(FORTUNE Magazine) – Conrad Black, CEO of the newspaper conglomerate Hollinger International, was fashionably late for his company's annual meeting last May 22. By the time he arrived, the Metropolitan Club in New York City was filled with unhappy shareholders. Black and his wife, Barbara Amiel--a right-wing columnist whose looks have been compared to Gina Lollobrigida's and whose opinions would curl Rush Limbaugh's toes--waved to friends. They exchanged air kisses with Donald Trump and his girlfriend, model Melania Knauss.

Black scanned the room and his lip curled. He knew what was coming. The business press had been reporting his shareholders' concerns--about the stock price, well below where it had been when the company went public nine years before; about the huge fees Black was said to have drained from Hollinger into outside firms he controls in Toronto; about the celebrity board members who were said to have rubber-stamped those payments, which added up to about $220 million since 1995.

Taking the stage, the CEO engaged his critics. He called an analyst who had taken issue with his management a publicity seeker. "I understand we've made you quite a star," Black told the man, adding, apparently in reference to his beard, "You look like Pavarotti." To a hedge fund manager who complained that the stock had performed poorly, he said, "I might be right to call your performance subpar because you got dished for a lot of your clients' money in Tyco."

Yet shareholders continued to rise and chastise Black. Finally he erupted. Yes, he admitted, there was room for improvement in Hollinger's stock price. But Black was squeezing more cash out of his newspapers. Why, he asked, hadn't anybody commended him for that? "You have a right to say whatever it is that is on your mind, all of you," he informed his investors. "You don't know what you are talking about, but you are still welcome as shareholders."

Expressing disdain for shareholders may not be the fashionable thing for an executive to do these days, but then, Conrad Moffat Black is a press lord, quite literally. The Canadian-born 59-year-old is a member of England's House of Lords, which he calls the "best club in the world." His peers address him as Lord Black of Crossharbour, and he'd appreciate it if you would too.

In little more than a decade Black built Hollinger into a worldwide media powerhouse. At its peak in 1999 its revenues were $2.1 billion, more than the newspaper operating revenues of Tribune Co., Belo, E.W. Scripps Co., or the Washington Post Co. The company owned or held significant stakes in more than 400 publications, most notably the Telegraph, England's leading conservative broadsheet, the Chicago Sun-Times, and the Jerusalem Post.

Along the way Black acquired a mansion in Toronto with a chapel consecrated by the city's Catholic archbishop, an ocean-front home in Palm Beach, a Park Avenue apartment in New York City, and a London house that once belonged to the Australian financier Alan Bond. He also found time to pursue a second career as a writer. He recently finished his third book, a 1,134-page biography of Franklin Roosevelt, to be published this fall.

Black became such a dazzling figure that it was easy to overlook some of the unusual things that were going on at Hollinger. The company's net debt climbed to $1.6 billion by 1999, nearly five times Ebitda--an extremely high number for the newspaper business. (The Washington Post Co.'s ratio at the time was 1.6, the New York Times Co.'s a mere 0.91.) Black filled the board with directors with whom he had close relationships, people like former U.S. Secretary of State Henry Kissinger, former assistant defense secretary Richard Perle, and even his own wife, Lady Black. The directors rewarded him with one of the most generous compensation packages in the newspaper industry.

For a long time nobody questioned this much, not least because Black's finances were so difficult to make sense of. But then everything started coming apart. Hollinger's share price got clobbered. Tweedy Browne, Hollinger's second-largest institutional investor, has accused the CEO of misappropriating funds, and Hollinger's board has formed an independent committee to investigate the charge. Former SEC chairman Richard Breeden is conducting the probe.

Black denies doing anything wrong, although he acknowledges that his days of taking huge fees out of Hollinger are probably numbered. But the stakes are far higher than that. Black has pledged his controlling shares in Hollinger as collateral to lenders, and according to public documents, he counts on the fees to make interest payments on the debt. That means that unless he can bring in new investors quickly, he could lose his newspaper empire.

Black insists that he can still work out a deal that will satisfy lenders and mollify shareholders. That would be no small feat even if he were, by nature, a diplomat. Instead he lashes out at Hollinger's dissident investors, calling them "corporate governance terrorists."

"ah, my patient friend," says Black, nearly an hour late for an interview. The Hollinger CEO ushers his visitor into his New York City office and shows off the framed letters on the wall. "They are letters from Franklin Delano Roosevelt to his cousin Margaret Suckley," Black says. "It's a fascinating collection."

