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A hard look at Metro

Racist joke turns spotlight on a company seen by some as crass and insensitive

As the wine flowed at Metro International SA's conference in Italy in April 2003, the cadre of newspaper executives who built the company's global chain of free daily tabloids took turns entertaining their colleagues.

The Greek contingent smashed plates. The Spaniards sang. The Finns raised a schnapps toast. Then came the Swedes, represented by Steve R. Nylund, the Italian-born, Swedish-raised president of Metro USA, the affiliate that runs Metro's free dailies in Boston, Philadelphia, and New York.

''Unfortunately, we can't sing. We can't dance. And I don't know any funny stories," Nylund told the gathering of more than 100, according to another top Metro executive who presided over the evening's festivities.

Instead, translating a text message on a colleague's cellphone from Swedish to English, Nylund told a racist joke, using a derogatory term describing African-Americans and making crude references to sexual anatomy. A few in the crowd of 100 or so guffawed, but most were shocked into silence, according to executives who were there.

Nylund apologized to a roomful of people at the spring conference the next day, said one Metro executive, but it was too late. The crude joke had become a ticking time bomb.

The bomb exploded more than 18 months later, after The New York Times Co., corporate parent of The Boston Globe, said that it planned to buy a 49 percent stake in Metro Boston, one of Metro International's 42 tabloids.

Nylund's racist joke has drawn public attention to what some former executives and employees and an academic observer charge is a crass, insensitive corporate culture at Metro International. It has drawn rebukes from black leaders in Boston and embarrassed executives at Times Co. and the Globe, who were planning their first foray into the hotly competitive and rapidly growing market of free daily newspapers.

And it has become fodder in the intense rivalry between the Globe and the Boston Herald, which has sought to scuttle the Times Co. deal with Metro and has repeatedly emblazoned the allegations of racism at Metro on its front page.

The problems ran deeper than just Nylund's racist ''joke." The New York website that first reported the remarks, www.mediachannel.org, also reported a second incident in August 2003, when a Metro International board member, Hans-Holger Albrecht, used a racially disparaging term to describe blacks as he addressed an audience in Stockholm.

Metro Boston, meanwhile, has been the subject of three employee discrimination complaints since 2003, one of them dismissed for lack of probable cause and two that were settled, one for $7,500 and one for undisclosed terms, according to state records.

Metro fallout begins
In reaction to the news about his comments, Nylund resigned as president of Metro USA, but he is still executive vice president of Metro International. Albrecht resigned his post on the London-based Metro International board, but remains president and CEO of Modern Times Group, a broadcast media affiliate that, along with Metro International, is among the holdings of Swedish conglomerate Investment AB Kinnevik.

Nylund issued a public apology for his behavior the day his remarks were disclosed. He did not respond to requests for comment for this article. The German-born Albrecht, who has ''expressed his regret" for his remarks, said in an interview with the Globe that he used the racially disparaging term before a gathering of Modern Times Group and Metro International sales forces as an illustration of why Germans are considered bad public speakers.

He told the Globe that he had offered a greeting that had been made by German President Heinrich Lubke in 1962 on a state visit to Liberia, when he addressed black Africans using the racially derogatory term.

''The intention was to make a joke about Germans, but taken out of context obviously it looks horrible," Albrecht said.

In response to the controversy, Metro has hired an outside consultant to advise it on racial sensitivity. Metro Boston executives, who did not return calls seeking comment about the controversy for this article, have been meeting with members of Boston's minority communities to discuss their concerns.

Times Co. does its due diligence
Times Co. has delayed closing its $16.5 million deal with Metro Boston as it grapples with the public relations fallout and conducts a deeper review of the Metro organization. The deal, which was made public Jan. 3, originally was expected to be closed before the end of the month. Yesterday, Times Co. chief executive Janet Robinson told analysts during a conference call to discuss fourth-quarter earnings that Times Co.'s current review of the pending deal should be completed ''in a very short period of time."

Speaking for both the Globe and Times Co., Globe publisher Richard Gilman, who approached Times Co. executives about pursuing the Metro deal, said in an interview last week that Times Co. and Globe executives want to be sure they know the full extent of any possible problems with their would-be business partners.

Times Co. and Globe officials who prepared the deal with Metro Boston knew about the employee complaints to the Massachusetts Commission Against Discrimination and knew of their disposition, Gilman said, but were unaware before the deal was announced of the racist comments by Nylund and Albrecht.

''Would we have liked to have known about it? The answer is yes," Gilman said.

Gilman said because Times Co. and the Globe were buying a noncontrolling stake in just one of Metro International's 42 free papers, their earlier review efforts did not extend to the worldwide operations of Metro International or its affiliates.

