Part three: Culture shock

Tribune Tower was in crisis, and the illustrations of penguins installed in the building's ornate lobby were meant as a constant reminder.

With Tribune Co. revenues sliding and managers struggling to adjust to an Internet revolution, executives in early 2007 turned to a Harvard Business School professor to motivate employees. The penguins in the building's display cases stood on melting icebergs — the professor's metaphor for an industry experiencing rapid and potentially fatal change.


Company executives, led by CEO Dennis FitzSimons, hoped the penguins would communicate urgency and spark reinvention at the media conglomerate. Instead, the display prompted snickering and puzzlement by many employees. Despite FitzSimons' efforts, the company's staid culture did not change. Readers and advertisers continued to move away from its products.

Turning around the fortunes of a national company with nearly 20,000 employees is at once a delicate and unsubtle enterprise. The success stories can become fables of their own — how Steve Jobs tenaciously transformed Apple from a struggling niche computer-maker into a consumer products powerhouse, or how Alan Mulally saved Ford.


So it was that when Sam Zell took control of Chicago-based Tribune Co. at the end of 2007, there was hope within the company that the feisty Chicago real estate billionaire and his team might be able to do what FitzSimons' team could not: inject life into a national roster of newspapers -- including The Baltimore Sun -- and TV stations. Even some career Tribune Co. executives — a mostly buttoned-down group — expressed relief at Zell's arrival.

"We were open to additional innovation opportunities, whether they came from inside the company or from Sam — and Sam did have a track record," said Scott Smith, a company veteran and former president of Tribune Publishing.

What happened next could be seen as a case study of how to squander an opportunity at reinvention. Less than a year after Zell took control, Tribune Co. filed for bankruptcy protection. Less than two years after that, Zell's hand-picked CEO, radio executive Randy Michaels, resigned amid allegations he had created a hostile and sexist work environment — his goal of turning the company into a digital powerhouse unrealized and his team's efforts to energize Tribune Co. culture widely considered a failure.

Rather than inspiring employees to embrace a new culture, a task experts say is crucial to remaking a company, Zell and Michaels took an approach that alienated many employees and managers. Attempting to stir the company from its lethargy and instill a more creative spirit, they came off as disdainful and insulting. Instead of fostering innovation among current employees, Michaels brought in a coterie of his colleagues from the radio industry who could not deliver the innovative breakthroughs the company needed.


In short, Zell and Michaels never bothered to understand the workplace they were trying to remake, which should be job one in corporate culture change.

"It's not how smart you are. It's how much you know about the business. That's why most people fail at turnarounds," said James Schrager, a professor of strategic management at the Booth School of Business at the University of Chicago. "Sam Zell, for all of his brilliance, probably didn't get the business."

Pressed by deteriorating financial conditions and an onerous debt load, the Zell team bought out or laid off at least 5,000 employees across the company. Many employees were angry that managers continued to receive millions of dollars in incentive bonuses.

When Tribune Co. filed for bankruptcy in December 2008, Zell's promise that employees would share in the profits evaporated as their nascent stakes in a new employee stock ownership plan were wiped out. That further sapped enthusiasm.

Zell declined to comment for this story. He left the company as chairman Dec. 31, 2012, when it exited Chapter 11 bankruptcy under new ownership.

In an interview, Michaels maintained that faced with the company's eroding finances, he had to push employees to act faster to adapt to an increasingly digital media world. That effort, he acknowledged, may have fallen short.

"I cared a lot about that company, and while I recognize that there's plenty that people might disagree with, I worked hard to keep those brands relevant in a changing world," he said. "We thought that by knocking down some of the walls, by bringing in a looser culture and getting rid of all the bureaucracy, that we had a chance to outperform. I thought it was my role to challenge everything."

As it happened, Zell installed in Tribune Tower's lobby his own illustration meant to spark a new culture: a squat statue of a man with six legs running in circles called the "Bureaucratic Shuffle." Like the penguins of the previous regime, it prompted snickering and ridicule. Today, Zell and Michaels are gone. So, too, is the six-legged statue.

A radio maverick

The bet that Zell made was simple. He and his team would run Tribune Co.'s nine daily newspapers — including the Chicago Tribune — 23 TV stations and other businesses better than the company's previous management, which they viewed as lacking new ideas.

The executive to lead this revolution, Zell decided, was Michaels.

Michaels possesses the kind of entrepreneurial spirit Zell admires. Even detractors, who point to Michaels' alleged sexual harassment and adolescent high jinks during his days in the radio business, say his mix of free-flowing ideas and decisiveness — Zell called it "real time creativity" — can be a powerful force for change.

Born Benjamin Homel, Michaels was a teenager when he got his first job in radio as an engineer in Buffalo, N.Y. He later gained a reputation for using stunts, like pretending to grind up a frog in a blender — it was a rival station's mascot — to win the young listeners advertisers covet.