Settling into an easy chair, the publisher says he's not fearful in the least about the shareholder uprising. "Did I convey the impression that I'm worried?" Black asks a little crossly. "Well, I'm not. But it's part of my job to deal with problems as they arise. I know it's trite, but it's what I'm paid for, I guess."

What he's paid for, and how he's paid, take a little explaining. Black controls 30% of Hollinger International stock. But he directs 72.8% of Hollinger's voting interest because his holdings include 100% of the company's 14.9 million Class B shares, which entitle him to ten votes per share. Therefore, as Hollinger noted in its most recent annual report, "Lord Black will be able to determine the outcome of all matters that require shareholder approval, including the election of directors, amendment of the company's charter, and approval of significant corporate transactions." Over the years Black has used his voting power to create a compensation structure that is highly opaque and complex. Essentially he has interposed Ravelston Corp., a private company based in Toronto that he controls, between Hollinger and himself. Hollinger pays "management services" fees to Ravelston Management Inc., a Ravelston subsidiary. Ravelston passes some of that on to Black. Because it is closely held, Ravelston doesn't have to disclose how much money goes into Black's pocket.

For years Hollinger didn't pay Black anything directly. He didn't collect a salary from Hollinger until 1997, when he took home about $428,000, according to the proxy. Instead Black and four of his top executives (of both Hollinger and Ravelston) took a cut of the "management services" fee that Hollinger paid Ravelston or one of Ravelston's subsidiaries.

Last year Hollinger paid Ravelston $24 million in management fees. With the stock price falling, shareholders demanded to know how much of that was going to the CEO. Hollinger disclosed that Black received $6.4 million. Another $7 million was split among his four lieutenants. Another $1.7 million went to Moffatt Management and Black-Amiel Management, both Ravelston affiliates. (By comparison, Knight-Ridder CEO Tony Ridder was paid a salary and bonus of $1.7 million. The Washington Post Co.'s Donald Graham was paid a $400,000 salary and no bonus.)

But even as it produced the numbers for Black's compensation, Hollinger conceded in filings with the Securities and Exchange Commission that it hadn't "independently verified" them. In other words, Hollinger's own auditors weren't permitted to look at Ravelston's accounting. "They weren't invited," Black concedes. "What does it need to be verified for?"

Ordinarily a CEO gets paid, at least nominally, for performing in a way that rewards shareholders. At Hollinger that relationship is severed, creating what Steven Barlow, a Prudential Securities analyst, calls a "questionable disconnect between Hollinger's performance and executive compensation." In the current annual report, in fact, is a reference to the CEO that, while candid, is as unsettling as any ever printed: "There may be a conflict between his interests and your interests." Black says these words were inserted at the insistence of KPMG, Hollinger's auditor. "I thought it was a stupid thing to put in," he says. "There is no such conflict as far as I'm aware."

There's more--much more. In 2000 and 2001, Hollinger was selling off $2.3 billions of assets. The deals were structured in such a way that $48 million was paid directly to Black and three of his top managers in return for their promise not to do business in competition with their former properties. The bulk of these fees--$28 million--came when Hollinger sold its Canadian newspaper and Internet properties to CanWest, a Winnipeg-based television company, for $1.8 billion. CanWest paid an additional $25 million to Ravelston Corp.

Typically, when a publicly traded company of Hollinger's size sells an asset, it is the company itself that pockets the noncompetition fee--not the CEO. Black insists it is standard practice for newspaper-company CEOs to benefit personally in such divestitures. Kevin Gruneich, a newspaper industry analyst at Bear Stearns, disagrees: "It's never happened at any large public company that I'm aware of," he says.

All these complex arrangements have had an impact on the company's stock. Financial analysts have coined the term "the Black factor" to explain why they apply a 10% discount to the company's shares. "We've steered clear," says Bob Goldsborough, a research analyst at Ariel Capital Management, a Chicago-based money manager that has stakes in other newspaper publishers. "Conrad Black is notorious for making things that need to be simple unnecessarily complicated."

Black insists he has tried to placate shareholders, noting that Ravelston's fee has come down from 1999, when it was $38 million. Still, he sighs, investors are unappreciative. "I think what you saw at the annual meeting was this impatience. It reminds me of when our children were bottle-fed. They were great, healthy, big babies--real bruisers. They got to the end of the bottle, and being very inexperienced infants, they wanted more. In fact there was nothing left in the bottle because the contents were inside them. They didn't figure out the implications."

So what does Hollinger's CEO plan to do about this? He is coy. Why, he could always walk away from all this nonsense and write books. "If [the F.D.R. biography] takes off like a rocket," he boasts, "it might open up interesting possibilities."