''We had done kind of the overview work on the parent company, but those incidents that happened are not necessarily the kinds of things that would have popped to the surface," he said.

Typically, companies conduct due-diligence reviews of financial, legal, and business issues to make sure they understand the full range of issues involved in a proposed acquisition or merger. Depending on what is discovered, they may demand changes or they can walk away from a proposed deal altogether.

Samuel Hayes, a professor emeritus at Harvard Business School, said it appeared from the outside that the corporate examination and background checks by Times Co. and the Globe may have been insufficient -- a typical failing, he said, in a relatively small deal involving a large company (Times Co. has revenue of $3.2 billion a year).

''Although the financials are where you start, they are not where you end. You are expected to be like a detective," Hayes said. ''If you are purchasing only 49 percent, that is a particularly sensitive thing, because you don't control it. You need to know who you are getting in bed with."

Media companies that are particularly sensitive to public constituencies must dig past dry financial and litigation records and check up on the industry reputation of their would-be partners, said George Ticknor, chairman of the media and communications finance group at Palmer & Dodge LLC and an expert on mergers and acquisitions.

For a big company like Times Co., he added, deals involving smaller, younger partners that have not previously been subjected to significant public scrutiny can be especially tricky.

A coveted demographic
In every city where its green-and-white giveaway newspapers are distributed, Metro focuses on one narrow segment of the population: people in their 20s and early 30s who do not regularly read a daily paper. To reach this coveted demographic, Metro hires hawkers to hand out the free papers at subway stations. Since launching its first publication in Stockholm in 1995, Metro has rapidly expanded across Europe, into Asia and Latin America, and now North America.

The journalistic content is bare-bones, but the price is right for young commuters, and the business model increasingly is forcing traditional newspapers to respond. The company's CEO, Pelle Tornberg, interviewed by the Globe in his offices in the upscale Mayfair district of London last week, repeated one of his famed descriptions of his company: ''Metro is doing for newspapers what McDonald's did for fast food."

Tornberg sat at a conference table framed by a metallic map of the world with little green Metro magnets that marked each city where the company is doing battle.

''We have a lot of enemies. We are underdogs, and we have to be underdogs because we are challenging a very monopolistic industry," Tornberg said, occasionally tucking a pinch of snuff into the space between his upper lip and his teeth.

''Actually we aren't stealing readers; we are stealing their money in advertising maybe, but not their readers. We are expanding the reader base."

Behind this bare-knuckle fight to grab a corner of the newspaper industry is a corporate culture that seems to thrive on confrontation, industry analysts say. Nevertheless, few former employees or industry analysts say they see any evidence of a racist culture.

''They go charging into newspaper markets with very little knowledge, and they've had to be brave in taking on the traditional industry. And sometimes it gets messy," said Lawson Muncaster, 35, a former sales manager for the company who now works independently in media advertising.

Muncaster sat one table away when Nylund made his racist joke at the conference outside Rome, but he says that is not a feature of the company's culture.

''As far as racism, there is no story. But if you are talking about being idiots, then there is a story," Muncaster said in a telephone interview from Stockholm.

Ingela Wadbring, a researcher at Goteborg University in Sweden who has been following the company since its paper first hit the streets in Stockholm, said, ''These are tough guys. There is not much that is gentle about this company."

But, she hastened to add, ''I have never heard allegations of racism. If anything they have been attentive to the immigrant population here in a way that the traditional newspapers have not."

An aggressive culture
To Wadbring, much of the personality of the company comes down to the man who founded its parent company, Stockholm-based Modern Times Group: Jan Stenbeck. He died two years ago from a heart attack and his daughter, Cristina, 27, is a key figure in the operation of his former companies and holds a seat on the Metro International board. Modern Times Group spun off Metro International in 2000 but still holds a 28 percent share in Metro International after a 2003 debt restructuring.

Stenbeck was an aggressive entrepreneur who rocked the Swedish broadcasting industry with Modern Times Group's satellite pay-per-view offerings. Following the lead of satellite television networks in the United States and elsewhere, the channel provided Swedish clients with hard-core pornography for the first time.

Kinnevik, the Stenbeck-controlled conglomerate holding both Metro International and Modern Times Group, also holds interest in a Swedish gambling company, Cherryforetagen. It includes casino gambling, gaming machines, as well as an Internet gambling arm operated by a company in Costa Rica.

Online gambling is illegal in the United States, according to the US Department of Justice. The department has pressured American website portals to stop carrying ads for the sites. Cherry posts a note to US citizens on its website that calls the US legal picture ''unclear" and advises them to consult a lawyer.

''This is a very different company for Sweden, very aggressive. . . . The man Jan Stenbeck was an outsider. The more challenging something was, the more he wanted to do it," Wadbring said. ''You can feel that there is a mission involved, a sense that there is a frontier mentality that is not just willing to, but actually wants to, break boundaries and have a good fight."