"I've never grown up," he once told The Wall Street Journal. "It gets me in trouble, but it's the key to my success."

Michaels rose through Jacor, a Covington, Ky.-based radio company, and eventually became the head of programming. In 1993, Zell invested $83 million in the slumping company; three years later, he made Michaels the CEO. When the federal government deregulated the radio industry, Michaels bought up stations across the country, slashing costs and sharing content while creating a company with 230 stations.

In 1998, Zell sold Jacor to Clear Channel at a huge premium.

At Tribune Co., Zell turned again to Michaels, though not everyone on the Zell team agreed that he was the best choice. According to sources, Bill Pate, then second in command at Zell's main investment vehicle, Equity Group Investments, thought Michaels was a better fit for the broadcasting side of the business.

Pate, whose family had owned a small newspaper in Oklahoma, viewed big metropolitan dailies like the Chicago Tribune and Los Angeles Times as valuable cash producers. The key, he wrote in notes to Zell, was to build on those established brands with innovative products like mobile applications and youth titles. Impressed with digital operations in LA, he believed local management should decide how to deploy assets to cater to local tastes, according to those notes, which are part of the Tribune Co. bankruptcy file.

Michaels said he saw things differently. If the radio industry had taught him anything, it was that market power flowed from size and scale. The more he studied the company, the more he believed the newspapers and TV stations should be closely tied rather than urged to do their own thing. Centralizing operations would cut costs and allow the company to take advantage of its national scale when selling ads and buying TV programming.


He viewed newspapers as tired, and he said he thought he could reinvent them for a new audience. In a memo he wrote to Zell charting his first 100 days, Michaels argued for radical change in the content and design of the company's newspapers to make them more appealing. He wanted to "rethink" the front page and eliminate stories that jump to inside pages. To add humor, he suggested features like "Knuckleheads in the News" and a section called "Strange."


Pate disagreed.

"I strongly believe you have missed the boat if you start with the perspective that the LA Times is staid, grandfatherly and dated," Pate wrote in his notes on Michaels' plan.

In spite of Pate's qualms, Zell, too, believed Tribune Co. needed a shake-up. Michaels would be his guy.

Awe turns to shock

With Zell and Michaels in command, it did not take long to notice things had changed at Tribune Co. — and not just because suit-wearing executives suddenly showed up in jeans, like their new bosses.

Zell and Michaels wanted to remake Tribune Co. into a fun, fleet-footed enterprise. They vowed to cut meetings and encouraged employees to question authority. Pinball machines appeared in the cafeteria and elsewhere. Many new employees were given identification cards with photos of Frank Sinatra and the words "The Best Is Yet to Come."

"People have told me how excited they are for the future; how they are believers now, when they had given up hope; and how they've been waiting for this bus for a long, long time," Zell wrote to employees in February 2008.

The new company mantra, encouraging employees to act with urgency, was AFDI — Actually (Expletive) Doing It. Decisions were made more quickly. A tabloid version of the Chicago Tribune had been under consideration for years but never made it to market. Under Zell and Michaels, the tab became a reality.

In communicating with employees, Zell and Michaels frequently stressed the company's deepening financial woes — a key, according to turnaround experts, to persuading employees to support a new direction. But there were crucial missteps that eroded the hope and good will that had greeted the new executive team.

As Zell barnstormed the company delivering what came to be known as "shock and awe," he criticized employees. He derided editors and reporters in the company's Washington, D.C., bureau as "overhead." He was caught on video as he brushed off a Florida employee with an expletive.

He and Michaels alienated executives as well; Zell told one top editor to fire as many employees as he wanted — just to show he could.

"There was always a right way and a wrong way to do things. And they always chose the way where they could break the most windows," said the editor, who no longer works for the company. "They loved that."

Many executives and employees came to believe Zell and Michaels were dictating culture change rather than winning hearts and minds.

"If it's coercion from the top down, it will never work," said Paul Hirsch, professor of management and organization at Northwestern University's Kellogg School of Management.

When Michaels insisted that advertising sales reps sell print and digital ads and work primarily on a commission scale, executives did not dispute that it was a worthy goal. But they argued that an overnight switch would confuse advertisers and have the unintended effect of discouraging digital sales. Since ads placed in newspapers commanded a higher rate, selling more of them was an easier way to boost commissions.

Michaels pushed through the change anyway. And sales reps did sell print ads more aggressively.

"If they said, 'Here are the ideas we have and the direction we want to go,' and left it to the local operations to come up with the best strategy, it could have been more successful," said Scott McKibben, a veteran newspaper executive who joined the LA Times as chief revenue officer after Michaels arrived but eventually left the company.

