Attention, Dow Jones: Ms. Goth Wants Results Now! Her rebellion has spurred the company into action. Now it's showtime.
By Joseph Nocera Reporter Associate Maria Atanasov

(FORTUNE Magazine) – For all the commotion she has caused at Dow Jones in the past year and a half, Elisabeth Goth has been an exceedingly discreet crusader. A champion equestrienne--as well as a fifth-generation heiress of the Bancroft family, which controls the troubled publishing giant--Goth has continued to live and train in the horse country north of San Diego, a continent away from Dow Jones' Manhattan headquarters, steadfastly if quietly pressing for management reforms to stanch the company's bleeding wounds.

Even now, discussing Dow Jones' fortunes while picking at breakfast on a rainy morning in a San Diego restaurant, the elegant 34-year-old is visibly nervous. (Except for a brief and unilluminating appearance on the CBS show Sunday Morning, she has never spoken with a reporter.) "My vision for Dow Jones," she says haltingly, "does not include a stagnant stock price with investments that provide little or no value to the shareholders." She adds, "I'm happy with what we've accomplished so far. But the job isn't finished yet."

It was a year ago that FORTUNE published a story about the efforts of Goth and one cousin, 41-year-old William C. Cox III, to change the way Dow Jones does business. They and other Bancroft family members own 80% of the company's Class B supervoting stock, as well as 35% of the common, through a series of byzantine and unbreakable trusts--an arrangement that has over the years contributed to an extraordinarily cozy relationship between the family and the company's management. Goth and Cox were the first Bancrofts in many generations to attempt--as Warren Buffett advised them--to "act like owners." Their goal was to have Dow Jones, publisher of the venerable Wall Street Journal, run less like a "quasi-public trust" (in the words of an old proxy statement) and more like a modern corporation, with an emphasis on creating shareholder value, something Dow Jones has failed at miserably even in the midst of the greatest bull market in history. They also wanted to awaken their own family to the serious problems facing their most important asset.

Without question the cousins' crusade has had an effect on the company. A few months after the FORTUNE story was published, Dow Jones named three new board members--William Steere Jr., Frank Newman, and Harvey Golub, the CEOs, respectively, of Pfizer, Bankers Trust, and American Express--exactly the kind of tough-minded, independent directors Dow Jones has long lacked. A family member of their own generation, 44-year-old Leslie Hill, an American Airlines pilot with an MBA from George Washington University, was also made a director; she too has played a more forceful role than Bancrofts have traditionally played on the Dow Jones board. The stock, which had been stuck in the low 30s seemingly forever, is up some $20 a share. And in recent months the company finally decided to give up on its much-heralded $650 million plan to revive its disastrous Dow Jones Markets unit (formerly called Telerate) and to sell it instead. It is unlikely that any of this would have happened without Lizzie and Billy's crusade.

But the story also created a furor within the Bancroft family. While some members of Lizzie and Billy's generation have been grateful for their efforts, the older generation was infuriated that this "family business" was aired in public (never mind that the rest of the company's shares are in public hands). Just last month at a family meeting in Boston to discuss Dow Jones, the two cousins were sternly told not to talk to the press--and warned there would be consequences if they did.

So why is Lizzie Goth speaking out now? Her quest to transform the company has arrived at a critical moment. For one thing, this year Dow Jones will have as many as six directors' seats up for grabs, which offers a tremendous opportunity to further change the makeup of the 15-member board. Furthermore, Dow Jones has just received initial bids for its hemorrhaging Markets unit. Goth's greatest fear is that the company is succeeding in selling her relatives on the idea that once Dow Jones Markets is unloaded, everything will be all right and that nothing more needs to be done. She firmly believes that the problems at Dow Jones are more systemic and more deeply rooted than one troubled unit. "There is a history with this company," she says. "We have had questionable outcome after questionable outcome in various business deals."

Billy Cox puts it more bluntly. Finishing the job, he declares, will require nothing less than a change of management. "[CEO] Peter Kann and [President] Ken Burenga have to go," he says flatly. "That's the only way this company is going to turn itself around."

