I was a Reader’s Digest writer for 48 years. Except for DeWitt and Lila Wallace, the founders, my name was on the magazine’s masthead longer than anyone in its history. But when the Digest went into Chapter 11 bankruptcy last summer, the supplemental pension I had been granted “in recognition of your editorial contribution and dedication” was summarily discontinued. Some 300 others, including writers, editors, ad salesmen and widows were similarly stripped of a retirement bedrock.
The retirees organized in a last ditch effort to save what, for many, were an essential part of their retirement fund, citing hardship and charging unfair treatment compared with the millions paid to other creditors and in payments and bonuses to company executives. Reader’s Digest Association had offered to pay 3.5 cents for every dollar owed them, and to set up a $1 million fund for “hardship cases.” Despite a determined effort by retirees, the company won bankruptcy court approval of its reorganization plan to cut its debt by 75 percent, in part by shedding pensions. In his January ruling, U.S. Bankruptcy Judge Robert Drain held that what is “fair” in the colloquial sense of the word is different from what is “fair” in the legal sense.
In this fragile economy, others in our profession will continue to be hard hit. The difference here is that Reader’s Digest has been hurt less by bad business than by a business strategy gone off the rails. In 2006, when Ripplewood Holdings, a private equity firm, took over the Digest, they put up in cold cash only a fraction of the buying price. The rest, $2.2 billion in debt, they loaded onto the company’s back. This is a well-trod path to riches for the top ranks, yielding swollen bonuses, salaries, management fees. Court records show that $23 million was distributed to top executives just before the Chapter 11 filing. But as can also happen, the huge debt will drive a company into the ground.
It left the Reader’s Digest’s balance sheet in shambles.
Digest retirees, many now in their 80s, have banded together to make their plight known; some have told their stories in the press. All are full of fear for a future suddenly darkened by the loss of between 30 and 80% of income which they had been promised would be theirs for life. What we are currrently offered is less than four cents on the dollar, in my case, $44 a month in place of $1259. How, then, can it pay its current executives multi-million dollar salaries (Mary Berner, the Digest’s CEO, earns $125,000 a month in base salary alone, plus handsome bonuses).
I spent most of my Digest time, 37 years, overseas as a European correspondent. It was fun while it lasted, but far from the expatriate life of luxury. Until this year, my wife and I drove a 1994 Volvo; we’d be driving it still if I’d known in June that I was going to lose a critical part of my pension in August. Since retirement, we have lived solely on the pension and Social Security benefits. The decline of the dollar has made things difficult for us and our savings are meager. But I am 86 years old, too late for us to start a new life in America.
I know that others on whom this hurt has fallen have sorrier stories. But what everyone of us who helped make Reader’s Digest a byword around the world now share is the hit-in-the heart realization that we are being asked to pay for the damage done to our company by the very people who brought it to ruin.
The Wallaces were open, generous, almost as much friends as employers. When I first became a “regular,” Wally asked me to drive down for a chat and we sat in his corner office, $3 or $4 multi-million dollar paintings on the walls and he asked me about myself and my family and pretty soon the morning had sped by and he asked me if I was free for lunch. There was never a question then of what it might cost to go to Baffin Island in northernmost Canada to write a story about the Eskimo artists there or to hire interpreters to see me through the Soviet Union in preparation for interviews for a story on Brezhnev. Those were the days.
Lawrence Elliott is an OPC member and lives in Luxembourg.