Managers at the company found that not only was Michaels rejecting their ideas, he was noticeably prickly about being questioned. As time passed, challenging authority, which Zell had encouraged, came to be seen as dissent. Some of the company's top executives said they were afraid to question Michaels in meetings.

Michaels said he did not intend to chill debate, but he was frustrated that the company dithered in making decisions. "There's a time when the decision is made," he said. "And when it's made, I expected people to get on board. I don't believe in leadership by trying to please everybody."

Michaels' hiring practices — bringing in friends and former colleagues from radio — raised fears that the meritocracy Zell pledged had dissolved into cronyism. Michaels said he saw a need to surround himself with people he could count on. But the practice put some important jobs in the hands of people without relevant experience, demoralizing staffers.

Marc Chase, a former radio programmer and Michaels ally, was placed atop Tribune Interactive, the company's digital division, despite concerns among some of Zell's lieutenants that he had little relevant experience.

What's more, the company turned the announcements of some hirings into efforts at humor, which subjected the company to ridicule and embarrassed employees. Chase's arrival, for instance, was announced in a bogus release Chase wrote. It joked that Chase had "blackmailed his way into a position he is not remotely qualified to hold." For work history, the news release listed "president of buying crap" at eBay and "senior executive vice president of technology and stuff" at Microsoft.

Rowdy behavior that later made headlines — crude jokes, sexual innuendo in front of employees, a poker party in Tribune Tower with beer and cigars — reinforced notions that an inner circle existed. To some employees, complaining seemed futile. Human resources, they observed, was run by Barb Buchwald, another hire with ties to Michaels. Her LinkedIn profile at the time noted that her "education" had been completed at "the School of Randy Michaels."

Employees increasingly grew discouraged. They became skeptical of ideas from the Michaels team. In time, the AFDI slogan came to be known not as a call to urgency but in another way: Another (Expletive) Dumb Idea.


A new digital mess

Michaels and many longtime managers did not see eye to eye on everything, but there was an area of almost universal agreement: For the company to thrive, it needed to turn around its Internet strategy.

Executives throughout the company said in interviews they considered the Interactive division unfocused and underperforming. So many projects were in development, they said, few got the attention they needed. None generated the sort of revenues to justify projections of dramatic growth.

One way Michaels sought to make money online was to aggregate content from local newspaper and TV websites to drive user traffic to single-topic sites that would draw national ad revenues. To get there, he wanted to standardize sites on one publishing platform — work that provided the plumbing for a future dominated by smartphones and tablets.

Chase's team at Tribune Interactive eventually built the common platform. But other priorities Michaels set left many employees frustrated. While other publications rushed to build applications for the iPad, Michaels was reluctant to do business with Apple; he was skeptical of partnerships and said he did not want to pay the device-maker the hefty fees it demanded.

Chase grew so tired of being asked, "Where's your iPad app?" a former colleague said, that he finally began answering, "Ask my boss."

Numerous digital employees and company executives said Michaels' dictates made Chase's job more difficult. But they added that Chase lacked the leadership skills to motivate employees and spark innovation, prompting many — some from established digital powerhouses like Yahoo — to leave the company.

Chase declined to be interviewed for this story. Michaels defended his hiring, saying Chase had a "really unusual profile," a mix of organizational skills and creative talent that made him well-suited to lead a division focused on innovation.

Tribune Interactive was weighed down by other issues as well. Because Zell's deal to buy the company saddled it with a huge amount of debt, there was little budget left for acquisitions. And money that was allocated for development was, in some instances, put into projects in arenas dominated by powerful players. Michaels wanted to take business from classified giant Craigslist with a site called ZooZag. He envisioned a music site called Cisum — music spelled backward.

One of the more visible efforts was a site called HealthKey. The idea was to capture health-related ad spending, which was still a robust sector. If the newspapers could send health-related stories to a single, national site, Michaels reasoned, an audience would follow. Tribune Co. might not win a large share of that spending, but Michaels believed the pie was big enough that even a small slice would be valuable.

The HealthKey site, designed to have similar content as its rivals — news stories, consumer tips, chats with experts — was rushed into production. Company executives offered ideas to make the site more distinctive. At the Chicago Tribune, they suggested posting listings of local doctors and hospitals. Others said that if Tribune Co. really wanted to take on the health sector, it should spend enough to compete effectively against entrenched brands like WebMD.

McKibben, the LA Times' former chief revenue officer, worried that the approach not only would fail to make a meaningful contribution to the bottom line but also threatened to undermine the company's reputation.

"For a company of this size, with these powerful brands, there was an expectation that work would be of higher quality than that," he said.

When HealthKey finally debuted, nothing differentiated it from competitors, and it failed to grow an audience or attract advertising. Michaels acknowledged that HealthKey was done inexpensively, but he "did not think it was embarrassing."