By the time you read this, Dow Jones' year-end earnings will be public; they were to be released on Feb. 9, the Monday after fortune went to press with this issue. Whatever the exact figures turn out to be, they are likely to be ugly. It's ironic, because the Wall Street Journal is going like gangbusters: With the cost of newsprint down, the market up, and the advertising climate blistering, the paper has had the strongest year in its 109-year history. But the Journal's continued strength--both as a business and as a newspaper--has been overshadowed to such a degree that Dow Jones' reputation now seems to be more closely linked to the Markets debacle than to the flagship publication. In fortune's annual survey of most admired companies, Dow Jones fell to eighth place in its industry category this year, after ranking first in each of the previous three years (see Cover Stories).

At a recent Paine Webber media conference, Kann told securities analysts that he expected Dow Jones to report earnings, before any "special items," of between $1.26 and $1.32 per share for 1997--down from $1.96 a share in 1996. The company also plans to bundle several special charges into its 1997 earnings, of which the most eye-popping, by far, will be a write-off of Dow Jones Markets. Having bought the company for $1.6 billion back in the late 1980s, Dow Jones currently carries it on its books for $1.4 billion. But given the rapid deterioration of its business, its true value is far less than that, and the write-off--which may still reflect an optimistic valuation--is likely to be somewhere between $700 million and $1 billion. "It will be the mother of all write-offs," says Peter Appert, an analyst with BT Alex. Brown.

Although Dow Jones still refuses to acknowledge even that Dow Jones Markets is up for sale, it is widely known that such is the case. Since late January, say sources close to the process, Dow Jones has been accepting "indications of interest" (as they say in the M&A business) from potential acquirers. Among those putting in initial bids are Bridge Information Systems, which is said to have bid in a range of $500 million to $550 million; Cantor Fitzgerald, at between $350 million and $450 million; Thompson Financial Services, at $300 million to $350 million; and Primark, at $200 million to $250 million. Reuters and Bloomberg, the two major players in the financial information services arena in which Dow Jones Markets competes, decided not to bid at all. The final bids are reportedly due at the end of the February.

And while it's always possible that the final sale price will be higher--Dow Jones could pull a rabbit out of a hat--the likelihood is that it will be lower. As one Dow Jones insider says, "Indications of interest are always overstated." As bidders get to the next step, conducting the due diligence review of the potential acquisition, problems and questions can arise that lead to more realistic--i.e., lower--numbers. Though the two most serious bidders, Cantor Fitzgerald and Bridge, both have good reason for wanting to acquire Dow Jones Markets--Cantor because it wants to protect the valuable real-time Treasury bond data it supplies on a proprietary basis to Dow Jones, and Bridge because Dow Jones' emphasis on bond data serves as a nice counterpoint to Bridge's equity data--neither is likely to get carried away. The unit simply has too many problems. Although Dow Jones once hoped to be able to get between $700 million and $800 million in a sale, securities analysts say it is now quite possible that the final price could be as low as $350 million. That, in turn, would mean that the company's short-lived foray into the world of financial information services will have poured, as Billy puts it, "more than a billion dollars of the shareholders' money right down the drain."

So what has been going on at Dow Jones Markets in the year since the rescue plan was announced? FORTUNE spoke to a half-dozen present and former Markets executives; the picture that emerges is one of an expensive effort, conceived in haste, and executed with less than perfect focus. And while Dow Jones takes issue with some of the description that follows, there is no disputing this: They spent a lot of money--somewhere between $170 million and $200 million--and they didn't solve any big problems.

Recall, for a moment, the situation at this time last year. Realizing the company's financial data unit was in serious trouble, Kann and Burenga decided to take it away from Carl Valenti, the friendly but relatively powerless man who had been running it, and put Burenga himself in charge. Burenga, a 32-year veteran of Dow Jones, worked his way up on the circulation side, rising to chief financial officer in 1986 and company president five years later.

By January of last year, Burenga had unveiled the $650 million plan to revive the unit. There was a lot that needed reviving. The Dow Jones Markets technology was in the stone age compared with its main competitors, Reuters and Bloomberg. It lacked sophisticated data like historical pricing information and what's called "analytics"--software that helps trigger buy and sell decisions. And the unit had a terrible reputation for customer service. According to Inside Market Data, a newsletter that covers the electronic financial-data industry, Burenga changed the name from Telerate to Dow Jones Markets after research revealed that "the [Telerate] appellation is synonymous with 'bad service' in the minds of users."