Is Black really thinking about abandoning his newspapers? No, he just enjoys saying provocative things. The Hollinger CEO complained before a Canadian senate committee that many journalists are "ignorant, lazy, opinionated, intellectually dishonest, and inadequately supervised." In a speech once, he condemned "the Jesse Jacksonites who seem to want to turn the U.S. Treasury upside down over the black community of Americans, like a giant piggy bank."

Black grew up in upper-middle-class Toronto, the son of a wealthy executive who worked for Canadian Breweries, controlled by the Argus Corp., a powerful Canadian holding company with interests ranging from mines to supermarkets to broadcasting. His father retired at 47 after a tiff with Argus's CEO--but he remained a major Argus shareholder and board member, and he steeped Conrad in the lore of the company, mapping out for his young son the web of Argus's corporate entities.

Conrad was expelled from prep school for selling exam questions that he'd pinched from an administrative office. (The way Black tells it, the real transgressors were the students who turned him in.) The academic setback, however, was only temporary. Black got a degree in French civil law from Laval University in Quebec and a master's in history from McGill. He published his first book, a revisionist biography of Maurice Duplessis, the reactionary premier of Quebec, whose reign between 1936 to 1959 is known to some Canadians as "the dark ages."

All along, Black kept a close watch on Argus. He was present in 1969 when his father and other large shareholders pooled their interests and formed Ravelston Corp., a private holding company representing more than 50% of Argus's voting rights. After his father died in 1976, Black was appointed to the boards of Argus and Ravelston. And not long after that, when he was 33, Black orchestrated a takeover of Argus that caused FORTUNE to christen him "the boy wonder of Canadian business."

Black knew that under the original 1969 Ravelston contract, any shareholder who amassed 51% of its shares could force the remaining stockholders to sell him theirs. Black held 22.4 %. He enlisted the support of two women who together controlled another 47.2%--the widow of Argus's former chairman and her sister--and took over Ravelston. When the news came out, though, the women said they had been duped. "I don't think that anybody is forced to sell anything," the former chairman's widow told a reporter at the time. Black denies that he hoodwinked the women.

Black took over as Argus's president. He acquired a Rolls-Royce, traveled in an Argus jet, and stayed at Claridge's hotel in London. He befriended prominent American conservatives like Perle and Kissinger at the annual Bilderberg meeting, where CEOs mingle with heads of state.

The young CEO set out to transform Argus into a newspaper company. In what one commentator called "the greatest corporate enema in Canadian history," Black sold off nearly all of the company's assets and used the proceeds to increase Ravelston's stake in Hollinger Mines. Hollinger didn't actually mine anything, but it collected $40 million a year from iron-ore royalties. Black used the cash to finance deals enabling him to buy 57% of the Telegraph, the preferred paper of England's tradition-bound country gentlefolk, for $42 million in 1986.

It soon seemed as if the Hollinger CEO was in the thick of almost every major newspaper deal. He acquired 288 newspapers in rural areas of the United States. Hollinger snapped up the Jerusalem Post for $20 million in 1989. Two years later it invested nearly $200 million in a 25% stake in John Fairfax, the Australian media company that owned the Sydney Morning Herald.

Black also was divorced from his wife, Joanna, a former employee, and in 1992 married Barbara Amiel, a columnist at Rupert Murdoch's London Times known for her denunciations of feminists and multiculturalists. Amiel, now Lady Black, was a smashing beauty who'd been married three times already. Black called her "preternaturally sexy." She became a fixture in the pages of the Telegraph.

Black set his sights on America. He chased after the New York Daily News but lost it to Montreal-born real estate developer Mort Zuckerman. Hollinger did win control of the Chicago Sun-Times for $180 million in 1994. That year Hollinger went public in the U.S. Black recruited dignitaries he'd gotten to know at the Bilderberg meeting, like Kissinger and Perle, to join the board.

Others nominated by Black to join the board were former Illinois Republican governor James Thompson, Sotheby's chairman Alfred Taubman, and Marie-Josee Kravis, a senior fellow at the conservative Hudson Institute (and wife of financier Henry Kravis). Shareholders voted on the nominations. Because Black controlled the majority of votes, their election was never in doubt.

The Blacks turned their London home into a salon where they entertained guests like actress Candice Bergen, playwright Tom Stoppard, and assorted dukes and earls. The conversation sparkled. So did the wine. "You go to an English party, and you get some cheap white plonk," says Taki Theodoracopulos, a columnist for Black's Spectator magazine in London. "You go to one of their parties, and you eat and drink to your heart's content."

