This day will go down in the history books as more than just the day that Bear Stearns blew up. It's also the day that Arthur Sulzberger, chairman of the New York Times Co., conceded.

The embattled media company announced it has reached a deal with a group of activist investors fighting for four seats on the New York Times' board. Sulzberger agreed to expand the board by two seats to make room for two of the investors' nominees. In exchange, the investors agreed to a cease-fire in its proxy battle.

Scott Galloway and James Kohlberg will be nominated by the board for voting during the shareholder meeting on April 22. Galloway, a business school professor and partner in the fund Firebrand Partners, spearheaded this proxy effort along with the hedge fund Harbinger Partners. Kohlberg, founder of the private equity firm Kohlberg & Co., was one of the four fund nominees.

The board will expand from 13 to 15 members, and public shareholders will be allowed to vote on five of them. The other nominees up for election will be Robert Denham, Thomas Middelhoff, and Doreen Toben.

Sulzberger's concession is significant if only because it so rarely happens. Last year, he vigorously fought back (and won) when other activist shareholders waged a proxy battle. He has remained stubbornly resistant to change, even while the share price of the New York Times has been steadily declining.

Harbinger and Galloway chose a more civilized approach to getting inside the boardroom—a tact that seems to have worked, at least in part. The funds built up a 19 percent stake in the company during the past several months, and they made no demands for changing the company's shareholder class structure, which gives the Sulzberger family more control than common shareholders. (For more on how the board votes work, see here.)

A person close to the hedge funds said today that they "feel great about" gaining access to the board. They decided that agreeing to two seats on an expanded board was more constructive than trying to remove people from the board altogether.

The investors wanted the New York Times to divest units that are outside of its core business and maximize its investments into digital media. It's worth noting that the two nominees that Sulzberger chose not to nominate each had extensive experience in internet businesses: Gregory Shove, a former AOL executive, and Allen Morgan, a longtime Silicon Valley venture capitalist.

It's unclear what this turn of events will mean for Harbinger's 19 percent stake in the company in the near term.

New York Times shareholders seemed unfazed by the first victory by an activist fund on their behalf. Its shares rose only slightly.

Perhaps they are preoccupied by an otherwise skittish day on the market. Or perhaps they believe that two outside voices in an increasingly crowded room of insiders will not have the impact they had hoped.
 
Portfolio.com's full coverage of the troubled Times.