened and may now be completely dismantled, with the Voice of America and U.S. public diplomacy being the primary losers. It would be great to have a BBC-like, journalistically  independent international and domestic multimedia broadcaster, well-funded and easily identified abroad as the voice of the American people and to some degree the U.S. Government but also able to offer targeted and hard-hitting news and commentary to countries without free media. But for a variety of historical and political reasons, this is not a good model for the United States. Privatization, centralization of news gathering and the removal of at least informal links between the Voice of America and the foreign policy community and U.S. public diplomacy will harm the cause of supporting media freedom, human rights and democracy. U.S. national security interests abroad will also be harmed by this proposal.
Someone, somewhere — whether they are U.S. diplomats, political figures, corporate officers, or journalists — will have to decide what goes into U.S. Government-funded broadcasts and to where they should be directed. No one with any knowledge of the history of successful public diplomacy wants to see interference with journalistic freedom. U.S. ambassadors and other State Department officials should not exercise a veto power over what goes on the air. But a complete divorce of U.S. international broadcasting from the experience of the U.S. Government’s foreign affairs community may not be good either for America and the world. The system of checks and balances that developed between U.S. Government broadcasters and Government officials toward the end of the Cold War, although far from perfect, gave the United States the ability to send both authoritative and journalistically bold messages targeted to specific countries. It might be wise to study this history before deciding on a new arrangement.”