Hollinger's board meetings also had the flavor of a dinner party. Black himself says the directors spend a lot of their time talking politics when they get together. If the board was in a mood for a stimulating debate about national security, who would make a better moderator than Kissinger? If the conservation was about Germany, the directors could turn to Richard Burt, a former U.S. ambassador who served there under President Reagan.

Hollinger's independent directors seemed less interested in looking out for the interests of shareholders. The management-services fee was $4 million in 1995. With the blessing of the audit committee, chaired by Thompson, it soared to $38 million in 1999. Black says he had no input into the committee decisions, which he says were negotiated by Hollinger COO David Radler, another Ravelston insider, and Thompson. The former governor declines to discuss the committee's decisions because they are under investigation. "I would say we've exercised our independent judgment," he says. None of Hollinger's other independent directors responded to interview requests from FORTUNE.

Black's stock option grants also rose dramatically. According to proxy statements, he received 40,000 shares of company stock valued at $220,800 in 1995. By 1998 the CEO got 150,000 shares valued at $767,819. There was only one problem: The shares were issued with a strike price of $15.06. A year later Hollinger's stock was trading at about $13 a share. So the directors agreed to cancel the grant and issue new options with an exercise price of $12.25. (Three years later Black's option grant had risen to 375,000 shares worth $2.1 million.)

Yet while Black was being so richly rewarded, he was running into trouble. He wanted badly to get a newspaper in New York City so that he could be an important figure in America's media capital. He came close to nabbing the New York Observer, the gossipy weekly followed by the media elite, but the deal collapsed in the final hours of negotiation. (Black had to settle for putting up $2 million to help launch the New York Sun in 2001, an earnest conservative broadsheet that is largely ignored.) Black had better luck in Toronto, where he started the National Post, a sharply written daily. Canada's elite embraced the Post, but the buzz didn't translate into profits. In 1999 the Post lost $44.3 million.

Meanwhile the cost of Hollinger's rapid expansion was catching up with him. Black was feeling the need to reduce Hollinger's staggering debt. So he sold off 40% of Hollinger's assets, including nearly all of his Canadian papers and many in the U.S. Black did his largest deal with Izzy Asper, chairman of CanWest, a Winnipeg-based television company. Asper, bitten by the convergence bug, was interested in Hollinger's Canada.com Internet site. His appetite grew as he and Black talked. CanWest eventually agreed to pay Hollinger $1.8 billion for the majority of its Canadian properties, including the National Post.

This was the deal in which Black and his top four executives walked away with $27.8 million in noncompete payments. Black says Asper insisted on making noncompetition fees part of the transaction. Izzy Asper's son Leonard, the CEO of CanWest, confirms that CanWest wanted to pay the fees, but he says CanWest never said that the money should flow directly to Black and his executives rather than to Hollinger itself. "It wasn't our idea," says Asper. "It was their choice as to where to allocate it." Black doesn't dispute this.

Christopher Browne isn't the sort of person you would find at one of Black's parties, sipping wine and chatting about the rise of Muslim fundamentalism in Southeast Asia. Browne speaks in a monotone, and he has the dour countenance of a man who watches money very carefully. He is managing director of Tweedy Browne, a Park Avenue investment firm that oversees $8.5 billion in assets. In 1999 it became Hollinger's second-largest institutional investor, eventually accumulating 14.7% of the company's stock. Yes, Browne was aware of the Black factor. But he thought the stock was undervalued, particularly when the company's newspapers were such solid cash generators. He also trusted that Hollinger's illustrious directors would keep their eyes on the CEO. "It wasn't as if these board members were local car dealers and dentists," Browne says.

Then came the crash of 2001. Newspaper advertising dried up, particularly after Sept. 11, battering Hollinger's remaining papers. The operating income of its Chicago-area papers, including the flagship Sun-Times, fell from $36 million to $10 million. The Telegraph and its sister publications saw theirs drop from $89 million to $31 million. The division led by the Jerusalem Post lost $3 million. This abrupt decline in income wrought havoc on Black's attempts to reduce debt. He was able to pay down $1 billion in loans with cash from the CanWest sale. But at the end of the year, Hollinger's debt ratio had climbed from five to more than ten times Ebita. Its share price tumbled from about $16 to $9 in 2001.

Browne wrote the board asking how they could justify the Ravelston management fee at such a time. None of the directors except Black responded. Black followed up with a visit to Tweedy Browne. The Hollinger CEO couldn't have been more charming. He promised to reduce the management fee and gave the firm a free subscription to the Sunday Telegraph.