Accusations of bias in US
In the United States, Metro's rough-and-tumble corporate culture and mediocre pay has caused a steady churn of managers and other employees from Metro papers in both Boston and Philadelphia. Some of the former Metro heads jumped to rival free dailies that have begun in Washington, D.C., and New York City.

Metro Boston has been the focus of three discrimination complaints in the past year and a half. About 18 months ago, the company fired all three black sales representatives and replaced them with white staff, according to Gordon Spencer, a lawyer for one of the former employees.

That former employee, Annette M. Harding, initially filed a complaint with the Massachusetts Commission Against Discrimination, but it was dismissed. She appealed, but dropped the appeal. Now she plans to file civil suit in Suffolk Superior Court alleging discrimination at Metro.

Spencer said that when companies called Metro to sign up for new accounts, Harding received fewer of these calls than her white counterparts -- which meant she got fewer commissions.

''It was disparate treatment," he said. ''Ms. Harding was discriminated against."

Spencer also claims that Harding overheard a remark during one company sales meeting in which a Metro executive implied that the Metro's hawkers would be more comfortable in a state prison than passing out papers on suburban streets.

A second complaint was filed with MCAD in October 2003 by another black member of the sales staff, Christopher Lee, who argued that he had been given a different salary structure than white employees in similar positions. His complaint also states that he was fired from Metro for threatening a co-worker and having a criminal record, but he called that an excuse for his unjust dismissal. He received $7,500 in a settlement, though Metro continued to deny wrongdoing.

The other discrimination complaint came from a white hawker, who said a supervisor cut her hours, refused to give her bathroom breaks, and required her to move to a new station. The woman, Jenny Makhlina, settled the case for undisclosed terms in May 2004. Lee and Makhlina could not be reached for comment.

Three discrimination complaints in 18 months is an unusually high rate for a company of only about 45 people, said Harvey A. Schwartz, an attorney with Rodgers, Powers & Schwartz, a Boston employment and civil rights law firm. He said most start-ups get just one complaint, if any, at the beginning, then quickly learn from it. Even one discrimination complaint a year for a small company could indicate serious problems, he said.

''It should trigger alarm bells," he said. ''Not every complaint is valid, but the fact that many people are complaining in a short time indicates a need for some training."

Plan to buy Metro stake
Metro Boston's office location puts it close to dot-coms and consulting firms. Its headquarters is in loft-like offices in the Fort Point Channel section of the city, with exposed wooden beams and metal pipes that trace the length of the ceiling. A neon Metro sign greets visitors at the front desk. In its conference room, it posts framed posters of Metro front pages from around the world.

Metro Boston and papers like it have drawn fire from some in publishing. About a year ago, Arthur Sulzberger Jr., publisher of The New York Times and chairman of Times Co., appeared at the Medill School of Journalism at Northwestern University in Chicago and criticized free daily newspapers for their weak journalistic standards.

''I think they're degrading the experience," he told the Northwestern audience, according to an account of the meeting published on the university's website. ''They're talking down to their readers."

Unable to attract enough young people to their traditional products, however, some large US newspaper companies have begun publishing their own versions of free dailies.

The Washington Post has launched Express, which is distributed in the Washington subway system. Belo Corp., the parent company of the Dallas Morning News, publishes Quick. In Chicago, Tribune Co. has the RedEye, and Hollinger International, the Chicago Sun-Times publisher, competes with the Red Streak. Tribune Co. has also launched amNew York, which goes head to head against Metro USA's holding there, Metro New York.

About six months ago, Gilman said, he and executives at the Globe began talks about a partnership with Metro Boston and persuaded Times Co. officials that such an arrangement would help the Globe significantly expand its power as an advertising platform. Gilman said it was not a tough sell, despite Sulzberger's earlier comments.

''They are reaching 150,000 readers that were former non-newspaper readers, who didn't read the Globe, didn't read the Herald," he said. ''Whether it is a different form of journalism or not, they have people reading newspapers, and to us that's a good thing."

Concerns on Herald Square
The Boston Herald had also engaged in preliminary talks with Metro Boston officials about a possible partnership, but those talks never bore fruit, Herald publisher Pat Purcell confirmed in a telephone interview with the Globe last week.

This month the Herald asked the Justice Department to block the deal on antitrust grounds, arguing the partnership will give the Globe an unfair market position in Boston.

The stakes are high for the Herald, Purcell said.

''We are one of the few remaining truly competitive two-newspaper towns, and the Globe is a behemoth," Purcell said. ''It's my view that this is a direct assault on the Herald's primary market position -- being metropolitan Boston."