The rescue plan was approved by the old, lame-duck Dow Jones board, much to the distress of Lizzie Goth, who felt that the incoming directors should have a say in a $650 million decision. She and Billy both expressed serious reservations about the plan itself. As it turns out, they were prescient.

Internally, the turnaround effort was labeled Rolling Thunder, but it wasn't long before people at the company began calling it Rolling Blunder. The $650 million figure, say several former Dow Jones Markets executives, was pulled out of thin air. Rolling Thunder had no detailed budget, no sense of how much would be spent on which new products or to what end. Yet even if the money had been used wisely, it might not have done the job. In the early 1990s, Reuters invested more than $1 billion upgrading its systems, and it continues to spend hundreds of millions each year on new technology. So does Bloomberg.

Burenga set up a series of "quick-strike teams." One team was supposed to design new products. Another was to figure out a way to let Dow Jones customers use a personal computer instead of a proprietary Dow Jones box. A third team was to make the proprietary boxes easier to use, with better features. And so on.

Yet coordination among the groups, or even a sense of priorities, was lacking. Should the plan aim to bring new products to the proprietary boxes? Or should the chief goal be to adapt Dow Jones data for the Web? According to several former executives, that fundamental decision--what should the basic infrastructure be?--was never made. There was a steering committee, but it felt rudderless: "It was 80% debating and 20% doing something," says someone who was there. Adds another former Dow Jones executive: "I thought at first that Burenga might be able to pull this off. I thought he would come in here and set goals. But it never happened."

What evolved instead was an organization that was going in 20 different directions at once--and spending money like it was going out of style. "It was schizophrenic," says one source. "Total confusion," says another. Products would be announced and then not delivered. Burenga put himself in a series of ads that ran in the trade press and in the Wall Street Journal, promising far more than Dow Jones Markets could deliver in the near term. Dow Jones Markets began buying up companies that had technology it lacked, and though in some cases the deals turned out all right, in other cases they were disastrous.

An example of the latter came in September, when Dow Jones paid $25 million for the exclusive rights to an analytics product called the Beast. Although even the executives who were negotiating the deal for Dow Jones knew they were overpaying, it still looked like a coup for Burenga; as Inside Market Data put it, the Beast gave the company "the Holy Grail it has been seeking for many years: an analytic capability that would allow it to compete with Bloomberg."

But it hasn't worked out that way. Because the Beast was originally designed to work with a competitor's data, it has proved extremely difficult to adapt to Dow Jones Markets' data. And it also turns out that much of the data supplied by Markets is simply not sophisticated enough to adapt to an analytic tool. Thus, while the Beast is still listed among the product offerings, very few customers of Dow Jones Markets are interested in it--it's just not worth the trouble. "Using the Beast," says one source, "is like buying a car by getting all the parts and putting it together yourself." The $25 million has been largely wasted.

Meanwhile the Dow Jones board was running out of patience. While none of the new outside directors would speak to FORTUNE about the situation at Dow Jones, they were reportedly the ones asking increasingly tough questions of Burenga--and were said to be increasingly dissatisfied with his answers. At one board meeting last fall, Burenga was expected to announce the rollout strategy, the marketing plan, and the pricing strategy for a critical new product. Instead he showed up empty-handed. The board was furious. Although Dow Jones insists that Kann and Burenga were the ones who decided to pull the plug on Rolling Thunder--and that they presented the idea to the board--it was clearly a preemptive move. The handwriting was on the wall.

In November, Dow Jones announced that Rolling Thunder was being abandoned, that between 200 and 300 people would be laid off, and that the company would be "exploring its options" as to what to do with the unit. As confidential documents began circulating among potential buyers of Markets, it became clear just how bad things were: Dow Jones Markets expected to lose $70 million in 1997, a far cry from its 1995 record operating income of $165 million.

And what were Lizzie and Billy doing while all of this was going on? They were continuing to act like owners. Lizzie spoke up at family meetings, always trying to put a "constructive" spin on things. She sent her relatives reading material she thought would be helpful--published comments by Buffett about families that own companies, a booklet on corporate governance, a book on family wealth. She sent clippings about the performance of Dow Jones. During a visit to London she spent time visiting the Dow Jones offices there. She also worked hard to keep lines of communication open to Roy Hammer, the Boston lawyer whose firm serves as the chief trustee for the Bancroft family trusts.