Michaels had an even bigger idea: a tablet to deliver news and ads customized for readers. It became such a focus for Tribune Interactive that other ideas were neglected. The tablet idea, which executives continued after he left and was later shelved, demanded the skills of a hardware and software company rather than playing to the company's strength: producing news.

Said one top Tribune Co. executive of the progress made under Michaels: "Interactive was a sprawling morass. We cleaned it up and then made it into another sprawling morass."

Shock, departure

By the summer of 2010, Michaels was struggling to show concrete evidence of the turnaround he promised.

A redesign of the Chicago Tribune, led by editor Gerould Kern, was partly an effort to deal with significant cuts to the paper's news hole and radically changed the look of the paper, much to the dismay of many readers. The redesign was widely seen as a failure to understand and appreciate the paper's most loyal audience.

"One of the worst things you can do in a turnaround is alienate your core customer," said James Shein, a professor of management and strategy at Northwestern University's Kellogg School and an expert in turnarounds — as well as a regular Tribune reader. "The Tribune did that when it dumbed down the newspaper."

Internally, continued layoffs and buyouts demoralized employees, making the effort to change the company's culture more difficult. Employees were also growing weary of Michaels' unchanging tone. In continuing to denigrate the past and push for change, he was failing to sufficiently acknowledge that the company had made strides, that employees were working hard and that many of them welcomed new strategies.

At least two top company executives urged Michaels to ease his criticism of employees and make an effort to unify them. Management experts say bringing a company together in the wake of a restructuring and after deep cuts is crucial.

Michaels, though, said he found it difficult to stop pushing as long as employees resisted change that he believed was key to the company's success. He said he recognized that he might have pushed too far at times but equated letting up with settling. "I didn't want to dial it back," he said. "I'm not wired that way."

His departure would come for another reason. For months, rumors had run through Tribune Tower about unprofessional behavior. In some cases, like the poker party at the Tower, those incidents became public.

While Zell and Michaels had pushed for a looser workplace environment — Zell once told employees they could watch pornography at their computers — this behavior offended some employees. Michaels routinely told off-color jokes and, according to some employees, engaged in activities that made them uncomfortable. One executive began warning job candidates of a "wild" workplace.


By early 2010, the company's creditors had decided that despite efforts by Michaels to keep his job after the company emerged from bankruptcy, he had not distinguished himself. In an email to JPMorgan Chase Chairman Jamie Dimon, a member of the bank's restructuring team wrote of Michaels' "checkered past" and suggested he was not the best executive to continue leading Tribune Co.

"There is a very strong unanimous view among various creditors ... that he is not the right CEO for Tribune going forward," the email stated.

The bank's vice chairman, Jimmy Lee, who was copied on the email, noted in the same exchange that Michaels' experience was in radio, "and a simpler business than radio has yet to be invented."

In early October 2010 came a bombshell: a front-page story in The New York Times alleging that Michaels had created a hostile workplace through sexist comments, "frat house" antics and other inappropriate behavior. Days later, Lee Abrams, whom Michaels hired from satellite radio to be chief innovation officer at Tribune Co., sent an email to employees containing a link to a joke video with nudity and profanity. Chicago Tribune employees responded by signing a letter of protest, and the paper wrote a story about the controversy. Abrams resigned.

A week later, as the Chicago Tribune prepared to publish a story on Michaels' role in creating an inappropriate work environment, he decided to resign. Michaels has continually denied allegations of misconduct.

Michaels' exit led the board of directors to name a four-man executive council. In its announcement, the council made a gesture toward unifying the company, saying it was seeking "internal collaboration." Within two weeks, the council announced a restructuring under which a number of Michaels' top hires left the company, including Chase.

Projects from the Michaels era disappeared as well. HealthKey was killed. The redesign of the Chicago Tribune was shelved by Kern in favor of a more sophisticated look, including more pages and a bigger national and foreign report that many longtime subscribers said they missed. At the same time, the Tribune's commuter tabloid was shuttered.

Together, those moves suggested a repudiation of the Zell and Michaels era. Other efforts Michaels pushed, from merging back-office functions to a single platform for the company's websites, remain as the company has emerged from its long bankruptcy.

Zell adopted a lower profile at the company. "Talk to Sam" emails he once regularly sent to employees no longer appeared in inboxes. Soon he was a ghost.

Less than a year after Michaels' departure from Tribune Co., he resurfaced with a new venture in his old medium. In the summer of 2011, Michaels was part of a group that purchased three radio stations — two of them in Chicago — and tried to make a go of FM all-news radio. The programming ultimately failed, prompting a move to adult hits from the past 15 years targeted at women.

Michaels, once again, was out of the news business.