Meanwhile KPMG pressed Hollinger for even more disclosure. In this year's proxy, for instance, the company said it was paying $248,580 to cover part of "the cost of maintaining [Black's] New York condominium, an allocation for the portion of the cost of a New York and a London automobile and driver, a portion of the cost of his personal house staffs ... and an allocation of variable costs covering any occasion where his use of the corporate airplane is not entirely for corporate purposes." Earlier this year, Hollinger revealed it paid $8 million for Roosevelt memorabilia, including the letters on the CEO's walls. Black says that the papers were a good investment for Hollinger and had no connection with his Roosevelt book. "I wouldn't have thought that needed any disclosure," he sighs.

There was another intriguing disclosure at a holding company controlled by Black in Toronto. The company is the last vestige of Argus's old Hollinger Mines. Today it is little more than a shell company that holds Black's Hollinger stock. In March the holding company revealed that it was counting on Ravelston Management Inc., a wholly owned Ravelston subsidiary that collects the Hollinger management fee, to cover $14 million a year in interest payments on a $120 million refinancing of debt incurred to buy out minority interests. The document went so far as to say that Ravelston Management "derives all of its cash flow from the management services fees paid by" Hollinger.

For Tweedy Browne this raised serious questions. "Why are we paying the interest for another company's debt?" asks Laura Jereski, a Tweedy Browne analyst. "Did the board have any idea this is what the fee was being used for when they approved it? Did Conrad bother to tell them?" Black responds that it's nobody's business what Ravelston does with the money after it is received.

Tweedy Browne had had enough. On the eve of the annual meeting in May, the firm wrote the directors accusing Black and his deputies of usurping money that belonged to Hollinger when they accepted the CanWest noncompete payments. It demanded that the directors investigate, and warned that if they didn't they could be sued. None of the independent directors had attended the Hollinger annual meeting the previous year. Every one but Kissinger showed up for this year's meeting.

The directors sat uncomfortably as Black scolded his shareholder critics. "Their whole attitude was, 'Whatever you say, Conrad, just don't embarrass us,' " says a source close to the company. "They believed him when he told them there was nothing to worry about. Now here they were about to be sued."

"Governor Thompson," Christopher Browne inquired at the meeting, "as chairman of the audit committee, what comparables can you cite to justify the [CanWest] payments? What factors did you consider in arriving at the fairness of the amounts paid?" Thompson rose. He was dressed in a fine dark suit. He clenched his fists and swayed as he spoke. And he gave an elaborate politician's response, deftly blending condescension with evasion. However, he said, the matter would be thoroughly investigated. The other audit committee members--ambassador Burt and Mrs. Kravis--sat there silently. They didn't look happy. Neither did Black.

The directors have since announced that they would not limit the investigation to the CanWest payments. The special committee will look at the Ravelston fees and a deal in which Hollinger helped finance the $38 million sale of some of its smaller U.S. newspapers to Bradford Publishing, a company in which Black and Radler are shareholders. The board empowered the committee to sue any Hollinger "director, officer, or employee" if it found that they had "improperly acted."

"This should banish anybody's suspicion that the directors are a bunch of trained seals, doing whatever I asked them," Black says. "My impression is they feel it's a matter of setting the record straight and clearing up a public-relations concern."

It doesn't seem likely, however, that Black will emerge unscathed. Tweedy Browne attorney Robert Curry says the firm will probably go to court if the board doesn't demand that Black and his deputies reimburse Hollinger for the noncompetition payments from CanWest.

Black has a more immediate problem. Hollinger's fee arrangement with Ravelston Management expires on Dec. 31. Black says he is confident that he can negotiate a deal whereby he and his lieutenants collect the same amounts they did before in management fees, but in the form of salaries paid directly by Hollinger. That way, he says, he'll still have enough money to cover his holding company's interest. But given the controversy over his compensation, the board may be inclined to cut Black's salary.

Black declares that any suggestion that he is on the brink of disaster is a "canard." The CEO says he could reach into his own pocket anytime and bail out the holding company. Why doesn't Black do that and put this matter to rest? He insists he can get a better deal for himself by recruiting new investors. So far, though, he hasn't had any luck. He has talked to private equity buyout firms like Blackstone and Bain Capital, but nobody has written him a check. Jan Loeb, an analyst at Jefferies & Co., predicts that Black will be "out by the end of the year."

Soon Black will be off to promote his F.D.R. book in Boston, Chicago, Los Angeles, New York, Toronto, and Washington, D.C. Maybe Franklin Delano Roosevelt: Champion of Freedom will indeed take off like a rocket. If so, it might provide the CEO of Hollinger with a graceful exit strategy.

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