Legal experts have said the Justice Department may or may not decide to act on the Herald complaint, depending on how it views Boston's advertising market. While the complaint describes the media universe in Boston as consisting of the Globe, Herald, and Metro, some experts have noted there are a number of other diverse news and advertising sources in and around the city.

''The question is how likely is it that this combination will lead to the ability of the newspapers in town to raise their prices to advertisers," said Matthew L. Spitzer, dean of the University of Southern California Law School.

It may be a tough argument for the Herald to win, he said, if the government views Boston's weekly newspapers, Internet, television, and radio as ''reasonable substitutes for getting to the consumer."

Since the Globe-Metro deal was announced, five of the Herald's front pages have been dominated by headlines about the racism allegations or stories about Modern Times Group's pay-per-view hard-core pornography channel, which distributes Playboy TV's Spice Platinum.

Spice Platinum is also available in the United States on DirecTV satellite service.

Asked whether the Herald was allowing its business interests to drive news coverage, given the extensive coverage, Purcell said the pending deal was an important news story for Boston.

''If another editorial voice is silenced because of business considerations, the public has a right to know what the consequences of that are," he said.

'United Nations of Media'
Although they are scattered at different free daily newspapers now, the Metro editors and executives who witnessed the racist comments by Nylund once celebrated their successes together. The scene was Villa Vecchia Frascati, a hotel complex on the outskirts of Rome, where the top 100 executives of Metro International had gathered for their annual business meeting.

The purpose of the three-day gathering, April 4-6, 2003, was to bring together what Tornberg, the Metro chief executive, likes to call ''the United Nations of Media": the local chiefs of Metro editions in 17 countries.

Among the delegates was a junior Metro salesman in his early 30s named Henry Brannstrom. When Nylund found himself at a loss after the Swedes were called upon to entertain their colleagues, Brannstrom told Nylund he had received a ''joke" sent as a text message in Swedish and he handed his mobile phone to Nylund to translate it.

Nylund did, verbatim, including using the offensive, racist term describing African-Americans.

''There was silence. Embarrassment on behalf of the company, but also embarrassment for a friend and colleague who had done something very stupid and offensive," said Tornberg.

Another executive, former Metro USA chief operating officer Steve Morris, saw the negative ramifications for the company almost immediately. He said he told Nylund to apologize to a roomful of meeting delegates the next day.

''I knew it was going to be a major issue at some point. It was a matter of when," he said.

Slur becomes a news story
Among those in attendance at the banquet was Russel Pergament, who was then the publisher of Metro Boston but had offered his resignation and was on his way out.

Morris said executives were displeased with Pergament's management in Boston and were attempting to push him out. Pergament said his former bosses at Metro were happy with his performance and asked him to stay, but that he ''didn't like the way they treated Americans" and left the Metro fold to seek better opportunities.

By October 2003, Pergament had launched another free daily newspaper, amNew York, which is backed by Tribune Co. Both Tornberg and Morris say it was Pergament who shopped the story of racist remarks at Metro to reporters in the early spring of 2004 -- a year after the Rome conference -- just as Metro was preparing to launch Metro New York, which would compete directly with Pergament's publication.

Morris said he knew Pergament would someday use the incident to his own advantage after Pergament made a joke of his own at the Rome conference.

''It seemed to me that he would bring it up almost regularly, to show that he had this little dagger over the organization's head," said Morris, who now works as marketing vice president for a business communications company.

Asked whether he was an anonymous source working with reporters to push the story of Nylund's remark into the public eye, Pergament declined to comment.

Globe columnist Alex Beam was among the journalists approached early last year with information about Nylund's remarks. Beam, who declined to reveal his source, received a strong denial from Nylund and chose not to write about the story after deciding he had insufficient evidence to make such an inflammatory accusation.

Rory O'Connor, a former Boston journalist who was working as a columnist at Pergament's amNew York, received the same tip as Beam. He said he talked to anonymous former Metro USA executives who recounted the scene at the banquet hall outside Rome. Eventually, O'Connor also spoke with John Wilpers, a former editor who served under Pergament at Boston Metro and was laid off from Metro Boston after Pergament's resignation and a subsequent reorganization.

Wilpers agreed to be quoted by name about what he saw and heard at the banquet. Although O'Connor initially chose not to publish the story last spring, citing concerns about relying on just one on-the-record source, he changed his mind after Times Co. said it would partner with Metro Boston. O'Connor broke it on his own www.mediachannel.org website on Jan. 10, a week after the Times Co. announcement.

After more than 18 months, the time bomb had finally exploded.

Christopher Rowland can be reached at crowland@globe.com; Charles M. Sennott at sennott@globe.com. Sasha Talcott of the Globe staff contributed to this report. 

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