Two things she did not do. She did not talk to the press, even when she learned that a writer for Vanity Fair was trying to dig up dirt on her. She kept quiet because she felt that given her family's deep antipathy about seeing their names in the paper, it was more constructive to work from within. And second, she did not openly criticize Dow Jones management. Partly this is because she still feels somewhat insecure about her knowledge of business. But it was more because she felt strongly that it was the job of the board to monitor management--and to make changes if they felt changes were necessary.

Another factor in Lizzie's decision to speak out now is her feeling that Kann and Burenga haven't been playing it straight with her or the rest of the Bancroft family. The feeling crystallized last May. In Pennsylvania to compete in a horse show, she was visited by executives of the venture capital firm Welsh Carson Anderson & Stowe, which is the majority shareholder in Bridge Information Systems. They told her that they were interested in buying Dow Jones Markets--"and this was when Markets was still worth something," says one of Lizzie's advisers--but that they were being stiff-armed by Kann and Burenga. They couldn't even get an appointment. They wanted to know if she could help. (Dow Jones spokesman Richard Tofel replies: "There is no truth to that at all.")

Lizzie was stunned. She also felt misled. Repeatedly the family had been told that the company was exploring all options for Dow Jones Markets. Indeed, for that reason management had asked the family not to pin them down on a precise plan of action. Now she discovered that management was not, in fact, pursuing "all options," not when the option meant selling the unit to a very credible buyer. She quickly called Hammer to relay this news. That was the last she heard of it. (Hammer wouldn't be interviewed for this article.)

Billy, for his part, was waging a far more public battle with the company and seemed more willing to incur the family's wrath. Having been stripped of his job at the company as managing director of Dow Jones Global Indexes--in retaliation, he believes, for his willingness to cooperate with the original FORTUNE story--he left Dow Jones in February 1997. But through his many contacts he continued to monitor the situation closely. Far more than anyone else in the family, he knew precisely how bad the situation was at Dow Jones Markets--and he seemed to know every other skeleton in the Dow Jones closet. He, like Lizzie, sent off regular missives to other family members, but his were far more pointed. He gathered reams of data to dispute management's claims.

And much to the annoyance of his relatives--including his father, William Cox Jr., who sits on the Dow Jones board--he has continued to criticize the company in the press. He has consistently cooperated with reporters from publications as varied as the New York Post and Inside Markets Data. For that reason many family members still view him as a loose cannon--a flake, even. But Billy defends his use of the press as his only real way to effect change. "There is no mechanism within the family to discuss openly the business issues surrounding Dow Jones," he says. "I didn't see any other alternative." And while he does do some flaky things sometimes--his Christmas card last year was a disjointed lament about his "divorce" from "my ... mistress: Dow Jones"--he has gained a good deal of respect from a number of Dow Jones executives working in the trenches. "I'm a victim of what he's done," says one of the Dow Jones Markets officials who was recently laid off. "But Billy has been absolutely right to do what he did."

What comes next? Once Dow Jones Markets is sold, perhaps within the next month, it is possible that nothing else will happen. Certainly that is how Dow Jones is trying to portray the immediate future. "Except for Markets," says spokesman Tofel, "every other part of the company has had its best year ever." He scoffed at the notion that Kann or Burenga would be ousted once the size of the Markets write-off was made public.

Yet for Lizzie and Billy, this is the nightmare scenario, since it means that the same management team that presided over the Markets fiasco would continue to run the company. The notion "frightens me," says Lizzie. Hence their desire to put pressure on the family and the board.

There are, to be sure, other possible scenarios. For months rumors have been sweeping the company that Burenga would wind up taking the fall for the Markets debacle, while Kann would get to keep his job. This, however, seems somewhat unlikely. To be sure, Burenga appears to have lost the confidence of the board. His main problem, says someone who has been in contact with a number of Dow Jones board members, is that he was never able to adapt to the more tough-minded style of the new outside directors. His blustery manner, which had worked well in the old days, didn't work anymore. If Kann were to decide to jettison Burenga, in all likelihood the board would raise no objections. But Kann is said to be extremely loyal to Burenga and has no intention of abandoning him. (Both Kann and Burenga declined fortune's request for interviews.)

