Sino piece demonstrates DTM's careless approach to reputations

Did you see the headline over the weekend: “Sino-Forest board member resigns amid OSC investigation”? It was published on Saturday, Nov. 05, 2011 at 12:29AM EDT. Former real estate investment banker James Bowland resigned from the Sino board late last week, which gave Biz section journo Tim Kiladze another kick at the Sino can. It also created a mini libel firestorm, it appears, thanks in part to a DTM headline writer.

If you missed it, not to worry. Google the complete sentence and you’ll find that the world’s dominant search engine has carefully cached The Globe and Mail’s header and article. If you go to the DTM’s online newspaper site this morning, you’ll find that the headline has been changed. Now, it is simply “Sino-Forest director resigns”. In fact, the entire piece has been rewritten and republished as of Sunday at 6:39pm and is available here. I can imagine that Mr. Boland’s libel lawyer complained on Saturday about the headline connecting Mr. Bowland’s Board resignation to the fact that there was a securities investigation underway.

“Resigning amid an OSC investigation” is vastly different than resigning while the company you serve is being investigated by the OSC. The latter appears to be what happened here, and the difference is clear to those of us who work on Bay Street. This is not the kind of distinction that necessarily troubles headline writers and the folks they serve, but good for Mr. Bowland for tackling the issue head on. It is rare that the Globe would rewrite an entire piece, and clearly the sting of the original Saturday article looked so tough and unfair to Mr. Bowland that, upon reflection, the Globe’s otherwise battle-to-the-death Libel counsel Bersenas Jacobsen Chouest Thomson Blackburn LLP advised a quick retreat.

No formal apology, of course, but at least the article was rewritten to speak to Mr. Bowland’s fine qualities, and how his departure is a loss to the Sino shareholders who are trying to get to the bottom of the mess.

But the rewrite was a hollow victory for Mr. Bowland, at least so far. The Globe’s online staff have kindly (nay, stupidly) retained a link to the offending Saturday morning article (complete with the original headline to draw the reader’s attention) as of 5am Monday morning, right smack dab in the middle of the new article. The one entitled “Sino-Forest director resigns” that was written at the behest of Mr. Bowland’s libel lawyers. How often would a newspaper publish both articles right beside each other for y’all to compare at your leisure?

Even when the Globe capitulates for going overboard in a piece, they can’t control the various parts of the organization so as not to continue to republish and draw eyeballs to the original offending article.

Here’s the original story:

Sino-Forest board member resigns amid OSC investigation

Sino-Forest Corp. has lost an important member of its board of directors following the resignation of James Bowland.

Late on Friday the company announced that Mr. Bowland has stepped down, but offered no reason for his decision. His resignation comes amidst an Ontario Securities Commission investigation into Sino-Forest’s business dealings in China.

As an independent director, Mr. Bowland was a part of a three-person team tasked with looking into fraud allegations first levelled by short-seller Muddy Waters LLC in June. The OSC eventually started its own investigation and the independent committee has been dealing with the regulator for the past few months.

Mr. Bowland is not the first board member to step down. In August the OSC ordered former Sino-Forest chairman and chief executive officer Allen Chan to leave the company, along with four other corporate officers. Though the ruling was later withdrawn because the OSC did not have the legal authority to level such a decision, Mr. Chan ultimately stepped down on his own.

Mr. Bowland was appointed to Sino-Forest’s board only nine months ago. Before joining the board, he had been a managing director in corporate and investment banking at BMO Nesbitt Burns. He is also a chartered accountant.

Once Canada’s biggest timber company, Sino-Forest has seen its market valuation plunge from more than $6-billion earlier this year to $1.2-billion. Though the company’s shares continued to trade after Muddy Waters first accused Sino-Forest of impropriety, the OSC ultimately issued a temporary cease trade order in late August, halting all trading until the regulator has finished its investigation.

At a public hearing in September, the temporary order was extended until January 2012, ensuring that the investigation will wrap into the new year. Few details of the OSC’s case have been released.

And here is the re-written piece, published some 36 hours later:

Sino-Forest director resigns

Embattled Sino-Forest Corp. (TRE-T4.81—-%) suffered another major blow with the resignation of director James Bowland, a member of an independent committee investigating allegations of fraud against the Chinese timber company.

Late Friday evening, Hong-Kong and Mississauga-based Sino-Forest revealed that Mr. Bowland had resigned from his position as a director and member of the independent committee, effective immediately.

“The Company would like to thank Mr. Bowland for his contributions,” Sino-Forest said in a tersely worded statement.

It is unclear why Mr. Bowland resigned. Neither Mr. Bowland nor William Ardell, Sino-Forest’s chairman and head of the independent committee, responded to requests for comment.

The loss of Mr. Bowland marks another significant setback for the company, once Canada’s largest publicly traded forestry firm boasting a market value of more than $6-billion. If allegations of fraud are proven, Sino-Forest could represent one of the biggest cases of corporate fraud in Canadian history.

Sino-Forest is due to release third-quarter financial results within the next 10 days and is also expected to provide an update on the committee’s investigation.

A source close to the company who spoke on the condition of anonymity said the pressures and time demands of the committee had become too much for Mr. Bowland. “He felt he didn’t sign up for this,” the source said. “[Mr. Bowland] didn’t have the appetite to continue.”

A former managing director with BMO Nesbitt Burns in Toronto, Mr. Bowland served as a Sino-Forest director for less than a year. The ex-investment banker joined the Sino-Forest board in February, 2011, an addition that the company hailed at the time as a further strengthening of its corporate governance practices.

Just a few months later, Sino-Forest was rocked by allegations of fraud levelled by U.S. short-seller Carson Block and his firm Muddy Waters LLC. Toronto Stock Exchange-listed Sino-Forest’s share price collapsed following the Muddy Waters allegations, which included overstating the size and value of the company’s timber assets in mainland China as well as undisclosed related-party transactions. The Globe and Mail has also uncovered suspicious and questionable activity at Sino-Forest’s operations in China. Sino-Forest has denied the fraud allegations against it.

The Ontario Securities Commission is investigating Sino-Forest and has ordered the company’s shares cease trading until at least the New Year after finding evidence of fraud. Sino-Forest’s co-founder, chief executive officer and chairman Allen Chan resigned as an executive and director of the company in August. Mr. Chan continues to co-operate with investigators, the company says.

Mr. Bowland’s resignation leaves just two Sino-Forest directors on the special independent committee investigating the fraud allegations. Staff from PricewaterhouseCoopers in China are assisting the now two-person committee which comprises Mr. Ardell and director James Hyde.

I give both sides credit for the arrival of the rewritten article. Good for Mr. Bowland for defending his longstanding positive reputation, and good for the Globe for attempting to mitigate their litigation risk. But for the newspaper to continue to publish the original offending article, right in the middle of the make-up piece, is just outrageous. The lack of an apology is no surprise, but even when you win in the Libel world, you still wind up losing.

MRM
(this post, like all blogs, is an Opinion piece)