As for Kann himself, he is said to believe he can weather this storm. Reportedly he has been polling board members of late, attempting to ascertain their level of support for him. He has talked to people about how well the stock did last year--even though most analysts agree that the stock's rise has less to do with anything Kann has done than with the fact that activist investor Michael Price has bought up 6% of the stock (George Soros owns almost 3%) anticipating big changes at Dow Jones. Kann has told one person that he thinks he'll have at least a year after the Markets sale to show the board that he's turned the company around.

It is difficult to gauge Kann's prospects at this point. One Dow Jones executive says he thinks that Kann will inevitably be forced out. "Forget about the family," says this man. "Do you really think that Golub, Steere, and Newman want to be known as being on a board that presided over a $1 billion write-off and let the CEO off the hook?" But the family--which is, after all, the controlling shareholder--has an enormous reservoir of affection for Kann. So does Lizzie, for that matter: "He'd be a great uncle, father, friend," she says. But it bothers her, as she puts it, "that my family has let its affection for Peter take precedence over the need to hold his feet to the fire."

One person who could influence the family but has chosen not to is Roy Hammer, the lead trustee. In the New York Times last December he made a comment about management that was, by his discreet standards, positively damning. "If I said everything was perfect, I would seem a fool," he said. "If I said that they had done a miserable job, I don't think that it is conducive to a good working relationship." Yet when the trustees meet with the family, Hammer never expresses an opinion about management's performance. Asked if such critical subjects as whether Kann and Burenga should stay or go are broached at these meetings, Goth replies: "Never."

Goth says, "There are several weak links in this chain. The family has never demanded that the trustees do their job. The trustees up until now haven't pushed management to perform. And management hasn't performed."

The one scenario that is not likely, at least right now, is a sale of the entire company. The family still retains the voting power to block any possible sale, and the dissident cousins have no problem with that. Lizzie insists that she doesn't want to see Dow Jones sold. "I love this asset," she says. "I'd much rather have this as my major asset than a bunch of companies I don't care about or know anything about. I just want to see it better taken care of."

Indeed the only participant actively talking about a possible sale is Michael Price, whose somewhat fanciful plan for a combination of the company with the Washington Post Co. was outlined in fortune last November. But then why wouldn't he be talking up a sale? With his 6% stake, he's got a paper profit of some $60 million--but if he were to start selling that stake, the stock would almost surely plummet. A sale is the surest, quickest way for him to lock in his profit. "I think the Washington Post is still very interested in buying Dow Jones," he told FORTUNE recently. For the record, Washington Post officials decline to comment; privately they say that the possibility of buying Dow Jones has never been seriously discussed.

Just as she did last year, Lizzie Goth is focusing her efforts on changing the makeup of the board rather than changing the makeup of management. With five seats up for reelection (and a sixth seat open because one board member, retired Mobil executive James Q. Riordan, has reached the mandatory retirement age for Dow Jones directors), the opportunity for radical change obviously exists. But this time around the company seems far less willing to strengthen the board. Lizzie has been told--she won't say by whom--that the company is opposed to making more changes on the board. It would be "too disruptive," she was told. A Dow Jones source also says that it is unlikely that there will be any major changes in the makeup of the board this coming year. As FORTUNE went to press, Lizzie was drafting a letter urging the nominating committee to come up with some strong new candidates.

She has some people in mind--and has even approached a few possible board members--but typically she won't name names. Just as typically, Billy has no such reluctance. "I think Rand Araskog [of ITT], Vernon Jordan, and Ken Burenga should leave the board," he says. "And I'd like to see Larry Bossidy of AlliedSignal and Bernie Marcus of Home Depot on the board."

To Billy the situation at Dow Jones is analogous to the recent shakeup at Quaker Oats. In 1994, under then-chairman William Smithburg, the company bought Snapple for an eye-popping $1.7 billion. It was a disastrous purchase, and three years later Snapple was sold for $300 million--causing Quaker Oats to realize a $1.4 billion pretax loss. A few months later Smithburg was forced to leave the company: The disaster had happened on his watch, and he took the hit. Billy thinks Kann should be held responsible for Dow Jones Markets, just as Smithburg was for Snapple. Simple as that.

But family matters are never simple. Only a year ago Bancroft family members and Dow Jones management dismissed Lizzie Goth's dissident faction as an insignificant nuisance. Now much of what the dissidents sought has come to pass--and much more is still to be done. Events in the weeks and months to come will show which it is to be: a business that means family or a family that means business.